The Morgan Group, Inc.

2746 Old U.S. 20 West
Elkhart, Indiana 46515
U.S.A.
Telephone: (219) 295-2200
Toll Free: (800) 289-7565
Fax: (800) 285-0828
Web site: http://www.morgrp.com

Public Company
Incorporated: 1942 as Morgan Drive Away, Inc.
Employees: 289
Sales: $108 million (2000)
Stock Exchanges: American
Ticker Symbol: MG
NAIC: 48423 Specialized Freight (Except Used Goods) Trucking, Long-Distance; 484121 General Freight Trucking, Long-Distance, Truckload

The Morgan Group, Inc. is an Elkhart, Indiana-based company that delivers manufactured and modular homes, office trailers, trucks, and recreational and specialty vehicles through its main subsidiary, Morgan Drive Away. Contracting with major manufactured housing producers—such as Oakwood Homes and Fleetwood Enterprises—and makers of recreational and commercial vehicles—such as Winnebago Industries and Thor Industries—Morgan Drive Away provides transportation from the manufacturer to the end customer. The company outsources its delivery services through a network of more than 1,300 independent truck owner-operators and more than 1,400 other drivers. Drivers are dispatched from Morgan’s 98 offices in 32 states. Morgan Group also provides insurance and financial services to its contract drivers through two other subsidiaries: Interstate Indemnity Company and Morgan Finance, Inc.

1930s: Servicing a New Industry

The foundation for the Morgan Group was laid in 1934, in Elkhart, Indiana, a small town just a few miles from the Michigan border. That year, an Elkhart businessman named Wilbur Schult had opened a new company to build house trailers—compact, practical affairs, inspired by the covered wagon and designed as portable homes for Depression-era families moving cross-country. Two years after, Schult founded his business, he was a approached by a 20-year-old man named Ralph Morgan. Morgan was looking for work, offering as past experience a job as a kitchen gadget salesman. Schult put Morgan to work selling his house trailers.

Morgan proved to be an excellent salesman, selling a large number of trailers and towing them to the customers himself with his $25-a-month Ford. After five years working for Schult, Morgan decided to form his own business to deliver house trailers. However, there was one major flaw in his plan: at that time, the Interstate Commerce Commission did not allow independent drivers to haul trailers. Not to be deterred, Morgan put his sales skills to work on the ICC, lobbying for a change in regulation. In 1941, he got his way, and, with that hurdle crossed, formed his company in 1942: Morgan Drive Away, Inc. Morgan himself served as president; two colleagues, Floyd Cosper and Ralph Miller, served as vice-president and secretary-treasurer respectively.

As the Great Depression gave way to World War II, Morgan’s new business got a boost. The government purchased thousands of mobile homes to set up temporary camps for workers near factories that contributed to the war effort. Morgan Drive Away became the primary delivery company for these mobile homes, transporting them to “trailer towns” all over the nation. With the end of the war, the government donated or sold its trailers to colleges and universities—and Morgan again made the deliveries.

1950s–70s: Industry and Ownership of Company Changes

The mobile home industry flourished in the years following the war, and Morgan Drive Away flourished along with it. As more and more people began to view trailers as an acceptable housing option, the trailers themselves evolved to become longer, wider, and more like actual homes. With the longer trailers, however, it was impossible for Morgan to use the tractor rigs it had previously used; the tractor and trailer together would violate state road restrictions on total length. To solve this problem, Morgan helped redesign the tractors, cutting their length down from 15-16 feet to 8-10 feet. He also continued to be an active voice for his industry, lobbying state and federal policy-makers for better and more consistent regulations.

During the 1950s, Morgan began hauling recreational vehicles, travel trailers, and trucks, as well as mobile homes. While transporting these types of vehicles would never play as large a role as the transportation of mobile homes, the diversification did pay off. By the end of the century, vehicle transportation—which Morgan called “Driver Outsourcing”—accounted for approximately one-quarter of Morgan Drive Away’s total business.

In 1958, at the age of 42, Ralph Morgan died. Ralph Miller, who had been with the company from the start, became president. He held that position until 1962, when the company was sold to CLC of America—a Chicago-based conglomerate whose primary business was transporting freight on river barges.

During the years of CLC ownership, Morgan forged some key customer relationships. In the 1960s, the company developed a relationship with Fleetwood—a rapidly growing California company that produced manufactured homes and recreational vehicles. By the end of the century, Fleetwood would be the largest manufacturer of RVs in the nation, and one of Morgan’a biggest customers. In the 1980s, the company established a relationship with another important customer: Oak-wood Homes. More than 40 years old, the North Carolina-based Oakwood was one of the nation’s largest producers of factory-built homes.

Late 1980s-Early 1990s: Lynch Corp.

Toward the end of the 1980s, Morgan’s parent company, CLC of America, ran into financial trouble. The company filed for bankruptcy in early 1986, then emerged at the end of 1987 with a plan for reorganization. In the spring of 1988, CLC was purchased by agricultural commodity processor Archer-Daniels-Midland Co., but the acquisition did not include Morgan. Instead, the company was acquired in a leveraged buyout by Lynch Corp., a Connecticut-based conglomerate that owned primarily broadcasting and telecommunications companies. Morgan Drive Away formally became a subsidiary of The Morgan Group, Inc., a corporation formed by Lynch. The Morgan Group, in turn, was held under Lynch’s Services subsidiary.

In 1992, four years after the acquisition, Lynch installed new management at Lynch Services and at Morgan. Charles Baum, a former securities analyst, became the chairman and CEO of Lynch Services. Phil Ringo, a transportation industry veteran, became the President of Lynch Services and the CEO of Morgan Drive Away. The change in leadership foreshadowed more changes ahead.

One of Baum and Ringo’s first steps was to take Morgan public. In the summer of 1993, the company made an initial offering of 1.1 million shares at $9 per share. According to an article in the July 23, 1993 edition of the South Bend Tribune, the IPO proceeds were earmarked for paying off debt, buying up small transportation companies, and diversifying into such related business lines as insurance and truck leasing. Two small acquisitions followed right away: Transamerican Carriers and Low Transportation Inc. Both Transamerican and Low were regional providers of manufactured housing transportation. In a December, 1993 interview with the Wall Street Transcript, Charles Baum explained that there would likely be similar acquisitions in the future. He said that Morgan was operating in a very fragmented industry, and even though it had the dominant market share, that still was only one-fifth of the total. “So what that means is that there are a great many of what might be called ‘moms and pops,’ or smaller regional companies in the $2 to $10 million range,” he explained. “We think that this is an area ripe for an acquisition program for us.”

In that same 1993 interview, Baum unveiled plans for another area of expansion. The company was preparing to enter the financial services market, providing financing to its contract drivers who were buying their own equipment. “We are seeking to form a finance subsidiary and, along with a provider of capital, service the purchase of those vehicles,” Baum said.

1993 and 1994 were good years for Morgan. Both the manufactured housing and the RV industries experienced high sales, which translated into lots of deliveries. The company posted operating revenues of $82.8 million in 1993—up 23 percent from 1992. Earnings more than doubled, growing from $645,000 in 1992 to $1.6 million in 1993. Revenues and earnings both continued to climb in 1993 and 1994, increasing to $101.89 million and $2.21 million respectively.

Mid- to Late 1990s: Diversification

The middle of the decade brought more acquisition and expansion for Morgan. The company put into action its plan for branching into financial services. Forming a subsidiary, Morgan Finance, it began offering financing to selected contract drivers for equipment purchases. Then, in May of 1995, the company acquired Transfer Drivers, Inc. (TDI), an Osceola, Indiana transportation company. With more than 400 drivers and $7 million in revenues, TDI was a market leader in outsourced hauling of rental and new equipment and vehicles. Its major customers included Ryder Systems, Budget Rentals, and Bluebird Bus. This acquisition was significant for Morgan because it served as an entrance into a broader transportation market, a move Baum and Ringo saw as critical to the company’s future. “Our vision is to expand into being an outsourcing provider for other industries shipping other products, not just manufactured housing and recreational vehicles,” Baum said in a June 1995 interview with Equities magazine.

Company Perspectives:

Our breadth of services has positioned Morgan as the leading common and contract carrier for the manufactured housing, recreational vehicle, and commercial vehicle industries in the United States.

In 1996, Morgan made another important acquisition: Transit Homes of America, Inc. Like Morgan, Transit Homes was a national provider of transportation services to manufactured housing producers. The acquisition added some 350 drivers to Morgan’s growing driver base, as well as annual revenues of more than $20 million.

At the end of the 1990s, Morgan’s revenues and earnings, which had climbed steadily through most of the decade, suffered a sudden decline. Revenues fell 3 percent, from $150.46 million in 1998 to $145.63 in 1999. Earnings dropped more precipitously—from $903,000 in 1998 to $19,000 in 1999. The decreases were due largely to a downturn in the manufactured housing industry. Throughout the nation, higher interest rates and oversupply led to an extreme slowdown in manufactured housing shipments. With manufactured housing accounting for two-thirds of Morgan’s total business, the slowdown had an immediate impact on revenues.

2000 and Beyond

Their losses in 1999 made Morgan’s keenly aware of its vulnerability to fluctuations in the industries it served. It realized that to reduce the impact of such fluctuations—to hedge against industry cycle—it needed to more tightly control its expenses and make better and more diverse use of its resources. As a first step toward those aims, in January of 2000, the company appointed a new CEO: Anthony Castor, III. Castor, who had previously served as CEO of Precision Industrial Corp., a New Jersey-based company, had a strong track record in business development. As new CEO, one of Castor’s first moves was to reduce Morgan’s expenses by reducing its workforce. In March of 2000, the company cut approximately 25 percent of its administrative staff at its Morgan Drive Away facility.

As the company moved into the new decade and new century, it continued to be plagued by softness in the manufactured housing industry. For 2000, Morgan posted revenues of $108 million, a decrease of 26 percent from the previous year, and a net loss of $4.8 million. Revenues remained on a downward spiral into the middle of 2001, with the company posting a 22 percent decrease for the first six months over the same period in 2000. Due to continued cost-cutting measures, however, Morgan was able to dramatically improve its bottom line; net income for the six-month period rose to $85,000 compared with a loss of $599,000 for the first half of the previous year.

In the summer of 2001, Lynch Corp., which still owned slightly more than half of Morgan, came to the company’s rescue with a $2 infusion of badly needed capital. The investment increased Lynch’s stake in Morgan to almost 70 percent. Soon thereafter, Lynch announced that it planned to spin off Morgan to its shareholders.

As Morgan prepared to move into 2002, its near-term success appeared to hinge largely upon a rebound in the manufactured housing industry. In an August 13, 2001 press release, Castor noted that the demand for manufactured housing had shown a slight improvement in the second quarter. He also said that although the company hoped to see that trend continue, its long-range plan for turnaround was not dependent upon on conditions in the manufactured housing industry. “Our objectives remain the same,” he said. “To produce positive earnings and cash flow in 2001 despite the lower revenue base and, of course, allow for improved revenue and profitability when industry conditions improve.”

Principal Subsidiaries

Morgan Drive Away, Inc.; Interstate Indemnity Company; Morgan Finance, Inc.

Principal Competitors

Allied Holdings, Inc.; American Homestar Corporation; Arkansas Best Corporation; Consolidated Freightways Corporation; Landstar System, Inc.; P.A.M. Transportation Services, Inc.; Trism, Inc.; Yellow Corporation.

Key Dates:

1936:

Ralph Morgan goes to work for Wilbur Schult.

1941:

Morgan decides to go into business for himself and gets permission from the ICC to haul house trailers on highways.

1942:

Morgan Drive Away, Inc. is formed.

1958:

Ralph Morgan dies.

1962:

Morgan Drive Away is acquired by CLC of America.

1988:

Morgan is acquired by Lynch Corp.

1993:

Morgan makes an initial public offering.

1995:

The company acquires Transfer Drivers, Inc.

2000:

Anthony Castor is appointed CEO of The Morgan Group.

Further Reading

“CEO Interview, The Morgan Group,” Wall Street Transcript, December 13, 1993.

“Morgan Group Narrows Fourth-Quarter Loss,” South Bend Tribune, March 18, 1998, p. C9.

“Proxy Court: The Morgan Group Inc.,” Indianapolis Business Journal, February 11, 2002.

—Shawn Brynildssen