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Jim Teets, president and CEO, ADAC Automotive. PHOTO: JEFF HAGEDéjà vu all over againADAC invests in growth amid auto industry volatilityBy Joe Boomgaard | MiBiz ADAC is known for its door handles, it also be housed at the facility and the retrofits firstname.lastname@example.org recently returned to the exterior mirror business out the company to handle the new processes. after a decade out of that market. The new process will help the company reduce GRAND RAPIDS — Coming out of one of ADAC traces its roots to 1972 with the for- scrap in the paint process by allowing for betterthe most tumultuous periods in the history of mation of A-Line Plastics, a small Grand Rapids paint coverage and preventing dirt or other con-the automotive industry, ADAC Automotive is shop that started with three molding machines taminants from entering the process.aggressively investing in new facilities and tech- and six employees. In 1975, the company incorpo- “The bar is being raised,” Teets said of thenology to position it to diversify into new clients rated as ADAC Plastics Inc. and today does busi- competition for painted parts.and new industries. ness as ADAC Automotive. The original paint line at ADAC’s Port City From essentially a break-even year in 2009, the ADAC is privately owned by the Teets family Boulevard plant came online in 1995, whilecompany returned to record profitability in 2010 — President Jim and Patricia (Lacks) Teets — and the Keating line started in 2000. Given the ageand experienced sales growth of 13.5 percent in the Hungerford family, including Chairman of both lines, Teets said the company decided2011 as the automotive industry regained its legs. Ken Hungerford and his son, VP of Vision against retrofitting its systems and opted But that growth didn’t come easy. Just ask Jim Systems Peter Hungerford. Richard Lacks Jr. and instead to build the new plant and buy the newTeets, president and CEO at ADAC. In the 19 years Kurt Lacks also have minority ownership posi- equipment.he’s been with the company, he’s experienced two tions in ADAC. Teets said the company spent some time andmajor periods of industry upheaval that have money in looking for the right way forward. Ittaken their toll on many suppliers. Yet, despite Investments to hedge against competition hired some consultants from Detroit to help inthe challenges, ADAC has come out the other To ensure that ADAC remains competitive in that process.side and is in the process of major investments the automotive business, the company is investing “We realized that, technology-wise, we werethat will ensure it remains globally competitive. about $20 million in a new paint facility adjacent falling behind in the paint processing part of it, Since its beginning, ADAC Automotive has to its Keating Avenue plant in Muskegon. About and we wanted to try to regain a dominant posi-been decidedly auto-centric: About 99 percent of $4.7 million of that investment will go to the tion within our products in North America whenits business is currently in the automotive sup- building itself, with the remaining $15 million it comes to paint. That’s what we hope to do withply chain, primarily as a Tier I supplier. While going toward the new high-tech paint systems to this new system,” he said.2 ACG-WESTERN MICHIGAN 2012 OUTSTANDING GROWTH AWARD REPRINTED COURTESY OF MIBIZ
About the Outstanding Growth Awards T he annual Outstanding Growth Award honors a local company that demonstrates sustained growth in sales, protability, employment and community involvement. Past winners include Wolverine World Wide Inc., National Heritage Academies, Rockford Construction Co., Herman Miller, Elan Nutrition, Butterball Farms Inc. and Perrigo. The 2012 winner is ADAC Automotive. Eligibility requirements include: • $10 million minimum in annual sales • Demonstrated growth in sales, protability and employment as well as continuing community involvement. Each year, the Outstanding Growth Award winner is asked to provide a 45-minute presentation on the challenges faced — and strategies used — to build a track record of growth. The presentation is delivered to a sell-out crowd of approximately 400 of the area’s top executives, business owners and nanciers. The award itself is actually two awards: a large perpetual trophy the winner gets temporarily and a smaller replica that the winner gets to keep. ACG decided to take the “Stanley Cup approach” — the winning company gets its name imprinted on the large tro- phy and they get to keep it for a year before turning it over to the next winner. The winner of the Western Michigan chapter’s Outstanding Growth Award may also be submitted for nomination for the ACG’s National Outstanding Growth Award, given annu- ally by ACG Global at its prestigious Intergrowth Conference. Past winners: 2004: Wolverine World Wide Inc. 2008: Elan Nutrition 2005: National Heritage Academies Inc. 2009: Butterball Farms Inc. 2006: Rockford Construction Company 2010: Perrigo 2007: Herman Miller Inc. 2011: Service Express Inc. The company plans to retrofit the Keating customers would hopefully be able to offset any percent of ADAC’s business — and worked onplant in 2013 and decommission the Port City industry decline. projects for Nissan, it still needs to work at broad-paint line in late 2014. The approximately 20,000 “We can’t just hang our hat on this new paint ening its customer base, including with Toyota,square feet of space will be absorbed by the com- system. We obviously have to execute and do a Teets said.pany’s molding or assembly operations. lot of other things well. This new paint facility, ADAC does some business with the European “This whole thing is really a three-year pro- we hope, is going to be a door-opener to a lot of automakers, mostly through its Vehicle Accesscess, but the real heavy capital investment is this additional opportunities over and above what we Systems Technology (VAST) Alliance. Teets saidyear. We’re dumping in right around $17 mil- have today.” the alliance, with its global presence, is help-lion of the $20 million in this year. Our cap ex ing ADAC better reach global automakers, andis the highest its ever been in the history of the Push for diversication particularly those with operations in Northcompany,” he said, noting that in addition, the The new paint facility is a major part of America.company has also invested in a new ERP system, ADAC’s push for better product diversity and Teets said ideally, ADAC would be able towhich it is implementing in 2012. customer diversity. The investment in the new diversify both in terms of customers and indus- Given the large investments in the new facil- paint systems will help both the company’s try to avoid some of the dramatic cycles in theity, Teets said the company has to keep its finan- bread-and-butter door handle business as well automotive industry. Currently about 70 percentcials under strict control. He said the company as its efforts in mirrors and elsewhere on the of ADAC’s business is in door handles.remains confident in industry growth projec- vehicle. The company has tried to translate its techno-tions of U.S. light vehicle sales around the 14 mil- The new technology will expand the size logical molding and painting capabilities to otherlion unit range, up from 12.7 million in 2011. range of exterior parts the company can paint, industries. One success is a contract with American “Some people in our company said it’s too bad and it helps ADAC improve the quality of its Seating Co. to mold urban bus seats at ADAC’swe didn’t do (the paint system) a year ago so we paint coverage on injection molded products to Saranac plant. The company is also pursuing busi-could be enjoying the fruits of the rebound. But we meet or exceed what customers are expecting, ness in the appliance and electronics fields.really did it the West Michigan conservative way. Teets said. “I’d love it, within five to six years from now,We couldn’t do it in ’09, and in ’10 we were still in In particular, ADAC has its sights set on woo- if we could have between 10 and 15 percent ofrecovery mode building back up the muscle that ing more relationships with more Asian auto- our total sales be in non-automotive to help buf-we cut out of the organization,” Teets said. makers. Currently, the company does about 85 fer that rollercoaster you get within automo- “Here we are breaking ground on a new percent of its business with the Detroit Three. tive,” Teets said. “It’s so easy to make a manage-72,000-square-foot paint system and dumping Ford and Fiat-Chrysler were nearly tied in 2011 ment by objective statement like that, but howin $20 million. If somebody said I’d be doing that as ADAC’s largest sales volumes. do you do it? If you want to call on a Whirlpoolback in July of 2009, I’d say you’re crazy,” he said. “That’s a very heavy concentration in Ford, or an Electrolux, what you might be making for Even if the industry were to decline, he said Chrysler and GM, but that’s OK. Right now, them has to fit your core competencies and yourADAC would benefit from the new line because they’re riding the crest up,” he said. process capabilities. Or you have to expand andit is more efficient and can accept larger prod- While the company has “made some inroads”ucts. Moreover, the planned targeting of new with Honda — which accounts for about 10 Continued on page 4REPRINTED COURTESY OF MIBIZ ACG-WESTERN MICHIGAN 2012 OUTSTANDING GROWTH AWARD 3
ADAC AUTOMOTIVEContinued from page 3spend more money and invest in some differenttechnology, different processes.” Diversification would help the company toavoid steep dips in sales in favor of more trough-like declines — which are much easier to managethrough, Teets said. “We’re just trying to avoid the deep peaks andthe deep valleys that we’ve experienced in thepast,” said Teets of the diversification plan. While industry diversification will likely bea slow process, Teets said he’s optimistic that thecompany can work faster to achieve customerdiversification. Getting ADAC’s designs into thehands of automakers before they’re designingnew vehicles is key to that success, he said.Strategic partnerships Outside of the acquisition in 1999 of DuraAutomotive’s door handle and trim division,Teets said the company has chosen to groworganically and to strengthen its operationthrough various partnerships. In the middle ofthe last decade, ADAC went looking for a globalbusiness partner to better reach new markets. and adding value for customers. In ADAC’s case, with people smarter than you are. You need to be In Mexico, for example, ADAC formed a joint that’s meant offering more technological solu- engaged and involved at a very high level, other-venture with Milwaukee-based STRATTEC tions, particularly with door handles, which wise you shouldn’t be in the position you’re in.”Security Corp. to use one of its facilities for non- increasingly feature high-tech touch-sensitivepainted, low-value-added products for OEMs parts. A drive to strengthen its technological Auto boom and bustin Mexico or in the southern states. The move capabilities led to ADAC in 2011 making a strate- Teets found himself tested just weeks afterforms ADAC’s low-cost country strategy for the gic with a local tough-sensing technology com- being named president of the company in 2001.North American market. pany that Teets declined to name. ADAC spends It would be the first of two great periods of chal- In 2006, ADAC joined with STRATTEC and about $15 million per year on electronics. lenge for him and ADAC.German company Witte Automotive to form He took the helm in mid-2001 when the auto-the Vehicle Access Systems Technology (VAST) Execution motive industry was already showing signs ofAlliance. VAST operates as a single-source global All the new investments in facilities and weakness. The company was set to announcesupplier with plants in the United States, Mexico, equipment, coupled with changing dynamics his promotion in mid-September, and then 9/11Germany, Czech Republic, China and Brazil. of the automotive industry have forced Teets hit. The country came to a stop and the economy In just 10 years, the alliance has allowed and his colleagues to be masters of process and veered into recession. People stopped buyingADAC to do business on a global scale, although execution. As well, the company is bumping cars, and ADAC’s profitability dropped as cus-ADAC had operations in the UK in the early into some capacity constraints within its West tomers’ orders stalled.2000s. Today, through the VAST alliance, the Michigan operations. Any misstep now could Within his first six months on the job, he hadcompany has three operations in China and sales really impact the company, he said. to make the tough decision to make layoffs. “Weand engineering offices in Tokyo, Japan and in “Our mantra for ’12 is control our capacity, had never done a right-sizing up to that point (inSeoul, South Korea. It also has a joint venture conversion of sales over budget to the bottom 2001),” Teets said.with a company in São Paolo, Brazil. ADAC and line, and execution,” Teets said. “Obviously, To combat the slowdown, ADAC reorganizedVAST are in talks with partners in India for a execution is really the capstone to the two prior into business units — one for door componentspotential manufacturing footprint there to things. If you don’t execute, you don’t convert and another for automotive trim — and com-meet demands of Volkswagen, Ford and GM. your excess sales to the bottom line and your pleted the shuffle in 2002. Midway through the “Where we’re at today just blows my mind,” capacity is going to get out of control, too. We’ve last decade, company sales were in the $150 mil-Teets said. got a lot of balls in the air. I try to tell all of our lion to $160 million range, and management had But he added that being an effective supplier people here: Let’s concentrate on what’s in front its eyes set on the $200 million milestone. Thein the modern automotive industry necessitates of us. We’re multitasking and we need everyone company built up capacity in equipment, facili-that companies like ADAC serve OEMs on a to multitask … the best they can.” ties and human resources to continue growingglobal scale. Through it all, Teets said he’s learned to sur- up to that mark. But in retrospect, Teets said the “We are trying to call on Hyundai-Kia in round himself with smart people and to trust company capacitized too much and ran at “fairlySouth Korea and in North America. We really his gut instinct. high debt levels,” all of which hurt profitability.have to be talking to them in stereo,” he said. “We “I’ve been with the company for 19 years, but “We really did think we were heading towardjoined with (VAST) to protect the home market. I learn something new every week,” he said. “To the promised land of $200 million in sales,” he said.If you can’t quote globally, you can’t defend and say that you stop learning is the time that you But ADAC never got there. The industry startedprotect jobs at home.” should retire. … I learned that if you want to be an to slide once again in the tail end of 2007 and The supply chain also must keep innovating intelligent CEO, you have to surround yourself throughout the next two years. The company took4 ACG-WESTERN MICHIGAN 2012 OUTSTANDING GROWTH AWARD REPRINTED COURTESY OF MIBIZ
The West Michigan Chapter of the Association for Corporate Growth held its ninth annual Outstanding Growth Award reception on March 13 at Frederik MeijerGardens. The sold-out event with about 400 executives from around the region featured networking over hors d’oeuvres followed by the presentation of the presti-gious ACG Cup to a team of students from Western Michigan University. Grand Valley State University’s team finished second. The main draw was the hour-longpresentation by ADAC Automotive CEO Jim Teets about his company’s growth since the dark days of 2009. Teets detailed the auto supplier’s growth strategy andrecent investment in a new paint facility and equipment in Muskegon, which is expected to help the company diversify its customer and product base.a “significant loss” in 2008, resulting in a complete on June 1, 2009, ADAC realized it needed to scale percentage of sales, but that was more an aberra-internal restructuring. In 2009 within the span of a back even further and instituted a four-day tion attributed to the company being so lean inmonth, two of ADAC’s largest customers, General workweek — for workers, another 20 percent cut its headcount and operations.Motors and Chrysler, filed for bankruptcy. The on top of the previous cuts. “We had gone from taking fat out of the orga-company’s future was less than certain. “The summer of ’09 was not a pleasant time nization … to taking muscle out of it … to cutting Aided by the federal government, the two to be in this industry,” Teets said. “There were into the bone,” he said. “We really were lean.”automakers emerged from bankruptcy and some pretty serious stress levels.” As the U.S. light vehicle sales reached 12.7carried on, reaching profitability in 2011. The In mid-July, the company decision-makers million units in 2011, ADAC experienced a slightsmooth bankruptcy process helped save ADAC reviewed the six-month financials through June decline in profitability as a percentage of sales, aand others in the supply chain from an even and the outlook for the rest of 2009 and realized it trend which it projects to continue through 2014more tenuous situation. would lose “several million dollars” for the year. as a result of paying for the Muskegon expansion, “President Obama had his hand all over (the Teets said a loss of that size would have likely Teets said. Profitability should improve by 2014bankruptcies), and obviously, we being an auto- resulted in the company being thrown into some and 2015, when the paint system is up and running.motive supplier, are greatly indebted. Because, serious discussions with Fifth Third Bank, as Like many manufacturers, ADAC slowlyif they never came out of it …” Teets trailed off, ADAC would have tripped some loan covenants. added workers back in 2010 and 2011, and cur-pausing a moment. “They would have come out “It would have been a very, very difficult rently employs more than 1,100 people, includ-of it somehow, someway. The United States gov- time for us,” Teets said, noting that “thoughts ing about 140 temporary workers. The companyernment wasn’t going to allow two major auto- crossed my mind” that the company might be prefers to keep about 10 percent of its workforcemakers to go under and never come back out.” forced into some sort of reorganization. “We as temporary workers to buffer for any major While the auto industry bailout directly did everything we could. We streamlined opera- programs for customers.helped the OEMs, it also kept afloat many in the tions. We did everything humanly possible.” “We’ve got to be very careful to avoid theautomotive supply chain as a result. To this day, Slowly, ADAC’s position started to improve, creep in headcount,” Teets said.industry analysts repeatedly say they’re sur- a situation bolstered by the federal “Cash For With gains in productivity, the company hasprised more suppliers didn’t go out of business. Clunkers” program that helped spur new vehi- to produce on average 20 percent more pieces Teets, his board of directors and the manage- cle purchases. For 2009, the company ended the today to reach the same sales figures it did justment team made tough choices to keep the com- year marginally profitable. five years ago, he added.pany going. He said to ADAC’s credit, the company “I’ve never been so happy to break even in “Your productivity and lean equation needs towas “a little bit ahead of the curve” in realizing the my life,” Teets said. be stronger than ever. The North American auto-gravity of what was happening in the industry. motive market is back, so our OEM customers are …During 2008 and 2009, ADAC let go 50 salaried Light at the end of the tunnel getting back to asking for 2- to 3-percent givebacksemployees and another 125 to 150 hourly people. The company’s tough choices seemed to per year,” Teets said. “If you don’t have the lean Following the lead of some of the other West work. Sales rebounded to $163 million in 2010 methods inherent to your company, the continuousMichigan-based office furniture companies, and $185 million in 2011, and the company is pro- improvement, the Toyota lean manufacturing sys-the executive team implemented across-the- jecting $187 million in sales for 2012. Improving tem — you’re going to be out of business again.board pay cuts of 10 percent for executives, 7 auto sales caused the company to revise its projec- “That creep will occur — and (the company couldpercent for the director group and 5 percent for tions upward to $193 million for this year. experience) loss of profitability. It’s something thatall other salaried workers. In the middle of all the uncertainty, Teets we talk about and strive for every week, every month But on the heels of GM filing for bankruptcy said 2010 was a record year for profitability as a here: What are we doing better?”REPRINTED COURTESY OF MIBIZ ACG-WESTERN MICHIGAN 2012 OUTSTANDING GROWTH AWARD 5