Torrance, Calif.--Back 40 years ago, when Mel Marks founded the company now known as Motorcar Parts of America, he sold parts to the K-marts of the world, said Motorcar's current president and CEO, Selwyn Joffe.
About 20 years ago, the company got into the re-manufacturing end of things and became the world's leading re-manufacturer of starters and alternators, Joffe said. Of course, Marks could not have seen what sort of economy the company would have to contend with in the first decade of the 21st century, he noted.
Despite the economy, Motorcar Parts reported a 27 percent increase in sales for its fiscal 2009 third quarter (ended December 31, 2008), supported in part by an aging vehicle population and the resulting increase in demand for its products, Joffe said.
Even more interesting, perhaps, was the fact that the gross margin was 28.3 percent for the fiscal 2009 third quarter compared with 26.6 percent a year earlier. Joffe attributed that to increased sales, lower manufacturing costs, and increased operating efficiencies offset by the impact of a significant reduction in scrap metal prices.
Net sales were $35.8 million compared with $28.2 million for the same period last year. However, stock market conditions impacted the company's market capitalization, Joffe said.
But by following a well-planned business model, Motorcar Parts has prospered at a time when so many others in the auto industry are struggling, he said.
Joffe, who hails from South Africa, said he graduated from Emory Business College and worked for “one of the big accounting firms,” as well as having been the CEO for Wolfgang Puck.
When asked how he saw the market developing for starters and alternators, Joffe was decidedly upbeat.
New car sales have slowed and the domestic fleet has aged, he said. “New-vehicle purchases are one half of one percent of the domestic fleet. This is good news for us,” he said.
“We've projected that in four to seven years, 2 percent of those vehicles will need replacement alternators and starters. In seven to 11 years, 4 percent will need replacement alternators and starters, he added.
“Even figuring those as approximate numbers, that comes out to 60 million alternators and starters in four to seven years. It increases in 11 years to about 50 percent. By 14 years, it becomes a 100 percent replacement rate.”
Of course, hybrid technology and the volatile market for new cars will impact Motorcar Parts, and Joffe acknowledged that. “We see 240 million units as take-off units for hybrids, 240 million alternators and starters, one each in the life of the vehicle,” he said.
“The scrap rate of vehicles is also coming down. Of course, the miles driven affect things. You may not know something has failed. If you look backward, it's a deferred market. You'll get that sale anyway.
“Hybrids oftentimes have 100,000-mile warranties. A lot of manufacturers take them back. The OE manufacturers will control a lot of replacement business for awhile. To replace the generator in a hybrid can cost thousands of dollars as opposed to hundreds in a conventional car.”
Motorcar Parts has positioned itself for the new market, like many other companies, by moving their manufacturing facilities, Joffe said. “What we've done in the past two-and-a-half to three years is become the leading manufacturer in remanufacturing,” he said. “We've moved our manufacturing off-shore, two-thirds in Mexico and a third in Malaysia. We've built to allow for growth at the Mexico facility. They're running at 50 percent below capacity and available to support future growth opportunities.”
Going to market is something that Motorcar Parts has spent considerable time and thought on, Joffe added.
“We produce different brands, and our business is building others' brands,” he said. “We are, essentially, a business-to-business brand. We can control and manage inventories, develop sales brochures and create a consumer product for other people's brands.
“For example, we supply about 80 percent of the product category for a large retail chain. We also develop the art work and boxes that product goes in. We develop the price points to sell at. We design the testers. We control the vehicle–-by that I mean we know where every vehicle (equipped with those parts) is in North America.”
Technical support also plays a crucial role in ensuring customer loyalty and retention, Joffe added.
“We provide an 800 number for technical support. We have people educating the professional installers. Towards that end, we have a Web site, www.onlinetechhelp.com.” “We also have an electronic catalog, which is critical since there are so many parts and applications.”
Working with the original equipment manufacturers helps in not only tech support, but designing replacement parts, Joffe said.
“We get all the warranty records back. We also have a major engineering department in-house,” he said. “We work with their engineers to see the duty cycle. We test not only the unit but all components, such as the brushes, against all other components in the unit. After six to seven years, we have eliminated the defects.
Joffe said he sees the import market as the largest area for growth. “Right now, we're the No. 1 import specialist,” he said. “The growth in the market, currently, is in import applications.”
“We're new in heavy-duty applications,” he said. “We estimate the same amount of opportunities in plows, tractors-trailers, and other sorts of equipment. We hope to do the same thing there. It’s a billion-and-a-half-dollar potential market.
New technologies will fuel long-term growth-–literally speaking, Joffe said.
“There are various technologies out there. The two main factors are combustible fuels and electric. As things change, the number of units we sell will possibly decline, but the amount of money we expect to make will increase. The next generation of gasoline-powered vehicles will be similar to what we have today.
“Battery technology is not the solution,” he said. “Lithium ion is not environmentally friendly as regards disposal. Hydrogen has a lot of potential. In Los Angeles, I'm seeing hydrogen filling stations. I went with Gov. (Arnold) Schwarzenegger on a trip where he promoted the hydrogen infrastructure and I believe that's going to happen.”
Joffe said, “Motorcar Parts was voted the most 'green' company in California recently. We recycle 100 percent. We powered our booths at the AAPEX show in Las Vegas last year with stationary bicyclists connected to alternators, and the energy was stored in a power well containing batteries.
“Remanufacturing is itself environmentally friendly. The energy consumed to remanufacture a part is lower than manufacturing another one.
“Additionally, we reuse our boxes, all our metal, and more. At our plant in Mexico, we grow vegetables with wastewater. We're committed to the environment, and everything we do reflects that.”
