Spartan Motors Inc. History

Address:

1000 Reynolds Road
Charlotte, Michigan 48813
U.S.A.

Telephone: (517) 543-6400
Fax: (517) 543-7728

Public Company
Incorporated: 1975
Employees: 540
Sales: 191.5 million
Stock Exchanges: NASDAQ
SICs: 3711 Motor Vehicles and Car Bodies

Company History:

Michigan-based Spartan Motors Inc. is a world leader in the engineering and manufacturing of custom chassis for fire trucks, recreational vehicles, transit buses, school buses, and other specialty vehicles. Founded in 1975, Spartan went public in 1984 and has shown remarkable growth in sales and earnings through the 1980s and 1990s. Spartan Motor's management style, which stresses simplicity and frugality, has become as renowned in the automotive sector as their innovative chassis designs.

Spartan Motors was founded in 1975 by four longtime automobile industry workers, George W. Sztykiel, Bill Foster, Jerry Geary, and John Knox. Company president Sztykiel had worked for 19 years as an engineer at Chrysler Motors before moving to Diamond Reo Trucks in 1973, and he had developed his own very definite ideas about how a business should operate. Born in 1929, Sztykiel grew up in Poland where he lived through the German occupation and the subsequent communist takeover. In his characteristic anecdotal style, Sztykiel recounts memories of ostensibly well-equipped Germans falling to frostbite and exposure because their hobnailed boots conducted the cold while their Russian counterparts survived in crude straw-stuffed mukluks. The lesson that simplicity and improvisation often triumphed over sophistication would remain with Sztykiel throughout his professional life. This lesson, however, was hard to live by in the paper-bound administration of the giant Chrysler Corp. As an engineer, Sztykiel's sense of job satisfaction had come from designing superior products, but at Chrysler he found most of his time was spent processing the paperwork that such a large enterprise required before any decision could be made. "I felt I was wasting my life," Sztykiel said in a 1992 profile in Inc. magazine.

Sztykiel's opportunity to follow his vision of the way a corporation should operate was unexpectedly offered to him when employer Diamond Reo Trucks went bankrupt in 1975. With a sick wife and two sons in college, Sztykiel was seemingly not in a position to take extensive risks; however, the moribund Michigan auto industry was also offering little in the way of opportunities, challenging or otherwise. Sztykiel's wife, confined to the hospital, begged him to find a job close enough to home to allow him to continue his daily visits, but 1975 was the nadir of the American auto industry's decline and there were simply no jobs available. Out of desperation more than entrepreneurship, Sztykiel and his three partners pooled all their savings, took out second mortgages on their homes, and built Spartan's first chassis in a converted commercial garage in Charlotte, Michigan. "We had the luxury of having our house burn down at Diamond Reo," Inc. quotes Sztykiel as saying. "We had the power of poverty." Although the partners had virtually no capital, they collectively had almost a century of experience in the automobile industry and they knew what hadn't been working for the established large truck chassis manufacturers. They had an idea of how they could do things differently but as yet no customers on whom to try their ideas. With no money to spend on advertising or glossy catalogues, the four men relied on word of mouth and the reputation each had established with customers while working for Chrysler and Diamond Reo. It was these connections that would eventually lead to their first customer.

FMC Inc. in Tipton, Indiana, had been manufacturing fire trucks using standard mass-produced truck chassis but had run into problems trying to adapt these chassis to the specialized requirements of the fire truck market. Not only did they have to make compromises about the design of the body to suit the chassis, but every time they made a modification in the chassis to accommodate indispensable fire-fighting apparatus they reduced the durability of the truck. FMC's management had dealt with the Spartan partners in their previous incarnation as automotive engineers with Chrysler and on hearing of the new venture thought that perhaps Spartan could help with their chassis problems. The partners lost no time in flying down to Indiana, where they quickly convinced the management to allow them to construct a sample chassis to the fire truck specifications. Back in Charlotte the four men scrambled to buy the necessary components, which they could not afford to have custom tooled for this single order. This bootstrapping assembly of standard components to produce a unique customized design would become the Spartan trademark. Upon seeing the prototype, FMC put in an order for twelve chassis and Spartan was officially in business.

Over the course of the next ten years Spartan Motors would take the necessary poverty of their first years and turn it into a virtue. Named after the Spartans of Ancient Greece who eschewed luxury in favor of thrift and discipline, the company was determined to retain a no-frills approach to management. Although in 1978 they moved out of the cinder-block garage that had served as their headquarters since their founding, their new offices and manufacturing space provided very little more in the way of comfort. The administrative offices at the new Spartan plant were packed together in a warehouselike space with flimsy partitions to serve as office walls. Sztykiel himself steadfastly refused to hire a secretary, saying that it would only create a need for more paperwork. Competition between management teams for budget assignments was avoided by the elimination of preset budgets altogether. Instead, every management decision was evaluated in terms of what it would bring to production. Sztykiel's son John, who would later become president of the company, commented in Inc., "We are always asking ourselves, 'if we don't spend money on car phones, can we then use that money to hire somebody in the plant?"'

Spartan's approach to its employees also developed during these early lean years. Having lost their jobs to the auto recession themselves, the founders of Spartan were determined to build a devoted and hard-working workforce by offering bonuses pegged to profits and by avoiding lay-offs at all costs. In 1976, Sztykiel was forced to ask workers to take a 15 percent pay cut in order to prevent lay-offs and within months the workers had raised production by enough to allow the company to reinstate their full pay. Spartan also avoided hiring many expensive university-trained engineers, preferring instead to employ high school and vocational school graduates and training them on the job. Spartan's approach to engineering its chassis was particularly suited to on-site training: instead of lengthy on-paper design sessions, Spartan engineers brainstormed to solve design problems on the assembly-plant floor. According to one engineer, a substantial portion of the engineering on some designs was actually performed by assemblers.

During the company's first ten years of operation, Spartan continued to design and manufacture specialized chassis for the fire engine industry. In a field that had been geared towards standardization for almost 100 years, Spartan made customization its stock in trade. The use of standard components purchased in large quantities from a variety of suppliers allowed Spartan to keep the prices of its custom designs low. By putting the components together in a large variety of ways, however, the company was able to provide very different chassis to competing fire truck manufacturers. By the early 1990s, Spartan could offer fire truck manufacturers their choice of 10 different transmissions, more than a dozen engines and 30 rear-axle and suspension systems, not to mention 45 styles of cab in 57 different shades of red. In order to accommodate this variety, Spartan's assembly plant avoided an assembly line lay-out in favor of individual work stations arranged to permit continuous assembly of different chassis types. New specifications could be met without delay, allowing the company to respond quickly to market demands. A former engineer from one of Spartan's major competitors, Oshkosh Truck Corp., commented in a Wall Street Journal article that design changes at the large Wisconsin firm sometimes took from eight to nine months, whereas Spartan was producing new designs in half that time.

Spartan's unorthodox approach appealed to customers, and by 1983 the company's fire truck chassis were bringing in revenues of almost $12 million and income of $629,000. The four partners felt that it was time to expand both their product line and their floor space, but they ran into a crucial setback. As Sztykiel stated bluntly in an interview, "We ran out of money." The partners had sunk all of their assets into starting the company. The bank had already lent them three times their collateral and, in spite of the company's success, was unwilling to risk any more. In 1984 Spartan management made the crucial decision to go public with an initial public offering of 1,500 shares. With the infusion of new capital, Spartan now expanded their plant from 42,000 to 72,000 square feet and began to design chassis for new applications. By 1986, they were offering specialized chassis for the bus and motorhome market, as well as for the airport vehicles market. Although the new applications took a few years to produce profits, by 1988 Spartan was ready to expand their facility to include a motorhome chassis plant.

Although Spartan's original motorhome chassis incorporated standard gas-powered engines, toward the end of the 1980s Spartan engineers began to experiment with a diesel engine mounted in the rear of the chassis. Rear engine diesel chassis were quieter and provided a roomier cab than conventional designs, but they had always been prohibitively expensive for the motorhome market. Spartan engineers Tim Williams and Larry Karkau began tinkering with the traditional design and, with characteristic ingenuity, came up with a chassis that could cut the usual price almost in half. The only problem was that they would need custom-made parts to manufacture their design, which would greatly increase the cost of product development. Spartan had built its business by using standard components, and by this time the company had established a reputation with many component suppliers as being a dynamic and reliable customer. With this reputation behind them, Spartan engineers managed to convince component suppliers to share the risk of the new chassis design by assuming the cost of tooling the specialized parts. With development costs of only about $500,000, the EC-2000 rear engine diesel chassis would produce sales of $30 million by 1991 and would transform Spartan from a small, clever customizer to a significant force in the chassis industry.

When the EC-2000 was introduced in 1990 Spartan's annual sales had already reached $50 million, thanks largely to the company's innovative fire engine chassis. By 1991 sales of the new motorhome chassis pushed revenues up to almost $100 million and almost tripled the company's net income. Suddenly stock analysts began to sit up and take notice of the growing little company. Several profiles appeared and a number of "best pick" lists began to include Spartan as a good investment. Stock price, which had hovered around $3.00 a share in the late 1980s, suddenly soared, reaching $16.00 in 1991 and peaking at $25.00 by 1993.

Meanwhile, sales of Spartan's motorhome chassis continued to grow, and the company began to apply its rear engine diesel technology to other applications. In 1993, Spartan made its first significant move into the international market, founding Spartan de Mexico in Queretaro, Mexico, to produce bus chassis for the Mexican and South American markets. The growing firm felt that its newly developed bus chassis were the best bet for the international market. In 1994 they entered into a joint venture with SETCAR, a bus manufacturer based in Tunisia, to sell Spartan bus chassis in North Africa and the Middle East through a newly formed export company to be called Spartan International. Spartan also began to export its American-made bus chassis to a variety of European and Asian countries. Perhaps the most significant new venture for Spartan in the early 1990s was a licensing agreement with General Motors whereby GM would mass produce and market the low-cost Spartan Discovery motorhome chassis under the GMC name and Spartan would produce a higher-priced model that GM would sell and service. This relationship with one of the big automakers was a marked departure from Spartan's established philosophy of avoiding mass assembly-line production and the burdensome bureaucracy of the traditional auto industry and was a sign of the new role that Spartan was creating for itself in the industry.

When Spartan went public in 1984, the company employed about 100 people in a 42,000-square-foot manufacturing plant. By 1995, the Spartan workforce had increased to over 500, and the size of the Spartan facility in Charlotte, Michigan, had grown to 300,000 square feet. Clearly, the bootstrapping, improvisational approach to management that had been in large part responsible for Spartan's success could not function as reliably with so many employees and so many new product lines. Although budgets and paperwork had been unnecessary when president George Sztykiel could control every aspect of the operation, now more traditional management techniques were essential to monitor this growing enterprise. George's son John Sztykiel took over the presidency of Spartan in 1992 and by 1994 he began to hire a number of experienced professional managers to guide the company into this new phase of expansion. Even more significantly, in 1994 the company opened a dedicated research and development facility as part of its new plant expansion. Spartan's trademark "on the floor" design teams were to give way to the more efficient, but perhaps less sensitive, traditional R&D department.

Spartan Motors's sensational growth of the early 1990s began to taper off by the middle of the decade. Although Spartan's sales were still growing, analysts who had pumped the stock heavily in the early 1990s began to have reservations as the Mexican operations failed to generate an immediate profit and the agreement with GM got bogged down in a number of delays. Stock price fell from a high of $25 a share to a more realistic price of around $15. As Spartan moved into the last years of the century it remained to be seen whether management could successfully convert the feisty and innovative little customizer into a reliable, international manufacturing firm.

Principal Subsidiaries: Spartan de Mexico, SA de CV.

Spartan Motors Inc. History

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