McElya honored for role in Cooper-Standard rescue
Veteran supplier exec has been through boom and bust
McElya: Seeking Chapter 11 reorganization was a “painful” decision.
James McElya has seen just about every possible scenario played out in his 33 years in the automotive supplier market.
He was there when most large industrial companies owned auto supplier divisions and lived through up and down markets, major technology shifts and the biggest economic downturn since the Great Depression. During the recession of 2008-09, he steered Cooper-Standard Automotive Inc. of suburban Detroit through its own travails, from bankruptcy to prosperity.
The Philadelphia native retired in October for the second time as Cooper-Standard CEO and may step down as chairman in May.
For successfully guiding the automotive supplier through the downturn and to a place where his successor realistically can expect strong growth prospects, McElya, 65, has been named 2012 Rubber Industry Executive of Year by Rubber & Plastics News, a sibling publication of Automotive News.
McElya began his career right out of high school. He worked for several companies before ending up at a firm that was acquired by Standard Products Co.
Cooper Tire & Rubber Co. then bought Standard Products, and McElya was Cooper-Standard's president or CEO or both from June 2000 until July 2008. He was also a Cooper Tire corporate vice president.
"When I joined the automotive [components] industry it was primarily made up of divisions of big companies," he said, plus privately owned companies.
"I have watched the automotive industry transition from that time in the 1980s," he said. "Sometime in the '90s we started to have the advent of private equity."
Private equity came in because the big corporations decided they could earn more in other parts of their businesses, McElya said. He said private equity filled a void in the automotive world, becoming the investors as the giant corporations retreated from the sector.
"The private equity model is put as little as you can down and finance the rest," he said. "As long as everything is going up, it's a good model. We all saw it when things went down -- not so good."
Cooper-Standard experienced that firsthand. When Cooper Tire sold the business to Cypress Group and Goldman Sachs Capital Partners in 2004, the private equity firms loaded Cooper-Standard with $1.2 billion in debt, McElya said.
The private equity companies, he said, typically borrow money to invest in their acquisitions so they can later be sold at a profit. Unfortunately for them, the economy took a historic plunge in 2008-09.
McElya was president and CEO of Cooper-Standard until September 2006. Despite the debt, he said the supplier of automotive thermal, emissions, body-sealing, fluid and anti-vibration systems was operationally solid. He handed off the CEO title in July 2008, when he became executive chairman.
That wasn't the end of his tenure, though. He was called back as president and CEO in March 2009, during the worst of the automotive downturn.
"I was in the process of retiring," he said. However, "it was determined that I needed to come back at that point and would lead the company through restructuring."
For Cooper-Standard, the restructuring entailed seeking relief from its debt burden. That debt became unmanageable as North American light-vehicle production plummeted from a high of 17.7 million units in 2000 to 8.8 million in 2009, according to the Automotive News Data Center.
"It's like having a huge mortgage on your house and having your income cut in half," he said.
McElya and Cooper-Standard executives looked for places to reduce costs. They cut pay across the board by 10 percent, eliminated bonuses and 401(k) matches. Costs were slashed by $47 million, but the debt load still loomed.
Ultimately, McElya had to decide whether or not to file for Chapter 11 reorganization. The supplier could have limped through by asking for relief, he said, but probably would have come out the other end with even higher debt.
"Personally this was very painful," he recalled of the night he sat in his office debating whether to file for Chapter 11. "It was strictly a survival mode."
Filing for bankruptcy, he reasoned, would be good for the company but painful for the company's owners and managers, including McElya himself. Goldman Sachs, Cypress and the management team that owned the stock lost all equity to those who held the debt.
In the long run, filing was the right thing to do for the business, he decided. It took nine months for Cooper-Standard to go through the bankruptcy process, and in the end the debt level was a more manageable $450 million.
The whole ordeal wasn't without pain, though. Several thousand jobs were cut, and employment dropped from about 20,000 to as low as 15,000.
Fortunately for the management team, the new owners chose to retain them and eventually gave them the chance to recoup the lost equity. "Our goal was to restructure the debt without affecting the employees or customers," he said. "And that is what we did."
Throughout the ordeal, there never was the thought that Cooper-Standard wouldn't survive, McElya said. "We knew we would go forward. The company was a very strong company financially. The company just had too much debt."
With automotive sales rebounding, employment is back up to 21,000, and sales and earnings are in good shape for new CEO Jeffrey Edwards.
"Our balance sheet is strong," McElya said. "Our company is positioned to grow, and we're going to grow. We have a new CEO whose mandate is to grow the company."
Cooper-Standard ranks No. 63 on the Automotive News list of the top 100 global suppliers with worldwide parts sales to automakers of a $2.85 billion in 2011. It ranks No. 38 on the Automotive News list of the top 100 suppliers to North America with $1.39 billion in parts sales to automakers in North America in 2011.
The auto bailout
In the midst of taking care of Cooper-Standard, McElya also found himself in the middle of the automotive bailout debate. As chairman of the Motor & Equipment Manufactures Association, he went to Washington to testify before Congress to aid automakers' pleas for relief and ask for a $5 billion bailout for auto suppliers.
His testimony came the same day the car company CEOs were asked how they had traveled to the nation's capitol. "That was the famous day they asked them all, 'How did you get here?' and they said, 'Private jets,'" he said. "I was waiting for our panel to come up and them to ask me, because that day I took the train down from Philadelphia."
During this tumultuous period, the results of a survey to see how the fall of the auto companies would impact the rest of the industry surprised even McElya.
"We really didn't know how many jobs we as the suppliers to the automotive industry provided," he said. "When the data came back, we found out we were the largest single manufacturer in the United States."
Having data that broke down how many jobs the sector supplied per state allowed MEMA to go to each congressman and show how a collapse of the industry would affect the economy.
The debate over the bailout was a time of conflict, he said. One contingent thought no government money should be used, that any help should come from the private sector. Looking back, he said Chrysler and General Motors probably could have made it through the traditional bankruptcy process.
"'Probably' is the operative word," he said. "Were we willing to take that risk? The answer to that was 'no.'"
There was no assurance enough money would be available for the car companies to actually restructure, he said. And if one auto firm folded, the ripple effect and detrimental impact on other automakers and suppliers would have been immense because parts makers tend to do business with several carmakers.
Because of his work during and since the crisis, MEMA awarded McElya its 2012 Triangle award. The award honors those who have helped advance the motor vehicle parts supplier industry.
"Jim made himself available to come to Washington and help make the case for the automotive industry and the critical role of the suppliers with the automotive task force," said MEMA President Bob McKenna. "His steadfast, fact-based testimony helped convince the task force and Congress that the role of suppliers was critical to the survival of the automotive industry as a whole."
Future of the industry
While he still will be involved with Cooper-Standard and believes the company is on a strong path, McElya is unsure what lies ahead for the automotive industry and its suppliers.
"I have lived through many technology changes" in the industry, he said, adding that he doesn't know what future vehicles will look like. "I don't want to say that electric cars are a fad. [But] when you do the math, it just doesn't work."
Until the economics start working, he said, he doesn't expect to see everyone buying electric cars.
McElya believes there is at least one thing holding back alternative vehicles. "We as a country can't get an energy policy that makes sense," he said. "If you really want to get serious about it, if the government wants to play a role, talk about the infrastructure."
He doesn't see things changing drastically in the near future. "I'm in the camp that the combustion engine is going to be around for some time," he said.
Pushes towards better fuel efficiency are starting to be seen by consumers, but McElya warned it isn't free. Greater fuel efficiency is "going to come from the whole vehicle, not just the engine," he said. "At the end of the day, it's going to cost."
He is optimistic that the industry is coming back strong, but says there still are hurdles.
"A lot of people who took out capacity and took out people are struggling to get back," he said.
With production surging, he can see why some car companies and suppliers are having a hard time keeping up with demand. "If we get to 16 million to 17 million units again pretty quickly, are we going to have problems? Absolutely."
After the industry's restructuring, he is uncertain about how the industry will deal with private equity and hedge funds owning so many players. Firms that previously owned the debt prior to restructuring now are finding themselves as owners of companies' equity.
"It's not their business to be in manufacturing and run a business," McElya said. "So what's going to happen to many of these companies who are owned by what I call unnatural owners?
"When I look over my career, that's the big change I have seen: Who is the ownership of the automotive supply base?"
Cooper-Standard itself recently explored the option of seeking out a new buyer, McElya said. A lot of parties voiced interest, but factors such as the European economic crisis helped prevent any deals from going forward.
Primary business: Makes automotive thermal, emissions, body-sealing, fluid and anti-vibration systems
Industry history: More than 33 years in automotive; president of Siebe Automotive Worldwide; in 22 years with Handy & Harman, was president of Handy & Harman Automotive; head of Cooper-Standard, 2000-08 and again 2009-12
Affiliations: Past chairman of the Motor & Equipment Manufacturers Association and the Original Equipment Suppliers Association
Charity work: Instrumental in development of Cooper-Standard's Inspirations program, a workshop for middle school students based on Six Sigma principles. Worked with Detroit journalist Mitch Albom and Cooper-Standard employees to raise funds for a medical clinic for children of Detroit's homeless. Formed a faith-based foundation with his wife, Jane, to focus on the needs of children.