Auto parts put Toronto firm in fast lane
Detroit — North American makers of auto parts are battling low-cost foreign competition while feeling the pinch as United States auto companies try to hold down costs. But one supplier is not only bucking the trend but is becoming the fastest-growing auto part company in North America. Sales this year are set to top the $1 billion (Canadian) mark. The company is Magna International Inc. of Toronto. It produces more than 4,000 different parts, ranging from plastic to sheet metal, seats to electronic circuits.
Magna's growth rate is enviable. In 1983, the company's sales per car or light truck built in North America totaled about $31; revenues were $302 million. This year, per-vehicle content will reach at least $100.
According to Frank Stronach, the chairman and founder, Magna operates ``around 100'' factories. That round number is not due to a lapse in memory but simply to the fact that the supplier has been opening a new plant at the rate of about one every three weeks.
``It's a company that almost can't do anything wrong,'' says auto analyst Maryann Keller of Villas-Fischer. ``I can't think of another company like them.''
To understand Magna's success, one must first be introduced to Mr. Stronach, who is Canada's highest-paid executive, with a personal income last year of about $1.8 million.
As a teen-ager, Stronach emigrated from postwar Austria to Canada, where he found work based on his toolmaking skills. In 1957 he set up shop in a small, rented garage. Stronach is a staunch capitalist, but he espouses a ``share-the-wealth'' policy backed by what may be the only corporate constitution in North America, a sort of Magna Carta.
It guarantees that 10 percent of the company's pre-tax profits be allocated to employees. Twenty percent are distributed each year as dividends; 6 percent go to corporate officials; 7 percent to research and development; and 2 percent to charitable, cultural, educational, and political institutions.
Stronach says the company's books are open to employees, except for details on the pricing of specific products. He feels that by sharing some of the profits he can hang on to valued executives.
``We're constantly looking for ways to stimulate employees for greater productivity,'' he says.
That translates into a 3 percent share of earnings for plant managers and 2 percent for their assistants. Meanwhile, managers are encouraged to look for new growth opportunities, and if they can help set up a new plant they continue to receive a 2 percent share from their old factories.
Though Magna may guarantee workers a share of some its profits, its competitive situation is enhanced by a wage scale well below that of unionized shops -- about $7 an hour on average.
Another thing behind Magna's recent success has been the decline of the Canadian dollar. Since the vast majority of its factories are north of the border, this has allowed it to price its products well below that of US-based competitors.
``I know people they have competed against and practically run off the road,'' says David Cole, head of the Transportation Research Center at the University of Michigan in Ann Arbor.
Magna has also built a reputation for quality and service. ``When we've had a problem with another supplier,'' notes a representative of one of the Big Three US auto companies, ``Magna was able to come in and pick up the pieces faster than we thought was possible.''
The Canadian company's plants routinely win quality awards from the Big Three. It was the first North American partsmaker to supply components to the quality-conscious German carmaker BMW.
To ensure Magna's speed and skill at turning out new products, the company employs about 1,000 toolmakers and operates the largest private toolmaking school in North America. When it needs additional help, it has been known to acquire small competitors or seek out joint ventures.
``This should make every other [competitor] in North America sit up and pay close attention,'' says John McElroy, editor in chief of the trade publication Automotive Industries. ``They're not doing it with magic. They're doing it with good manufacturing techniques.''
If anyone finds fault with Magna, it is organized labor -- notably the Canadian United Automobile Workers, which has unsuccessfully tried to organize Magna plants for more than a decade. In 1978, one plant did vote for the union, but Stronach quickly shut it down.
``There's absolutely no doubt that if we organized [another] plant, we wouldn't get a contract,'' says Wendy Cuthbertson, a UAW Canada spokeswoman.
Though Stronach claims he is ``not antiunion,'' his reliance on small shops scattered across the country has clearly made it difficult for labor organizers. Most of his personnel are unskilled women and Southeast Asian immigrants.
That policy, however, is changing as Magna grows. It has built a huge plant outside Toronto to produce sheet metal stampings for American Motors. And other new factories are being built as ``campuses,'' where workers are offered such amenities as day-care centers.
Can this curious mix of social consciousness and entrepreneurial hardball survive? One potential problem would be a recession. Magna comfortably rode out the last downturn by increasing its share of per-car business while overall automotive volume fell. That may be harder to do in the future.
The company has also found itself in the middle of some nasty Canadian political flaps lately, including allegations arising from a $2.6 million interest-free loan given to a Cabinet minister's wife by a Magna executive. But the damage is not expected to be long-lasting.