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Monday, 09 January 2012 10:31

Bouncing Back: Increasing auto sales, lean operations position ADAC to grow, invest

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Bouncing Back: Increasing auto sales, lean operations position ADAC to grow, invest PHOTO: Jeff Hage
MUSKEGON — With the recession increasingly in the rearview mirror, ADAC Automotive Inc. hopes its investment in a new plant and new technology will open the door to a stable future and a broader base of global automotive customers and products.

The Grand Rapids-based Tier 1 automotive door-handle supplier is expanding its footprint in Muskegon, where it already operates two plants that employ around 700 people. The $4.7 million building project includes the construction of a 70,000-square-foot plant adjacent to another ADAC facility on Keating Ave.

ADAC is working with Rockford Construction Company Inc. on the project.

But the real investment to note, President and CEO Jim Teets said, is the $15 million in new high-tech paint systems to be housed at the facility and the retrofits throughout the company to handle the new processes.

“We’re really excited to be in a healthy position cash-wise,” Teets said. “We would have been debt-free in early 2012, but Fifth Third Bank is now loving us. … (The timing of the investment) is a byproduct of coming out of the auto recession in 2009 combined with the fact that our technology was getting a little long in the tooth. If we wanted to stay the North American leader for exterior door handles, we needed to make that decision.”

The company thought about putting the new facility elsewhere in West Michigan, but ultimately decided it was best to keep the facility near its molding line to maximize efficiencies and minimize additional cost in transporting products. The new facility will be connected by a corridor to ADAC’s adjacent plastic injection molding facility.

“We didn’t want to start trucking parts across West Michigan. Once you truck parts all over the place, you lose synchronous manufacturing, the ability to mold, paint and assemble (in one place),” Teets said. “And what does an OEM look for? The best landed cost at an assembly point. We not only expect efficiencies — and we will increase our product offering — but we will be more competitive, price-wise. It will allow us to bring molded product in and push painted product out.

“We wanted this new facility in Muskegon. All of our infrastructure for door handles and gas-assist molding … is in Muskegon, not to mention that we’re committed to Muskegon and to our employees.”

Teets said the company expects at least a five-year payback period on the new paint system from the time ADAC’s management team approved the project in late 2011. Once it’s operational, the payback will be about three years.

As a result of the expansion, ADAC plans to add 130 new jobs. Companywide, ADAC employs more than 1,100 people, including some temporary positions.

Surviving to thrive

The $180 million (annual revenues) company, which traces its roots to the mid-1970s and is affiliated with Lacks Enterprises Inc., grew more than sevenfold since the early 1990s, Teets said. The company peaked at around 1,200 employees in 2006 or 2007 with about $225 million in sales before the worst of the economic recession took hold. About the time General Motors and Chrysler filed for bankruptcy, ADAC made the first permanent headcount cuts in its corporate history; dropped to a four-day workweek; and instituted pay cuts of 10, 7 and 5 percent, depending on position. As the situation turned around in 2010, the company paid back those cuts.

“The board and the ownership felt it was the right thing to do, and we could afford to do it,” Teets said. “That went a long way with the employees,”

ADAC “added people in 2010 and a few select heads in 2011, particularly in technical positions and engineering,” he said, noting that ADAC has faced the familiar challenge of many manufacturers in finding the right talent. While 2010 was a “great year” because the company was still very lean, Teets said profits in 2011 didn’t hit the same levels as the year prior.

An open door

Looking ahead, Teets is bullish on the future of the automotive industry and his company’s place as a Tier 1 supplier. Analysts predict U.S. light vehicle sales will be in the range of 13 million to 14 million units in 2012, up from about 12.7 million in 2011, according to published reports.

ADAC is a part of a number of new vehicle launches in the next couple of years, including new models from GM and newcomer Tesla Motors, which is based in Palo Alto, Calif. ADAC is also returning to the exterior mirror business after a decade-long absence.

“The vast majority of our sales is door handles. We have a lot of eggs in the door handle basket,” Teets said. “We’re working hard to get back into (mirrors). When you look at a mirror, it’s molded and painted, and it’s on the beltline of the car. Body color harmony is pretty important.”

The investment in the new paint systems will help both the company’s bread-and-butter door handle business as well as its efforts in mirrors and elsewhere on the vehicle. The new technology will expand the size range of exterior parts the company can paint, and it helps ADAC improve the quality of its paint coverage to meet or exceed what customers are expecting, Teets said.

“We’ll get up to speed in this new technology and try to draw in new customers,” he said.

In particular, ADAC has its sights set on wooing more relationships with Asian automakers. Currently, the company does 80 percent of its business with the Detroit Three. Ford and Fiat-Chrysler were tied in 2011 as ADAC’s largest sales volumes. In late November, GM for the third year in a row honored ADAC as one of its suppliers of the year.

While the company has “made some inroads” with Honda — which accounts for about 10 percent of ADAC’s business — and worked on projects for Nissan, it still needs to work at broadening its customer base, Teets said.

“It’s so easy to say that we want to have better balance and diversity (in our customers), but to actually do that (is hard),” Teets said. “We’ve got a ways to go for customer diversification. Anyone would love to have a split (customer) pie. It’s never good to be satisfied where you are.”

In 2006, it joined with Milwaukee-based STRATTEC Security Corp. and German company Witte Automotive to form the Vehicle Access Systems Technology (VAST) Alliance. VAST operates as a single-source global supplier with plants in the United States, Mexico, Germany, Czech Republic, China and Brazil.

Teets said the alliance, with its global presence, is helping ADAC better reach global automakers, and particularly those with operations in North America.

“We have a presence in South Korea in sales and engineering through the VAST Alliance,” Teets said. “We are trying to call on Hyundai-Kia in South Korea and in North America. We really have to be talking to them in stereo. … We joined with (VAST) to protect the home market. If you can’t quote globally, you can’t defend and protect jobs at home.”

Decidedly auto-centric

While Teets is optimistic about ADAC’s future, he’s still a realist. He said he knows the automotive industry is a cyclical business, and while the business is riding an upward trend in global vehicle production, “you know the cycle is going to happen again.”

That has ADAC’s executives looking for ways the company can diversify beyond the automotive industry. Even today, the company is still “99 percent automotive.”

ADAC has tried to translate its technological capabilities to other industries. One success is a contract with American Seating Co. to mold urban bus seats at ADAC’s Saranac plant. The company is also pursuing business in the appliance and electronics fields.

“We’re trying to grow (product diversification) organically or internally without acquisition,” he said, adding the company would like to have an 80-20 automotive to non-automotive industry split.

While industry diversification will likely be a slow process, Teets said he’s optimistic that the company can work faster to achieve customer diversification. Getting ADAC’s designs into the hands of automakers before they’re designing new vehicles is key to that success, he said. ADAC is increasingly adding new technology and electronics to its products, and Teets said it’s important that OEMs know about those capabilities when they’re starting on new vehicle designs.

“We need to get down into the clay studios at the OEMs and get our technology into their heads,” he said. “If you get people in the studios talking earlier on, they can push through your technology instead of pull it through. … We want to be a supplier of choice based on our technology and delivery. With the Detroit Three, we are known as a supplier of choice, but we’d love to have (more) in our customer pie chart.”

Read 2821 times Last modified on Monday, 13 August 2012 15:18
Brian Edwards

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