Moving Metal

SupraCote ended up costing Reliance almost $3 million more than originally estimated. It remained a troubled stepchild for nearly three years until Gimbel persuaded the manager of the competing coating firm, Lawrence E. Dwyer, to become SupraCote’s new President and a Vice President of Reliance. Dwyer, a talented and capable manager, fixed SupraCote’s operational problems and it started turning a profit the following year, much to Gimbel’s relief. By the end of the 1960s, Reliance had grown into such a large organization that Gimbel was having trouble keeping track of its increasingly complex operations. Further, Reliance was in an awkward position with its shareholders. Although it was highly successful, nearly all of its capital was tied up in its facilities, equipment, and operations, so dividends were not exceptionally generous. And, since the company was private, shareholders seeking liquidity had difficulty selling. The kind of expansion Gimbel hoped to carry out would likely make all of these problems worse. What he needed, therefore, was a new long-range plan for managing the company’s capital structure. Consequently, Gimbel huddled with his management team in late 1969 and came up with a bold new strategic plan for the next ten years, which the Board approved in March 1970. It was based on the idea of “de-aggregation.” Gimbel hoped to spin off Reliance divisions in such a way that the unit managers would end up owning at least half of the resulting entities. This would not only relieve the man- agerial burden, but also generate cash that the company sorely needed. Gimbel also hoped it would preserve “the entrepreneurial fires that had stoked Reliance’s growth.” As a first step in implementing the de-aggregation strategy, in 1973 Reliance set up the SupraCote plant as its first formal

roller coating aluminum and steel sheet in coils up to sixty inches wide and weighing as much as 25,000 pounds. Virtu- ally any type of coating or paint could be applied. Henigson was amazed by the technology. “The coating machine ran at about 300 feet a minute,” he recalled, “and it would take these enormous rolls, unwind them and put them through a bath, paint one side one color, paint the other side another color, and then roll it back up. It was incredible,” he exclaimed. Unfortunately, Gimbel had been misled. The aluminum producer that had convinced him to build SupraCote had also urged a nearby competitor to engage in the same venture— without informing either about it. It was a brazen attempt to play two companies off against each other to keep coated metal product costs low. “Gimbel had analyzed it perfectly,” Henigson insisted, “but he had never anticipated that there’d be another one down the street in competition with him. We had one hell of a time with that for about three years.” Competition or not, the pre-coated market turned out to be too much in its infancy. “We had the old chicken and the egg routine,” Gimbel told the Los Angeles Times . “Nobody used coil coating because there was no capability of getting it done out here, and nobody started coil coating here because nobody used it.” The production technology was also too new, so technical, quality control, and customer service issues plagued SupraCote’s operations, antagonizing customers and generating ill-feelings toward Reliance. Small aluminum mills hesitated to place orders with SupraCote because Reli- ance’s metals service centers were franchised distributors for the West Coast powerhouse, Kaiser Aluminum. Reliance’s direct competitors also withheld business from SupraCote because they did not want to contribute to the parent com- pany’s increasing strength in the market.

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