Empire strikes back: Magna overcomes past ills to become model supplier.

It may appear that the British Empire is on its last legs with Hong Kong reverting to China in a few years and the royal family airing its scandals on worldwide television, but the Magna Empire is alive and well in suburban Toronto.

Magna, on the brink of receivership just six years ago, has restructured and is now North America's 10th-largest automotive supplier. The Markham, Ont.-based company has first-quarter sales of $1.29 billion (Canadian) and earnings of C$71.9 million. Those banner first-quarter results come three months after Magna announces an increase in sales from C$3.6 billion in FY '93-'94 to C$4.5 billion in FY '94-'95. Earnings also were up from C$234 million in '93-'94 to $317 million in '93-'95.

Not only is Magna seeing year-over-year sales and earnings gains plus a 14% increase in sales over its first quarter of last year, but its Cosma Body & Chassis Systems group was General Motors Corp.'s 1994 Supplier of the Year, and its five divisions combined to make it Chrysler Corp.'s overall 1995 continuous improvement champion.

In Chrysler's continuous improvement race, Magna submitted SCORE (supplier cost reduction program) suggestions equal to 5.61% of its sales to the automaker, exceeding the 5% program goal. Chrysler says Cosma led the way with 11.68% in ideas, and the Dacoma Exterior Systems group had 7.76%.

In today's rough-and-tumble supplier marketplace, it's rare to hear one automaker purchasing executive after another speak as highly of one vendor as they do of Magna.

Harold Kutner, vice president of worldwide purchasing at GM, says he's impressed with the Canadian company's pro-active approach to business and its global capabilities. "And they've been outstanding on a parts-per-million (ppm) quality level," he adds. "They have some plants that are shipping zero ppm, which means they're shipping perfect parts."

One key to Magna's success is its decentralized structure, which came in part from a reorganization between 1989 and 1991 that saved the company. "Magna's strengths always have been the greatest at the plant level," says Loraine Glouster, an analyst at the Scotia McLeon Corp. investment bank.

The company continues to refine itself. In July it divested 15% of its Tesma Powertrain Systems unit, run by former Magna CEO Manfred Gingl. "We see Magna as a body and interior systems company, so we decided to spin the powertrain group off and let it run as a separate company," explains Donald Walker, Magna's president and CEO.

Another contributor to Magna's entrepreneurial management structure is the philosophy of founder and Chairman Frank Stronach. Plant managers act very much as lords of their own estates within the Magna Empire. When their estates do the kingdom proud, they are rewarded financially.

"The structure and culture drives the individual plants to perform for the customer," says Mr. Walker. "And we spend a lot of time training them in best practices. It all boils down to having the right people, and we have a strong emphasis on putting people in key positions with strong technical backgrounds."

The decentralized set-up leads Ms. Glouster to believe that Magna might have some difficulties as the industry looks for its suppliers to deliver complete systems. She infers that the lords may not be able to work that well together.

Mr. Walker admits that Magna's organization makes delivery of integrated systems a challenge. "I'm not going to say it happens easily in a decentralized group," he notes. "But we're doing it, although it may take a little longer." Magna has two contracts in hand for future integrated body systems.

The Magna Empire encompasses 88 manufacturing operations in 10 countries.