Auto parts maker Linamar Corp. has recovered from the auto crisis and 2008-09 recession and is on track to meet its target of generating sales of $10-billion by 2020.
Simply hanging on to the market share Linamar already has in auto parts, construction equipment and components for the energy industry will lead to sales of $7.5-billion by the end of the decade, chief executive officer Linda Hasenfratz told the company’s annual meeting in Guelph, Ont., yesterday.
But auto makers are set to push a substantial amount of new business in engine and transmission parts out to their suppliers, she said, which will provide the company with plenty of opportunity to reach that $10-billion target.
Auto makers now outsource about 20 per cent of that business, which gives suppliers a market of about $57-billion. By 2020, they are expected to double that percentage to 40 per cent, which, combined with increased production of engines and transmissions, will lead to a market of $160-billion for parts makers to tap.
Linamar’s success, Ms. Hasenfratz said, shows that manufacturers can thrive in Canada despite the high value of the dollar and slow growth in North American vehicle production.
“We’re very focused on increasing market share,” Ms. Hasenfratz said in an interview. She told the annual meeting the company has landed new customers such as Volkswagen AG, John Deere Ltd. and Volvo Canada Ltd. in recent years. Linamar posted revenue of $2.9-billion in 2011 and reported record quarterly revenue and profit last week for the three months ended March 31.
“We’re increasing market share at Skyjack [construction equipment] we’re increasing market share in our automotive and our commercial vehicle business as well, so the $10-billion is very achievable from a market perspective,” Ms. Hasenfratz said in an interview.
Linamar, which is Canada’s second-largest auto parts maker measured by revenue, was founded by her father Frank Hasenfratz, a native of Hungary who escaped the Communist regime and founded the company in a garage in Guelph in 1966. Mr. Hasenfratz remains chairman.
It has since expanded to Hungary and is growing in other emerging markets, with two plants under construction in China, where it already operates one factory.
The growth in recent years has been greater than can be financed through cash flow, so its debt-to-capitalization ratio grew to 40.6 per cent last year, higher than the company’s target of 35 per cent.
But Ms. Hasenfratz said slower growth of about 15 per cent annually – compared with 30 per cent in recent years – can be financed through cash flow and will still allow the company to meet the $10-billion target.
“It boils down to your ability to be innovative, whether it’s on the products side or the process side of how you’re going to manufacture them, or your ability to continuously improve both of those things.”
She noted that the strong Canadian dollar helps the company because it buys castings, forgings, equipment and tooling in the United States.