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ADAC AUTOMOTIVE Continued from page 3

spend more money and invest in some different technology, different processes.” Diversification would help the company to

avoid steep dips in sales in favor of more trough- like declines — which are much easier to manage through, Teets said. “We’re just trying to avoid the deep peaks and

the deep valleys that we’ve experienced in the past,” said Teets of the diversification plan. 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.

Strategic partnerships Outside of the acquisition in 1999 of Dura

Automotive’s door handle and trim division, Teets said the company has chosen to grow organically and to strengthen its operation through various partnerships. In the middle of the last decade, ADAC went looking for a global business partner to better reach new markets. In Mexico, for example, ADAC formed a joint

venture with Milwaukee-based STRATTEC Security Corp. to use one of its facilities for non- painted, low-value-added products for OEMs in Mexico or in the southern states. The move forms ADAC’s low-cost country strategy for the North American market. In 2006, ADAC joined with STRATTEC 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. In just 10 years, the alliance has allowed

ADAC to do business on a global scale, although ADAC had operations in the UK in the early 2000s. Today, through the VAST alliance, the company has three operations in China and sales and engineering offices in Tokyo, Japan and in Seoul, South Korea. It also has a joint venture with a company in São Paolo, Brazil. ADAC and VAST are in talks with partners in India for a potential manufacturing footprint there to meet demands of Volkswagen, Ford and GM. “Where we’re at today just blows my mind,”

Teets said. But he added that being an effective supplier

in the modern automotive industry necessitates that companies like ADAC serve OEMs on a global scale. “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,” he said. “We joined with (VAST) to protect the home market. If you can’t quote globally, you can’t defend and protect jobs at home.” The supply chain also must keep innovating

The West Michigan Chapter of the Association for Corporate Growth held its ninth annual Outstanding Growth Award reception on March 13 at Frederik Meijer Gardens. 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-long presentation 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 and recent investment in a new paint facility and equipment in Muskegon, which is expected to help the company diversify its customer and product base.

and adding value for customers. In ADAC’s case, that’s meant offering more technological solu- tions, particularly with door handles, which increasingly feature high-tech touch-sensitive parts. A drive to strengthen its technological capabilities led to ADAC in 2011 making a strate- gic with a local tough-sensing technology com- pany that Teets declined to name. ADAC spends about $15 million per year on electronics.

Execution All the new investments in facilities and

equipment, coupled with changing dynamics of the automotive industry have forced Teets and his colleagues to be masters of process and execution. As well, the company is bumping into some capacity constraints within its West Michigan operations. Any misstep now could really impact the company, he said. “Our mantra for ’12 is control our capacity,

conversion of sales over budget to the bottom line, and execution,” Teets said. “Obviously, execution is really the capstone to the two prior things. If you don’t execute, you don’t convert your excess sales to the bottom line and your capacity is going to get out of control, too. We’ve got a lot of balls in the air. I try to tell all of our people here: Let’s concentrate on what’s in front of us. We’re multitasking and we need everyone to multitask … the best they can.” Through it all, Teets said he’s learned to sur-

round himself with smart people and to trust his gut instinct. “I’ve been with the company for 19 years, but

I learn something new every week,” he said. “To say that you stop learning is the time that you should retire. … I learned that if you want to be an intelligent CEO, you have to surround yourself


with people smarter than you are. You need to be engaged and involved at a very high level, other- wise you shouldn’t be in the position you’re in.”

Auto boom and bust Teets found himself tested just weeks after

being named president of the company in 2001. It would be the first of two great periods of chal- lenge for him and ADAC. He took the helm in mid-2001 when the auto-

motive industry was already showing signs of weakness. The company was set to announce his promotion in mid-September, and then 9/11 hit. The country came to a stop and the economy veered into recession. People stopped buying cars, and ADAC’s profitability dropped as cus- tomers’ orders stalled. Within his first six months on the job, he had

to make the tough decision to make layoffs. “We had never done a right-sizing up to that point (in 2001),” Teets said. To combat the slowdown, ADAC reorganized

into business units — one for door components and another for automotive trim — and com- pleted the shuffle in 2002. Midway through the last decade, company sales were in the $150 mil- lion to $160 million range, and management had its eyes set on the $200 million milestone. The company built up capacity in equipment, facili- ties and human resources to continue growing up to that mark. But in retrospect, Teets said the company capacitized too much and ran at “fairly high debt levels,” all of which hurt profitability. “We really did think we were heading toward

the promised land of $200 million in sales,” he said. But ADAC never got there. The industry started

to slide once again in the tail end of 2007 and throughout the next two years. The company took


a “significant loss” in 2008, resulting in a complete internal restructuring. In 2009 within the span of a month, two of ADAC’s largest customers, General Motors and Chrysler, filed for bankruptcy. The company’s future was less than certain. Aided by the federal government, the two

automakers emerged from bankruptcy and carried on, reaching profitability in 2011. The smooth bankruptcy process helped save ADAC and others in the supply chain from an even more tenuous situation. “President Obama had his hand all over (the

bankruptcies), and obviously, we being an auto- motive supplier, are greatly indebted. Because, if they never came out of it …” Teets trailed off, pausing a moment. “They would have come out of it somehow, someway. The United States gov- ernment wasn’t going to allow two major auto- makers to go under and never come back out.” While the auto industry bailout directly

helped the OEMs, it also kept afloat many in the automotive supply chain as a result. To this day, industry analysts repeatedly say they’re sur- prised more suppliers didn’t go out of business. Teets, his board of directors and the manage-

ment team made tough choices to keep the com- pany going. He said to ADAC’s credit, the company was “a little bit ahead of the curve” in realizing the gravity of what was happening in the industry. During 2008 and 2009, ADAC let go 50 salaried employees and another 125 to 150 hourly people. Following the lead of some of the other West

Michigan-based office furniture companies, the executive team implemented across-the- board pay cuts of 10 percent for executives, 7 percent for the director group and 5 percent for all other salaried workers. But on the heels of GM filing for bankruptcy


on June 1, 2009, ADAC realized it needed to scale back even further and instituted a four-day workweek — for workers, another 20 percent cut on top of the previous cuts. “The summer of ’09 was not a pleasant time

to be in this industry,” Teets said. “There were some pretty serious stress levels.” In mid-July, the company decision-makers

reviewed the six-month financials through June and the outlook for the rest of 2009 and realized it would lose “several million dollars” for the year. Teets said a loss of that size would have likely resulted in the company being thrown into some serious discussions with Fifth Third Bank, as ADAC would have tripped some loan covenants. “It would have been a very, very difficult

time for us,” Teets said, noting that “thoughts crossed my mind” that the company might be forced into some sort of reorganization. “We did everything we could. We streamlined opera- tions. We did everything humanly possible.” Slowly, ADAC’s position started to improve,

a situation bolstered by the federal “Cash For Clunkers” program that helped spur new vehi- cle purchases. For 2009, the company ended the year marginally profitable. “I’ve never been so happy to break even in

my life,” Teets said.

Light at the end of the tunnel The company’s tough choices seemed to

work. Sales rebounded to $163 million in 2010 and $185 million in 2011, and the company is pro- jecting $187 million in sales for 2012. Improving auto sales caused the company to revise its projec- tions upward to $193 million for this year. In the middle of all the uncertainty, Teets said 2010 was a record year for profitability as a

percentage of sales, but that was more an aberra- tion attributed to the company being so lean in its headcount and operations. “We had gone from taking fat out of the orga-

nization … to taking muscle out of it … to cutting into the bone,” he said. “We really were lean.” As the U.S. light vehicle sales reached 12.7

million units in 2011, ADAC experienced a slight decline in profitability as a percentage of sales, a trend which it projects to continue through 2014 as a result of paying for the Muskegon expansion, Teets said. Profitability should improve by 2014 and 2015, when the paint system is up and running. Like many manufacturers, ADAC slowly

added workers back in 2010 and 2011, and cur- rently employs more than 1,100 people, includ- ing about 140 temporary workers. The company prefers to keep about 10 percent of its workforce as temporary workers to buffer for any major programs for customers. “We’ve got to be very careful to avoid the

creep in headcount,” Teets said. With gains in productivity, the company has

to produce on average 20 percent more pieces today to reach the same sales figures it did just five years ago, he added. “Your productivity and lean equation needs to

be stronger than ever. The North American auto- motive market is back, so our OEM customers are … getting back to asking for 2- to 3-percent givebacks per year,” Teets said. “If you don’t have the lean methods inherent to your company, the continuous improvement, the Toyota lean manufacturing sys- tem — you’re going to be out of business again. “That creep will occur — and (the company could

experience) loss of profitability. It’s something that we talk about and strive for every week, every month here: What are we doing better?”


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