The local festivities for last summer's Democratic Presidential Debate in Charleston included one somewhat unusual campaign stop. Sen. Joe Biden (D-Del.) stood at Brittlebank Park, praising the local manufacturers of mine resistant vehicles, often referred to as MRAPs. He kicked the tires and then awkwardly climbed on a few for photos. It was all an effort to draw attention to the industry, but Biden's early exit from the presidential race was likely just one sign that the horsepower behind Charleston's burgeoning military vehicle market, led by Force Protection, was losing juice. As for the final straw, observers can take their pick from the company's recent calamities — including accounting errors, class-action lawsuits, stock cave-ins, and contract losses.
The company refuses to comment about its next move while things settle, but officials told investors last month that the firm had identified a path out of the turmoil that relies heavily on moving away from the vehicle that's been its bread and butter for the past five years.
Of those straws, the largest was likely a Department of Defense order for more than 2,200 MRAPs last month that went to Force Protection's competitors, along with an official announcement that the Marines, who'd been most enamored by Force Protection's Cougar model, had bought all they needed.
Military orders placed in December provided Force Protection only 358 of the more than 3,000 requested. In a Congressional hearing on the Marine Corps' budget on Feb. 27, military officials were only timidly encouraging about the company's prospects, after having been prompted by Congressman Joe Wilson, a Lexington Republican.
"We have probably made our last procurement for U.S. forces of the Cougar vehicle," said Brigadier General Michael Brogan. The Corps had all the Cougars it needed and could take some excess from the Army if necessary. The Navy was also full, Brogan said. "They have served us well. We've been very fortunate to have Force Protection as one of our prime manufacturers."
But the Corps was a lot less conciliatory about the need for MRAPs late last year. Commandant Gen. James Conway told a crowd at the Center for a New American Security in October that the weighty vehicles may not be a long-term necessity for the quick-moving Marines.
"Those vehicles weigh 40,000 pounds, each in the larger category," he said before moving on to their potential future use. "Wrap them in shrink wrap and put them in asphalt somewhere is about the best thing that we can describe at this point. And as expensive as they are, that is probably not a good use of the taxpayer's money."
The company has had more to worry about than just the assembly line. Earlier this year, Force Protection replaced upper management while announcing that financial reports on 2007 would be delayed because of serious accounting errors. As those delays dragged on, the company's auditor quit and the Nasdaq listing panel informed the company in late March that it would be removed from the Nasdaq stock listings. Force Protection is planning an appeal. Meanwhile, some investors are suing; they claim that the company's executives made off with millions by selling stock before news of shipping delays hit the street. Having been at more than $30 a share less than a year ago, the stock was trading at around $2.50 earlier this week.
Slowly moving to faster vehicles
While the company had hoped to hold off on a frank talk with investors until after it got the books in order, the lost military contracts, lawsuits, and stock dive forced its hand, leading to a conference call March 24 to try to keep investors invested. The company ate crow — copping to a less aggressive Defense Department campaign than competitors, while vowing to improve relations and get the local Congressional delegations more actively involved.
Of course, it wouldn't be a call to investors without a positive look to the future. Though the U.S. military isn't interested in the Cougar, the brass are helping the company procure contracts internationally, including smaller orders (less than 200) from the United Kingdom and Italy that have helped fill out the company's order book through 2008 — though it has no orders for next year.
There's also an expectation that the Marines will need to repair and upgrade the earlier lines of MRAPs that have been on the battlefield for a few years, though no orders have been placed for maintenance or improvements.
"These vehicles see tremendous usage hours and are operating in a punishing environment," President and CEO Michael Moody told investors. "Beyond this, the threat the vehicles face has continued to evolve since our first deliveries, and there are substantial improvements that have been made to the current vehicles."
The big money is rightly moving past the MRAP industry to the next big thing. The military has commissioned specs for streamlined light, well-protected vehicles known as JLTVs, that are expected to be the next generation Humvees. But those won't be ready until 2014 or 2015, Moody said, potentially opening a window for a transition vehicle Force Protection calls the Cheetah — a faster, lighter Cougar.
"The development of the Cheetah gives us an excellent start on developing a vehicle for the JLTV," he said. "There is no doubt that this program is going to see an intense level of competition. The potential size of the JLTV program is in the tens of billions of dollars."
The company has already bought a manufacturing center for the Cheetah outside of Raleigh to avoid the delays that plagued the first stages of MRAP production. But that leads to questions about which would go first if the company downsizes, particularly whether or not that would impact its Ladson facility.
"In terms of what our current production levels are ... obviously we need to consider what facilities we need," Moody said, telling investors there should be a decision early this summer.
What is known is that the MRAPs will keep rolling off the lot through the end of the year. But it remains to be seen whether any politicians will be kicking the tires next year.