CORPORATIONS: The Problems of Westinghouse

Said a top Chicago retailer: “The trouble with Westinghouse is that it isn’t anywhere near aggressive enough. It’s not on the ball.” Last week there were plenty of signs that Westinghouse, the 13th-biggest U.S. corporation, was not on the ball. In a year when most big corporations were reporting record earnings, Westinghouse sales were down 7% in the first six months and profits down a big 35% (Chief competitor General Electric had 5% sales rise in the first six months and a 9% profit increase.) For the third quarter, Westinghouse profits were estimated at 85¢ to 90¢ a share, compared to $1.04 last year, while the company’s profits for the full year are expected to be well under $4 a share—the lowest since 1948 and a sharp drop from last years $5.06. As a result, the price of Westinghouse stock has dropped steadily from a bull-market high of 83 to the year’s low of 55⅜.

Next week Westinghouse faces more trouble. A House Military Operations subcommittee opens public hearings into the costly fiasco of the Navy’s Demon fighters, which were powered by Westinghouse engines. Five of these swept-wing fighters made by St. Louis’ McDonnell Aircraft Corp., have crashed; 21 others are lined up at St. Louis’ Municipal Airport and will never fly; they will be used instead for research and mechanics’ training. The remaining 29 that were made will require new jet engines, to be supplied by General Motors’ Allison division, before they can be put into service. The Navy indicated that the failure of the building program was chiefly due to the fact that the Westinghouse engines were subject to breakdowns” and their “power was insufficient.”

Engine Flop. Westinghouse denied that engine failure was responsible for any of he crashes. But it did admit that it had failed to supply the Navy with the kind of engine the Navy expected. Back in 1948, the Navy gave Westinghouse a contract to perfect a more powerful model of the J40 jet engine, which Westinghouse was then developing. The improved model was to go into the Demon fighters. But Westinghouse ran into a multitude of troubles. It lacked the engineers and experimental facilities to develop the engine which proved full of bugs, e.g., excessive fuel consumption. As a stopgap, when the Navy was desperately in need of jet fighters for the Korean war, the J40 was installed in the Demon fighters. But finally, when development of the new model fell behind schedule, the Navy canceled the contract.

The Westinghouse engine flop crippled more than the Demon program. Five other Navy planes, which had been designed to take Westinghouse engines, were canceled, redesigned or delayed. Resulting loss to the Government: upwards of $100 million. The flop cost Westinghouse all its Government jet contracts, millions in potential profits and a big chunk of prestige.

Behind the Competition? Westinghouse has other difficulties, notably in appliances and heavy industrial equipment, the two divisions which traditionally account for over three-fourths of the company sales.

Appliance dealers complain that Westinghouse is not keeping pace with the competition. In a high-income highly competitive market, appliances have become increasingly faddist and highly styled, and the company that hesitates to change is lost. Many dealers feel that Westinghouse has moved too slowly. For example, most of Westinghouse’s competitors brought out a “hot leader,” a $199 refrigerator. By the time Westinghouse finally got around to a $199 refrigerator of its own, dealers said that it was too late. The field was flooded.

Dealers also complain that Westinghouse TV sets are selling poorly because their styling is “a little backward, sort of corny.” There is grumbling because so much of the Westinghouse advertising budget is spent on national advertising and on TV, so little for the local tie-in campaigns that nail down sales. Some of the ill feeling even brushes off on topnotch TV Saleswoman Betty Furness. Snapped a Seattle dealer: “She condescends to women, talks down to them. Maybe her kind of chitter-chatter goes good on Park Avenue but not in Seattle, Washington.”

Rival Unions. Westinghouse has also been losing out on sales of heavy industrial equipment, occasionally failing to meet its delivery schedules. Its power-plant department, said a public-utility man, needs to revise its basic designs (“they lack venturesomeness”).

Then there are labor troubles. In the first nine months of this year while industry as a whole enjoyed unusual labor peace, Westinghouse had 94 work stoppages costing 5,000,000 production man hours. Sometimes they were not Westinghouse’s fault: Westinghouse was the battleground for two rival unions competing for its employees. But Westinghouse pulled some boners. Last August, on the eve of wage negotiations, Westinghouse got into a dispute over a time study at the huge East Pittsburgh plant and the men walked out. Twenty-eight other plants went out in sympathy but went back when it was agreed to negotiate the dispute along with the other issues However, this week negotiations bogged down and 46,000 CIO-IUE workers walked out.

Too Much Cash? Wall Street’s financial experts criticize the tendency of Westinghouse President Gwilym A. Price a onetime banker, to hang onto the company cash instead of putting it to work to earn more cash. Westinghouse has a larger cash reserve ($344 million) than G.E ($307 million), which does twice as much business. While loaded with cash, Westinghouse has been borrowing for expansion, now has a debt of $325 million, G.E. has none.

For all of this, there are many bright spots. Westinghouse is moving fast in the growing field of industrial atomics. It turned out the atomic-propulsion unit for the submarine Nautilus and is building reactors for an aircraft carrier and for fleet-type submarines. Westinghouse is also constructing the reactor and parts for Shippingport, the first U.S. central atomic-power station.

Top company management is now alive to its problems. Price and Mark Cresap, his executive vice president and heir apparent, are vigorously counterattacking. To recapture falling sales, the company is hiring topnotch salesmen, boosting its sales organization by 20%. Promised Price: “We’re definitely going to step up our merchandising activities at the local level and we’ll spend whatever is necessary.” In an attempt to get back into the jet field, it has spent $20 million on jet-engine facilities and is testing a new medium-power jet engine, hopes to get Navy orders for it.

The company hired Assistant Chief Engineer Donald Burnham away from Oldsmobile and put him in charge of cutting costs. It is setting up a wholly new laboratory, staffing it with 40 engineers and technicians who will devote full time to shaving costs. Said Cresap: “Each division manager has been given a profit bogey to meet, along with a free hand to cut costs and expenses wherever necessary to produce that profit. The requirement is strongly upon us to get our expense house in order.”