Gentex looks in mirror, likes what it sees

Andersen consultants give supplier high financial marks

TRAVERSE CITY, Mich. - At the start of this year, analysts from consulting firm Andersen started sorting through data on publicly traded automotive suppliers as part of a best practices forum.

The company, formerly called Arthur Andersen, lined up the usual suspects: Delphi Automotive Systems Corp., Johnson Controls Inc., Lear Corp., Dana Corp. There were tire makers, chassis specialists and interior integrators.

Topping the list for its market value compared with book value, though, was mirror supplier Gentex Corp.

Another analysis a few months later yielded the same data. While the average market-to-book value for automotive suppliers was 1.7, Zeeland, Mich.-based Gentex, with annual sales of about $300 million, soared over the rest with a rating of nearly 5.28.

The next-closest company was Delphi, the world's biggest auto supplier, with sales of more $26 billion, but a rating of 2.85.

"Gentex kept coming up at the top, in terms of market-to-book ratio," said Randy Miller, a partner with Andersen who oversees its automotive practices unit.

"We said, 'Let's take a look at that company.' "

Beating Wall Street

Gentex shows that automotive suppliers can beat expectations for the industry, Miller said during a presentation at the Management Briefing Seminars in Traverse City in early August.

By creating strong supplier and employee relationships and investing its technological expertise on products customers want to buy, the mirror supplier has created value for itself and automakers, he said.

"It's having a strategy that optimizes all of those assets and focuses on both the tangible and intangible values of the company," Miller said.

Gentex executives maintain that the company is not an automotive supplier, but instead an electronics company that happens to do more than 90 percent of its business in cars and trucks.

"Gentex is an anomaly," Executive Vice President Ken La Grand said.

The firm had its start as a producer of sensors for fire-suppression systems. In the late 1980s, it began using those sensors to adjust rearview mirrors to avoid headlight glare from other vehicles.

The company's manufacturing base is in Zeeland, where the bulk of its 1,700 employees produce the electronic systems that go inside automatic dimming mirrors.

It does not do its own plastics processing, instead relying on outside molders to produce the housings that hold the components. That shows its recognition of its core competency, Miller said, by sticking to technology, rather than investing in machinery to make parts.

The company sets up long-term contracts with its suppliers, including injection molders, Miller said.

"They have a number of supplier meetings and they have low turnover in the supply base, which translates into long-term relationships," he said.

Part of that is due to Gentex's ability to keep its own employees happy, involved and on the job.

In 10 years, its purchasing department has had only a 3 percent turnover, he said.

Strategy brings high margins

With a stable supply base, the company can focus its investments into new products. But, Miller said, it is careful to target technology that wins contracts.

"Gentex has relatively high margins for an auto supplier," La Grand said. "The margins allow for continued investment back into the business. If we invest in the business and come to the (automakers) with features that they can sell, then they can increase their revenue as well."

The company receives an average of $40 for each automatic dimming mirror it sells. Carmakers sell them as an option at more than double the price.

That strategy would not work, though, if consumers did not want the products.

"Technology has not changed everything," La Grand said.

"It has not changed how people buy cars.

"They don't differentiate between a Chrysler minivan and a BMW Z3 because of the operating system. They're looking at their needs, some real needs and the emotional needs that influence their decision.

"In the end, it's about making a product that consumers want, are willing to pay for and that all of the manufacturers can make money on."

You can reach Rhoda Miel at rmiel@crain.com

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