International Harvester Co.'s huge truck-assembly plant here rises out of the cornfields north of town, surrounded by lots crowded with unsold trucks--testimony to the sales problems that have put the company on the brink of bankruptcy.
Local officials worry that a collapse of International Harvester, or a decision by the company to curtail or end its Springfield operations, would have far-reaching effects on their community, about 50 miles from Columbus in western Ohio.
To stave off that possibility, local and state officials are working to put together a deal under which local interests would purchase the IH truck-assembly plant and lease it back to the company. The package, worth more than $30 million counting concessions to be made by local officials involving both the assembly plant and a Harvester truck-body plant south of town, would be one of the largest leaseback deals ever.
It also would give the city some assurance that the assembly plant would remain open, either under Harvester management or operated by another company if Harvester failed. Just as important, it would provide IH with some badly needed cash.
"We want to be able to control our own destiny," says Larry Krukewitt, director of the Springfield Chamber of Commerce and architect of the plan. "This is not a bailout."
"We do not see this as a 'Save International Harvester' effort," says Dennis Shere, publisher of the Springfield News Sun and first vice chairman of the chamber of commerce. "It's an effort to save Springfield's interests and job levels."
Even after massive layoffs, the Harvester plant employs about 2,200 workers; another 1,000 work at the truck-body plant. Together, the plants account for 4 percent of Springfield's workforce, making IH the largest employer in this city of 72,000. Harvester's $104 million annual payroll feeds many of the city's stores, while millions more go to local businesses that supply the plant.
Although the agreement is still being negotiated, the tentative plan would give title to the plant to the Springfield Chamber of Commerce. The state Teachers Retirement System would put up $20 million of the purchase price, and the state would put up another $10 million.
Although the major part of the package is the purchase of the assembly plant, the plan also contains proposals to help cut Harvester's operating costs at that facility and the Springfield body plant. The city plans to loan money to Harvester to help the company tear down obsolete portions of the 80-year-old body plant, according to Springfield City Manager Thomas M. Bay. Because that plant is the only one in the Harvester system that makes truck bodies, city officials are less worried that it will close. "So long as IH is producing trucks, the body plant is the most stable of all their facilities," Bay says.
Springfield officials first broached the possibility of buying the assembly plant to Harvester management in January.
"All of a sudden we realized that the largest employer in the community was having financial trouble," Krukewitt said of the reasons behind the offer, which was also motivated by fears that Harvester might be on the verge of closing the Springfield assembly plant and moving the manufacture of medium-duty trucks to Fort Wayne, Ind., where the company makes heavy-duty trucks.
During the January meeting with Harvester, a member of the Springfield group suggested the purchase-leaseback arrangement. "It was almost like he had pressed the right button," Shere says. "They indicated that they would want us to look into that."
Over the next two months, while Springfield began assembling its proposal, Harvester decided to keep both truck plants open. But on March 30, the company said it wanted officials in Springfield and Ft. Wayne to make "special efforts" to come up with packages that would cut the company's operating costs in each town.
"It is our intention in the immediate future to fully evaluate the possibility of maintaining core manufacturing operations at both Fort Wayne and Springfield, assuming the current cost structure of these operations can be dramatically altered," Donald Lennox, then IH executive vice president for manufacturing and now president of the company, said in a telegram sent to city and state officials.
The importance to Harvester of getting some sort of deal on its truck-manufacturing operations could be seen in the steady flow of red ink from the company's ledgers. The company has lost $1.3 billion in the past two years, including a loss of $497.7 million in the first half of this year. Rumors that the company was about to file for protection from its creditors under Chapter 11 of the federal bankruptcy law have been circulating on Wall Street.
International Harvester's problems can be traced to a bitter, devastating six-month strike against the company by the United Auto Workers union. Before the company could recover from the effects of the strike, the recession undermined its markets and high interest rates choked its cash flow.
Since December, IH has been operating under a $4.2 billion refinancing package concocted by company officials and their lenders. But with the mounting losses, cracks have begun to show up in the bailout plan, and Harvester has asked its lenders to renegotiate the package to give the company still more financial breathing room.
Harvester's problems have forced frequent revisions in the Springfield proposal. "As International Harvester's financial picture has changed, it has been necessary for us to go back and change parts of the deal that we thought were already in place," Krukewitt says. "It became necessary to shore up the deal."
The company's troubles scared off private investors, Springfield officials said, but the Teachers Retirement System, which has $6.5 billion in assets, seems interested in going along with the deal. But James L. Sublett, executive director of the system, cautions that no formal proposal has yet been made to the system's governing board.
"We would look at it just as we would look at any other kind of investment," Sublett says. "Springfield is a fine town, and we'd like to see them keep their plant, but not at the expense of making an investment that is not sound."
The key to the deal is guarantees that Springfield will be protected if Harvester fails. Even under a Chapter 11 filing, when a company can continue operating while it reorganizes financially, there is no assurance the plant would remain open, Krukewitt says.
Should that happen, Springfield officials hope to be able to sell the 15-year-old, 2-million-square-foot facility. "We think it's a very marketable facility," Krukewitt says, going into a half-joking sales pitch: "We have a trained workforce that goes along with it."
Although there are obviously not a large number of potential buyers for such a large plant, Shere says that a customer could be a company interested in capturing part of the 29 percent share of the American truck market that could be vacated by a Harvester failure. "Somebody has to fill that void," he says.
Following a meeting with state and company officials in Columbus last week, Krukewitt said he was "optimistic and encouraged" that the deal can be wrapped up in the next couple of weeks. The Fort Wayne city council has already approved a plan for Fort Wayne and the state of Indiana to guarantee $9.2 million in loans for a private investor to buy and lease back part of Harvester's operations in the Indiana city.
A Harvester official says the Springfield proposal "is a rather key factor" in the company's corporate and financial restructuring plan, which is to go to IH's bankers for approval in late July.
The efforts to make a deal for the Harvester plant have met with little or no political or public resistance in Springfield or Columbus. "I think the whole town of Springfield is fearful of what would happen if Harvester shut down or moved out," says James A. Duerk, Ohio's director of economic development. "We are concerned about the impact that any potential closing or sharp cut in production would have on the Springfield area."
"I don't know that you can actually calculate what the loss of IH would mean," Bay says. "Obviously it would be a substantial bump to the community."