GLENDALE,
Mar 03, 2013 -- Riding the rebound of the North American car industry is
Strattec Security Corp.
But
Frank Krejci, the company's CEO since last year, isn't just along for a ride.
He wants the maker of locks, keys and latches to diversify beyond its core
focus of the auto industry.
That
may entail an acquisition or two. It could also mean bringing work to Glendale
as a contract supplier to manufacturers that are looking closer to home for
precision parts rather than to China. Or it may entail expanding further
overseas to take advantage of increasing car sales in emerging markets.
Last
year, Krejci succeeded Harry Stratton, who remains company chairman. Stratton
led the firm since it was spun off from Briggs and Stratton in 1995.
Krejci,
who has spent much of his career at Strattec and Briggs, talked recently about
the business. Here is an edited version of that discussion.
Q.
How are you getting involved in the on-shoring trend, which has gotten
attention for companies like Master Lock, bringing work back from China?
A.
What we're finding is we can be very competitive with an overseas manufacturer.
But people are still saying, "I can still get it for about the same price
as I can get it here." We say that's fine, but look at the inflation rate:
Wage rates are going up 10-15-20-30% a year in China.
Q.
That's from a low base.
A.
It's from a low base, but if the landed cost after all the transportation and
everything are about the same (today), I'd rather bet on the U.S. because our
wage rates aren't going to go up anywhere near that rate. There's a lot of
interest, lots of opportunity, in doing something like this.
Q.
When did you start this?
A.
We started from a standing start less than a year ago. We have a separate sales
force, a separate website, we've been at trade shows, and we've talked with a
number of people. This is not an impulse buy, there's months of lead-time. But
I believe the level of interest has been terrific because they know we make
very high quality precision zinc parts. We have to. Otherwise, we couldn't be
in the automotive business.
Q.
What's the growth plan for this business?
A.
Right now, we're 100% automotive. I don't think that's the best long-term
position for us. Not because I don't have confidence in automotive. It's
because I believe that if we can be in some complementary businesses, there's
going some cross fertilization of thinking, designs and ideas that really will
help.
Q.
But i t helps with the cyclicality -- evening out the highs and lows of the
auto industry's cycles?
A.
Absolutely. I'm not going to discount that. And I'd expect that, down the road,
we'll still be at 70% or 80% automotive but I'd like to have some
diversification -- not only for the cyclicality, but also for the exchange of
ideas.
Q.
When will it start showing up in sales and earnings?
A.
We're just getting started. My guess is later on in this calendar year we're
going to start seeing some impact. But when you're a 300 million company, and
you're starting something from scratch, it takes awhile for that to show a
significant impact on either our sales or our bottom line.
Q.
Let's turn to acquisitions. One of the things you said in your letter to
shareholders last year was that you were interested in growth through MandA.
What are you looking for?
A.
We're looking at complementary businesses. We're talking security products, key
fobs, and electronic interfaces with mechanical locks.
In
the area of motion control, I don't want to define us as just moving doors. So
if we define ourselves as motion control, there's all sorts of opportunity in
terms of both mechanical and electronic control.
When
you look at the aging population and the amount of disabilities, our power
access group is doing some really interesting work now on outfitting vans for
people in wheelchairs -- power ramps, power doors, lift gates, all those sorts
of things.
Q.
What's the time frame for growth through MandA?
A.
We're in no rush to say we have an acquisition by such and such a date. It's
far more important to find people who can be in complementary businesses, get
to know them. It may be something that could happen in six months, or it might
be something that could happen in six years.
There's
a lot of planting of seeds, and you never know how quickly something may come
about. I'm not wedded to a specific timeline. I would much rather avoid a bad
acquisition than to try and get something done quickly.
Q.
You've had quite a reversal as the North American auto market has boomed while
Europe stagnates. A few years ago, the knock on Strattec was it's too reliant
on Detroit and too reliant on locks and keys at a time when the business is
shifting to fobs and electronic keys.
A.
We're not the same business. Ten or 15 years ago we were all locks and keys,
all mechanical locks and keys. Now we're going more on the electronic side,
with push button starts. We've added a lot with driver controls and latches and
power access.
Q.
How did you enter the electronic key market?
A.
Twenty years ago we were sitting around the table saying locks and keys are
going to disappear over time. That's happening, where you might have put five
on a car before, now you put one or two. And instead of being the primary
security device, the mechanical side has become the backup security device.
We've
already gone through the major shrinking of the market there. Is there still a
need for mechanical? Yes, but instead of five locks, it's one lock. But what's
happened is there's been a migration to electronics.
We
created electronics as a separate business unit. It gives it more focus, more
emphasis and more priority. Coming out of the venture capital area, I could see
the real value of creating boards of directors, so we created boards of
directors for these business units. That's given my product business managers a
sounding board. And they are learning parts of the business that they normally
wouldn't see.
Q.
Now, to China. Talk about your growth plans and challenges there.
A.
With our two joint venture partners in VAST (vehicle access systems
technology), we went to China because our customer said, "We need you
there because eventually we need inexpensive parts out of China to serve the
North American market."
And
that wasn't so far-fetched. Ten years ago, China was making maybe 2 million
cars a year while we were making 16 million. Now we're making 15 (million), and
they're making 20 (million). They've already passed us.
So
with that kind of growth rate, we found once we got there we had our hands full
just to manufacture for the Chinese market. So virtually nothing comes out of
China back to the U.S.
Q.
You had relocation costs in your results this last year.
A.
We had to go through a move, partly because the Chinese government decided
there should be apartment buildings. So we built a new facility, we also added
some very sophisticated painting capabilities, which gives us a huge
opportunity in the painted handle business.
That's
terrific long term, but we're in the middle of experiencing the pain of that.
Because it's sophisticated and automated -- which it needs to be to get
consistency of quality -- we've had start-up challenges.
I
get investors calling me saying, "What's going on? You're losing money in
China?" I say yes, we are. But when you look at it in a few years, we are
going to have a significant door handle business that Strattec will be the
one-third beneficiary of.
So
instead of going out and buying a door handle business, through the losses I am
paying for the start-up business, but I will be the one-third owner of a
significant door handle business in a market that will be growing.
Q.
Are you expecting more international activities for VAST?
A.
We're looking at India and Brazil now, and expect to do more in those areas.
Q.
You took some good-natured razzing when we walked through the factory from some
of the male employees over your decision to give every female employee a rose
on Valentine's Day. Talk about your thoughts on employee engagement.
A.
Everybody plays a very important role in the success of the company, or why
have them here? If I come up with the greatest strategy, and the guy in the
shipping room doesn't do something right, what good is my strategy?
So,
to me, it's important that everybody understand what a key role they play on
this team. And the more they're engaged, the more good ideas we're going to get
from them. The better we'll perform.
And
the other part of it is really psychological because, when you think about it,
if you're proud of where you work, what you do, that's a huge part of feeling
good about yourself and life in general. And what happens then?
You
smile at each other, the day goes faster, you're more productive, you feel
better. You go home, you don't kick the dog. It impacts your family. So the
whole thing to me is very important.
We're
not working just to make a lock cylinder. We're working to be proud that we are
a major supplier to the automotive industry.
Milwaukee Journal Sentinel www.menafn.com
