Recycling of Capacity
The re-use of apparently unneeded capacity in a market with overcapacity. When a company leaves the industry or is acquired, most of its productive capacity usually survives. The new owner, often an expanding competitor, usually reduces overhead and puts the capacity back into the marketplace with a lower cost.
(See also Capacity, Overcapacity)
There was one significant company withdrawal in the tire industry during the 1980s. In 1987, Goodrich withdrew from the tire business after its merger with Uniroyal failed to produce the expected cost savings. Uniroyal sold its interest to an investor group for $500 million. (Year 1987-SIC 3011)
Explanation: While the Uniroyal/Goodrich combination failed to meet its financial targets and resulted in Goodrich's withdrawal from the industry, the operating capacity continued in existence under the control of the new investor group.
Gypsum wallboard industry was depressed. USG declared bankruptcy, laid off one-third of its managers and sold three subsidiaries. USG now owns 35% of the wallboard market. (Year 1993-SIC 3270)
Explanation: USG declared bankruptcy but its capacity continued operating while the company reorganized and the capacity continued operation once the reorganized USG immerged from Chapter 11 proceedings.
Growing faster than the market was a losing strategy for Lone Star but a winning one for Lafarge and Southdown. The fall of Lone Star was a result of following a policy of acquiring cheap assets with old technology. Lafarge and Southdown were more selective in acquiring assets and were able to increase their market shares. Lafarge's market share jumped from 8.7% to 11.2% in one year due to the acquisition of National Gypsum's assets. Southdown's share grew 4.7% to 8.0% due to its acquisition of Moore McCormack. (Year 1991-SIC 3241)
Explanation: While National Gypsum and Moore McCormack ceased to exist in the cement business, their capacity continued in existence under the control of their new owners.
LTV Corp. signed a letter of intent to buy the assets of United Dominion Industries Inc.'s Varco-Pruden Buildings Division for $187.5 million. Varco-Pruden manufactured pre-engineered, low-rise steel buildings. (Year 1997-SIC 3448)
Explanation: Varco-Pruden's capacity changes ownership from United Dominion to LTV but continues operating as it has previously.