July 26, 2016 Moving to Tier 1

Volume 4 | Issue 5

Linamar continues to distinguish itself as an innovative supplier of precision-machined automobile components.

The number of outsource manufacturers fueling the automotive industry has grown substantially since the trend to outsource began more than a decade ago. Today, as OEMs look to streamline their supply bases, automotive outsourcing companies are quickly disappearing from the cluttered landscape – leaving only the most talented, strongest and most nimble manufacturers. Linamar Corporation of Guelph, Ontario, is one of these proud survivors. Linamar has thrived among such tough and heavy competition to become a global success. The company combines technical strength, vertical manufacturing strength, lean entrepreneurial management and a low-cost, high-quality and on-time commitment to customers.

“We manufacture precision-machined components, castings and assemblies, primarily for the automotive industry,” says Linda Hasenfratz, the company’s president. “We are focused on highly engineered automotive systems, including transmissions, engines, brakes, steering systems and suspension systems.” About 70 percent of Linamar’s business is focused on manufacturing power trains, engines and transmissions.

Catching the Power Train
Linamar’s technical advantage, both in its employees and in its equipment, has long been its distinctive business trait. More than 25 percent of the company’s employees are technical experts, and customers respond positively to the prowess Linamar displays. “I’d like people to see us as experts in precision machining of any type of machined component, as we evolve toward providing modules or assemblies specific to power trains,” says Hasenfratz. “We plan to be a Tier I supplier of power trains because that is, by far, the strongest area of expertise for us. But we also do quite a lot of componentry as well for brakes and steering and suspension systems.”

This is a goal well within reach for Linamar. It already offers a wider range of products than most of its competition. “We have technical capabilities for every precision-machined component in all of these systems, and no one else in the industry has that breadth of capability,” says Hasenfratz. “We have programs running in house on all of those various components. That distinguishes us from the rest.”

Responsiveness can mean the difference between “flourish” or “perish” in this competitive world. “We are well known for our responsiveness, and we can be up and running on a program very quickly,” notes Hasenfratz. An example of this nimble commitment to customers is when one of the Big Three approached Linamar to tackle a transmission case program. “This was something that had never really been outsourced before,” she explains. “They needed an immediate addition to their supply. We were up and running on that program within eight weeks, which is a phenomenal response time for this type of program.” The machining involved on transmission cases is very complex, so Linamar had the program tooled up on its CNC equipment. “Because of our extensive expertise in CNC machining, we were able to do that quickly for our customer. This is an example of what our customers value in us as a supplier, in that we have that kind of flexibility and responsiveness.”

Breaking Tradition
While the number of competitors continues to shrink as OEMs streamline their supplier base, Linamar sees only bright opportunities for the company. “We are in a very good position because the market offers lots of growth opportunities,” says Hasenfratz. “The total global market for precision-machined components in engine and transmission systems is about $80 billion. Only about 15 percent of that is currently outsourced, so our market focus is one of excellence, opportunity and growth potential.”

Linamar is attuned to the subtle changes in its market environment and is ready to take advantage of every change, even before that change occurs. “We’ve been awarded a lot of new business in the last couple years, particularly in the engine area, for components that have not traditionally been outsourced by OEMs who have a history of doing them in house,” explains Hasenfratz. Within the last few years, Linamar has done between $200 million and $300 million worth of business annually in this sector alone.

“So in the area of the four Cs (cylinder blocks, cam shafts, crank shafts and connecting rods), we are becoming renowned as an expert in machining these components.” Few suppliers in the world have this capability, Hasenfratz says. “It’s a market just emerging in terms of outsourcing, so this is a very important area for Linamar.”

From Job Shop to Hot Stock
The company has come a long way since its humble beginnings. Hasenfratz’s father, Chairman and Chief Executive Officer Frank Hasenfratz, founded the company in 1966 as a job shop that focused on low-volume, high-value-added defense and aerospace applications. Today, Linamar is a public company, successfully traded on the Toronto Stock Exchange since it went public in 1986. “Since the company went public, we began to focus on high-volume automotive as the core for the company,” says Hasenfratz.

Although Linamar has an impressive global presence, operating 30 plants throughout the world and employing about 8,600 employees, each facility operates as a small and friendly company. “Our company is very decentralized and operates with many autonomous profit centers,” explains Hasenfratz. Each facility is its own profit center, run by entrepreneurial management teams. “This creates a very strong focus on performance within each of those plants because the management teams are fully accountable for whatever happens in their own facility.”

Linamar has deliberately kept its facilities small and manageable – about 100,000 square feet with no more than 300 or 400 employees, all of whom are known by their first names. The employees are comfortable in knowing that management is in tune with their concerns and their ideas for improvement in this kind of environment.

Engines that Can
As Linamar introduces more and more capabilities into its global muscle, it is becoming a more powerful vertical contender. In addition to its precision-machining breadth, it also operates three foundries where it casts some of the products it machines. In 1998, it purchased a Renault facility in Mexico, where it machines and fully assembles automotive engines for the French car manufacturer. “We are the only supplier in the world making a full engine for an automotive OEM application,” says Hasenfratz. “This is really a big feather in our cap because as we evolve toward becoming a Tier I supplier in the power train area, we already have the experience of having assembled an automotive engine.” Linamar manufactures about 10,000 engines per month at this facility.

Although the company expects a downturn in light of the automotive industry’s current slump, it anticipates resuming its 15-to-20 percent annual growth next year. “We also expect content growth, which we define by calculating our dollar sales divided by the number of vehicles produced,” explains Hasenfratz. “This is very important because as the industry volume starts picking up, that will mean sales and earnings will really accelerate.” Linamar ended 2000 with C$1.34 billion (about U.S.$880 million) in revenues.

“We will continue to establish ourselves as an excellent source for precision-machined components for brake, steering and suspension systems,” concludes Hasenfratz. “In addition to this, we are heading in the direction of supplying engine and transmission components, subassemblies and even full systems in the power train arena.”

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