Magna Prospers Under Consolidated Leadership

GENEVA – North America’s largest automotive supplier, Magna International, illustrates the importance of steady leadership and a stable balance sheet.

While mega-supplier rivals Visteon and Delphi stumbled their way through a deep automotive recession in bankruptcy court and shed most of their North American operations, Canada’s Magna weathered the storm with many of its business units intact, even adding a few operations along the way.

Magna did restructure in Europe and reduced capacity in North America, but not nearly to the extent of Delphi and Visteon. And today, the company is in the process of opening 16 new plants, most of them in emerging markets experiencing double-digit growth.

Like others, Magna lost money in 2009 ($493 million). But while many suppliers spent much of 2010 assessing the damage and beginning to rebuild, Magna was a step ahead, ending the year with $973 million in net income ($4.18 per share) and a 39% jump in global sales to $24.1 billion.

Founder Frank Stronach could only dream of an enterprise this large when he started a small tool-and-die shop in a Toronto garage in the 1950s.

The corporate culture, created by Stronach, insists every employee contributes to the achievements of the company and that the collective strength of 96,000 people is its greatest asset.

And yet, the person who has piloted Magna through its day-to-day successes in recent years, CEO Don Walker, shuns the notion that he deserves more credit than anyone else. His style is to provide quiet leadership, talking about himself as little as possible and shunning the limelight unless it’s unavoidable.

For proof, consult the company website, which has a short 1-paragraph biography on the 54-year-old Walker and not a single photo of him or other executives or directors.

Magna’s MILA concept, displayed in Geneva, runs on natural gas and weighs 1,543 lbs. (700 kg).

Since Siegfried Wolf left Magna in November as co-CEO to work in Russia for businessman Oleg Deripaska, Walker has the post to himself.

Founder Stronach remains chairman of Magna but is less involved in the company as he focuses on the electric-vehicle division, dubbed e-Car. Stronach owns 27% of the unit, while Magna holds the remainder.

Stronach’s daughter (and Walker’s ex-wife), Belinda, left the company at the end of 2010, creating an opportunity to consolidate and rejigger the top levels of management. A year ago, the supplier adopted a global operating structure that places responsibility for each of the 11 business units under control of divisional presidents.

Walker says an advantage of this more traditional management structure with one CEO is the ability to make decisions quickly in setting strategic direction.

“The down side is you can make the wrong decision, obviously,” Walker tells Ward’s. “I’m a big believer in making sure we’ve got strong people,” he says, emphasizing the need to keep Magna decentralized while more authority rests with him.

“I don’t take the view that I’ll tell everybody what to do. We expect to run a business unit where we deal kind of like a bank, but we’ll be pretty involved in the details of the bank.”

Walker has worked 23 years for Magna and was sole CEO for eight of those until 2000, after which he led the spinoff of Magna’s interior business. Through 2010, he spent five years as co-CEO with Wolf.

He is upbeat about 2011, with vehicle sales steadily climbing.

“We’re seeing a lot of demand right now. In some cases, our customers are pulling quite a bit over the stated (production) volume,” he says. “It’s a nice problem to have, trying to keep up with the demand.”

Magna’s 16 new manufacturing plants are mostly in developing markets, with some in North America and Europe. All are expected to be online by 2012.

Five plants are slated for China, although a sixth may be necessary. South America also gets five new facilities mostly dedicated to stamped and welded assemblies and seating. One of the plants, near São Paulo, will produce complete seats for a future General Motors program.

In San Luis Potosi, Mexico, Magna’s Cosma division (body and chassis systems) will employ about 700 people when its new plant opens in June 2012 to supply several customers.

In the U.S., a new facility near Louisville, KY, will produce seats, according to reports in the Courier-Journal. A formal announcement will be forthcoming.

“Generically, we’re still seeing growth across the company, but long-term strategically we wanted to make sure we’re really strong technology-wise, with critical mass,” Walker says.

If Magna needs a particular technology to gain leadership in a product segment, “then we’ll take a look at what we need to do to bolster it or partner,” he says. “We’re doing that deep dive in our product strategy and have been doing it for a year and will continue it.”

Here at the recent auto show, Magna displayed the fifth version of its MILA concept, dedicated to lightweight materials. The 4-seat A-segment car runs on natural gas and has a curb weight of 1,543 lbs. (700 kg).

In December, Magna acquired seating companies in Brazil and Argentina (with combined sales of $260 million), as well as Erhard & Sohne, a German manufacturer of fuel tanks.

In third-quarter 2009, Magna purchased several facilities from defunct plastics supplier Meridian Automotive. Earlier in 2009, Magna acquired the European operations of liquidated interior supplier Cadence Innovation.

Its biggest acquisition, attempted in 2009, fell through when General Motors decided it wanted to keep German auto maker Adam Opel.

Walker has no hard feelings about the deal, saying it “probably was for the best” for GM. “I hope they would look back on it and think we gave them some good ideas.”

Since then, Magna has moved on. “My opinion is we want to be a great auto parts company, not an auto maker,” Walker says.

Major suppliers grade themselves based on how much content they have on new vehicles entering the market. For Magna, that measure is encouraging.

In North America, dollar content per vehicle grew 13% to $988 between 2009 and 2010 with the launch of vehicles such as the GMC Terrain, Jeep Grand Cherokee, Ford Fiesta, Chevy Cruze and Cadillac SRX.

In Europe, dollar content per vehicle grew 8% to $536 between 2009 and 2010, thanks to the arrival of the Mini Countryman, Mercedes-Benz SLS, Peugeot RCZ, Volkswagen Touareg and Porsche Panamera and Cayenne.

Walker is pleased Magna’s stock price has been strong, closing Friday at $49.76 on the New York Stock Exchange. In November, Magna initiated a 2-for-1 stock split, an indication of a prospering company.

Always striving for improvement, Walker knows boosted profits will push the stock value higher.

“Our margins are lower in Europe, but we have an aggressive plan to get our margins up in Europe,” he says. “And if we do, I think the shareholders will be happy.”

Magna Expanding

By end of 2012, Magna will have new parts plants up and running in these countries:

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