Crain's Detroit Business - December 19, 2011 - (Page 6)

Page 6 CRAIN’S DETROIT BUSINESS December 19, 2011 Neapco: Owner opens door to China ■ From Page 3 Your Bank’s Not Lending? Pa., and was being sold off by its private equity owner, Carlyle Group. Neapco doesn’t intend to hide behind Wanxiang’s skirts in China — although it did think about it. Wanxiang is already in the driveline business in China. “We floated that idea initially,” said Bob Hawkey, the 64-year-old aerospace executive who came in as CEO in 2003. He and the executive team work out of office space in a Neapco factory in Belleville. “My initial idea was that we would take the overall global order and then kind of subcontract the production in China.” But the idea was short-lived. Hawkey recalled that one of Neapco’s U.S. customers told him pointblank: “We will not deal with someone who has a virtual company. You have to be there in substance, not just in name.” And so, Hawkey made clear, in China, Neapco will deliver Neapcobrand components to an expanding base of Neapco customers, managed by Neapco’s Michigan team. The eventual plan, he added, will be to build a Neapco plant in China through an ownership joint venture with Wanxiang. But the plant will be operated by Neapco. “We can have a very effective joint venture that we manage, that gives our customers the confidence that they’re getting the same technical capability from us, whether our part’s manufactured in Germany or it’s manufactured in China,” he said. So what good does it do to have a rich, well-connected majority owner if that owner can’t play rainmaker in its home market? Plenty, Hawkey said. Wanxiang’s involvement over the past five years has freed management to remake Neapco into a profitable, growing company with a new global strategy and a widening customer base that includes BMW, Audi and Volkswagen Group, he said. Neapco has been thriving in the U.S. market since 2006. The private company was operating with less than $100 million in revenue in 2006. This year, it will come close to $600 million, Hawkey said. Exit from aftermarket Carlyle wanted to move Neapco out of original-equipment parts and deeper into its retail aftermarket business. Hawkey thought just the opposite. One mammoth retail customer — which Hawkey identified only as “a gorilla” — controlled most of Neapco’s retail business. That customer, he said, wanted to put the manufacturer on a 365-day payment cycle. In other words, a purchase today would be paid for one year from today. To make it worse, Neapco was losing money on that client. Call for a free consultation. Loan amounts: $1,000,000.00 and above. Investment Real Estate Owner Occupied Real Estate Lines of Credit Accounts Receivable Equipment Turnaround Consulting Loan Modiﬁcations Bank Workouts ours are. Wanxiang’s acquisition of Neapco sprang from a phone call from Hawkey to Pin Ni, president of Wanxiang America Corp., the Chinese company’s U.S. holding company in suburban Chicago. Hawkey was looking for a buyer whose vision more closely aligned his own, and Wanxiang was looking for another U.S. acquisition. Wanxiang, a diverse privately owned company with about $8 billion in sales, has ownership positions in several U.S. companies besides Neapco. It does no manufacturing in North America. With Wanxiang behind it, Hawkey’s team moved Neapco out of retail aftermarket and stepped up the search for original-quipment parts business. Getting rid of “the gorilla” as a customer immediately improved cash flow by $4 million a year. The partners took no money out of the company and paid off their buyout in 18 months. They then acquired Ford Motor Co.’s driveshaft manufacturing business in Monroe for an undisclosed amount in 2008, giving Neapco new business in Ford customers and products. Driveshafts are part of a driveline system, which consists of the multiple parts that connect a vehicle’s transmission to its driving axle. Despite jumping into original equipment on the eve of the worst economic downturn in a half century, Neapco has blossomed. Hawkey said Neapco has another $2 billion worth of booked business that will yield $300 million a year in additional revenues when it kicks in next year. Among products for which Neapco will supply parts: the Ford F-150 and Mustang, the next Ford Transit Connect van, Chrysler Group LLC’s Ram pickup, and unidentified future products from General Motors Co., Ford, BMW and Volkswagen Group. Compared with 400 employees in 2006, Neapco now has 2,100. It had only about 400,000 square feet of manufacturing space when Hawkey arrived in 2003. It now has 2.5 million, having added plants in Mexico, Poland and Germany. The plant in Mexico and another in Nebraska are being expanded to boost North American sourcing of subcomponents. That means bringing in-house content that Neapco has been sourcing from China, and in some cases, dropping Wanxiang as a supplier. Is Wanxiang OK with that? “They’ve given us a lot of latitude and independence,” Hawkey said. “They’re very sensitive to the overall economics of what we’re doing. And they know that to demand that we continue buying from one of their plants, even if they’ve grown uncompetitive, would just put our entire business in an uncompetitive light.” In short, Wanxiang is backing Neapco — not controlling it, which is unusual. Throughout the 1980s and 1990s, suppliers from Japan created joint ventures with American companies. Those ventures were mostly to share customer bases. Asian suppliers got access to projects from Ford and GM. U.S. companies got their feet in the door at Toyota Motor Corp. or Honda Motor Co. Buying binge Separately, a global supplier acquisition binge has gone on for years as suppliers have tried to acquire new technologies. It is often faster and less expensive to buy a company with needed technology than to develop it in-house, said Jay Baron, CEO of the Center for Automotive Research in Ann Arbor. CAR has been following supplier trends in North America for decades. Baron reports from conversations with U.S. companies that other Chinese manufacturers are shopping for U.S. firms. “The Chinese know that the domestic expertise here is worldclass and theirs is not,” he said. “They would like to buy into it.” Baron said that overtures have been made in the past year to American automotive tooling companies. But as the North American market gradually rebounds, the tooling companies have become busy. And because of the economic crisis, there are fewer tooling companies to handle automaker projects than there were five years ago. “The Chinese have been trying, but so far, there have been no takers,” Baron said. But it’s different for Neapco and Wanxiang, Hawkey said. Wanxiang is not acquiring technology. It is not even trying to secure a U.S. sales source for its Chinese-made subcomponents, judging from Neapco’s shift to more North American production. It is investing in a company with growth potential, Hawkey said, and learning how to be a global supplier. “They recognize that there are language, cultural and time zone obstacles to maintaining a good relationship with customers,” he said of his co-owners. “We become a resource to them. We make sure there’s a continuity of communication with the customer that would be extremely difficult if somebody was trying to deal with China. “Wanxiang doesn’t have any manufacturing outside of China. If you really want to be a global partner, you’ve got to have the capabilities in terms of engineering and manufacture wherever the manufacturer’s going to be assembling. And that’s us.” From Automotive News BANKRUPTCIES 800.509.3552 www.eclipsecapitalgroup.com 2207 Orchard Lake Road, Sylvan Lake, MI 48320 “Since 1997” The following businesses filed for Chapter 7 or 11 protection in U.S. Bankruptcy Court in Detroit Dec. 9-15. Under Chapter 11, a company files for reorganization. Chapter 7 involves liquidation. Oriental Buffet (MI) Inc., 13461 Hall Road, Utica, voluntary Chapter 7. Assets: $2,000; liabilities: $274,652. Noble Home Health Care Inc., 46576 Inverness Drive, Canton Township, voluntary Chapter 7. Assets: $14,432; liabilities: $173,330. Sepia Packaging Inc., 21434 Brixton Place, Southfield, voluntary Chapter 7. Assets: $5,050; liabilities: $752,962. The Producer’s Advantage, 30800 Tele- graph Road, Suite 2720, Bingham Farms, voluntary Chapter 7. Assets and liabilities not available. Chase Group LLC, aka Chase Group of Michigan LLC, 2630 Charlevoix, Detroit, voluntary Chapter 11. Assets and liabilities not available. — Michelle Muñoz http://www.varnumlaw.com/Services/MiSpringboard http://www.eclipsecapitalgroup.com http://www.eclipsecapitalgroup.com

Table of Contents for the Digital Edition of Crain's Detroit Business - December 19, 2011

Crain's Detroit Business - December 19, 2011