Hard Times at Harvester

A long strike derails Archie McCardell’s bold plans

Archie McCardell, 54, came to International Harvester in 1977 with the express aim of saving the company. The new chairman of the truck and farm-and construction-equipment giant (1980 sales: $6.3 billion) was recruited from his job as president of Xerox to modernize and expand the firm, which up to then had been mainly family-run. After an initial success, however, McCardell and the company both met with trouble. International Harvester in its 1980 fiscal year lost $397 million and in the first quarter of 1981 another $96.4 million. It has also omitted its stock dividend for the first time in 71 years. No company outside the auto industry lost more money during that period.

Desperately short of cash, International Harvester in March of 1981 defaulted on its short-term loans and begged its 225 creditor banks for an extra three years to restructure a debt of close to $5 billion. Last week the majority of the banks reluctantly agreed to the refinancing. The company also raised some cash by selling its Solar Turbines division to Caterpillar for $505 million.

The famine at International Harvester has come after years of plenty. Founded in 1831 by Cyrus McCormick, the inventor of the first mechanical reaper, the company was directed primarily by the McCormick family until 1977. But Chairman Brooks McCormick, Cyrus’ great-grandnephew, then admitted that the firm had become “stodgy.” Said McCormick two months before his retirement as chief executive officer: “We’ve been a slumbering giant. We need a shake-up and a darned good one!”

McCardell, an M.B.A. from the University of Michigan and a veteran of Ford Motor Co. as well as Xerox, was brought in to give International Harvester that shakeup. The firm agreed to pay him a salary of $460,000, a $1.5 million signing bonus and a $1.8 million loan at 6% interest. The loan was to be used to buy Harvester stock, and the company promised to turn it into a gift if McCardell increased International Harvester’s financial performance beyond that of the average of its six main competitors.

McCardell moved quickly and vigorously. He set out to cut spending by $640 million and launched a $879 million three-year program to modernize several outdated plants and build a new one. The immediate results seemed to justify McCardell’s lucrative compensation package. In 1979 International Harvester had record sales of $8.4 billion and alltime profits of $370 million.

Disaster, however, soon struck. McCardell decided to provoke a showdown with the United Auto Workers, the company’s major union, over changes in the work rules. Workers at International Harvester, unlike those at such competitors as Deere and Caterpillar, had no compulsory overtime, for example. McCardell claimed that the work rules and other inefficiencies had cost the company $1.3 billion over the previous three years and vowed to make some important changes. But on Nov. 1, 1979, 35,000 workers walked out rather than accept the new work rules. The strike, which became the longest in U.A.W. history, lasted 172 days, cost the company $400 million in lost profits, and boosted short-term debt from $442 million to a staggering $1 billion.

International Harvester has never fully recovered from the strike, which was settled by an agreement that both sides claimed as a victory. The company has lost a share of the farm-equipment market to Deere in the past two years. Officials insist that profits will eventually improve because of the intensive cost cutting that McCardell has introduced. Pay for corporate officers has been reduced by 20%, and salaries for 30,000 white-collar employees have been frozen. The company has even canceled plans to celebrate its 150th birthday with a musical about its founder. Nonetheless, Stock Analyst Robert Hollis of Milwaukee’s Robert W. Baird & Co. warns that the long-range outlook is still not good. Says he: “The refinancing may not be adequate; at the end of three years Harvester could be back for more money. Next time the banks may say no.”