DETROIT - Glenn Reid built a family-owned auto-parts company by building the cheapest muffler hanger.
'All my customers want is cheap, cheap, cheap,' he said. And he has delivered.
The strategy made him rich, while Flexible Products Co. of Auburn Hills, Mich., provides a good life for his extended family.
Moreover, DaimlerChrysler AG remains his largest customer, even as the former Chrysler Corp. has pared its parts suppliers from 3,000 in the mid-1980s to fewer than 1,000 today.
While the supply base shrank, the biggest suppliers benefited by building entire systems of parts. They took in more money per vehicle. They expanded overseas. They added size and market share by riding what has become a tidal wave of takeovers.
Sensing that Reid, 68, may not make the final cut, investment bankers have descended on Flexible Products with offers worth millions of dollars. Each time he has shrugged and stepped back into the plant he operates with his three sons and a son-in-law.
Reid's deliberations hardly registered amid takeover turmoil among closely held companies. But the big dollars that acquiring companies are willing to pay do not make life any easier for Reid, who still is undecided. 'I can tough it out for another five years, and my kids and employees will have a job,' he said. 'But the price won't be there.'
GET BIG OR GET OUT
The auto-parts business sparked the creation of many private companies in the boom years following World War II. A half-century later, new economic realities are pressuring publicly held as well as private companies to get big or get out.
Those that remain increasingly must offer a full range of products or services. They need to have the resources to follow customers anywhere.
The winners appear to be those capable of offering entire systems, or portions, of the car. Public companies often find it easier to make the transition because they can raise money through public debt and stock offerings.
Many private companies, meanwhile, are choosing the exits. They are finding attractive offers, but they also are 'under stress in consolidating industries or because of estate reasons,' said Frederic Escherich, managing director for J.P. Morgan Securities Inc., New York.
He found that the volume of announced U.S. mergers and acquisitions of private companies for the first 11 months of last year totaled nearly $111.8 billion.
The volume would have been much higher had volatile world stock and credit markets not dampened the merger market during October and November, Escherich said. 'We anticipate selling to pick up in the future.'
Until recently, selling out meant getting rich. The long bull market raised company valuations to heady levels.
Then in August the Russian economy sank, causing alarm in global credit markets. That showed how volatile the market has become for mergers and acquisitions, said investment banker John Eberhardt Jr. 'Liquidity dried up, and company valuations went down,' he said.
That in turn put pressure on entrepreneurs. 'Owners who were not sure they could survive the shakeout of the industry have decided that now was the time to act, while the money is still on the table,' said Eberhardt, a director with the New York investment banking firm Austin-Pierce Ltd. His firm has represented Reid.
For Reid and others who hold out, the risk is that industry consolidators such as Lear Corp., Tower Automotive Inc. and others will not wait for entrepreneurs in key niches to sell. 'They will build it themselves if need be,' Eberhardt said.
The sense of urgency has complicated things for Reid and others. They often face conflicting needs of minority shareholders, frequently family members. Protecting loyal employees is another consideration. Reid derisively refers to the attention he receives from prospective buyers as a 'fishing expedition.' More than a half dozen prospective purchasers, including two from Great Britain, two from France, a Belgian company and a New York financial buyer, have approached him in recent months.
Flexible Products is worth fishing for. The company will post sales of $45 million this year, and earnings are substantially above those of other rubber products suppliers.
A BUDDING ENTREPRENEUR
The auto industry has been Reid's passion for 52 years. His father was chief engineer of the former General Motors Ternsted Division's hardware plant in Columbus, Ohio. Reid, after military service with the 3rd Armored Division in Germany during the Korean War, returned to join Ternsted's styling division.
Moonlighting from his GM job, Reid and an Ohio State University chemist friend found that a black goo used by automakers as a sealing material was ideal for making museum-quality replicas of artifacts from antiquity. The budding entrepreneur found that he could sell them through the Detroit Institute of Arts. He now sells sculpture and objects d'art through the private museum he built next to his plant.
In 1976, after a decade with GM and two years with Chrysler, Reid was picked by the former Michigan General Co. to operate three money-losing Detroit companies. One of them, an unwieldy manufacturer of 5,000 products to 3,000 customers, became the seed of Flexible Products. With a $35,000 down payment, he exercised an option to buy the company.
Since then, Flexible Products has grown by 12 percent annually. He employs 250 workers who manufacture 162 products to 30 customers. Muffler hangers, bushings and spring insulators are his key products.
Reid appears to relish life as an entrepreneur. He maintains a second home in Naples, Fla., which he rarely visits. He works six, sometimes seven days a week. He's scrappy, tough and outspoken - qualities he shared with his late uncle Roscoe Fillmore, the man who during the 1930s headed the forerunner of the Canadian Communist Party.
Flexible Products has thrived as a supplier to Chrysler, Ford Motor Co., and to a lessening degree, GM. It has weathered the regular auto industry downturns and always bounced back. But even Reid concedes that the whirlwind of consolidation has changed the rules.
For Reid, the freshest challenge came during one of GM's new contract auctions over the Internet last August. Reid said the process was too quick for him to respond to a competitor - costing him contracts valued at $4.5 million.
The process stung a man who built his reputation on meeting ever-lower prices. 'GM beat us up' he said, 'we only had 30 seconds, not enough time to check our figures.'
Reid knows that as a commodity supplier his survival depends on his tight grip on costs. He paces his plant floor looking for waste and inefficiency. He operates Flexible Products around the clock, six days a week, to maximize plant and equipment.
His edge, too, comes from the Auburn Hills property he bought cheap years ago. Cheap capital during most of this decade has helped, and he has been prudent in his equipment purchases.
But Reid's competitors are no longer mom-and-pop shops.
Investment banker Jesse Levine said Flexible Products can establish a floor below which a Tier 1 supplier cannot compete. The risk for Reid, Levine said, is that a decline in his business volume can put the squeeze on his profit margins. Fixed costs as a percentage of total costs then become disproportionately high.
Those concerns and others are the topic of quarterly meetings between Reid and family members, said eldest son Jim, age 43, a Western Michigan University graduate and company vice president for engineering. He and his brothers, David, 38 and Douglas, 36, and the siblings' brother-in-law Tom Grant, 34, also want a chance to run the company.
'I'd rather not sell,' said Jim Reid. 'The company is in a pretty good position to compete, but we need to make advancements in engineering capabilities, to add a more sophisticated product.'
With pressure to grow the business, the Reids have explored their options. Going public with a stock offering is out because Flexible Products is too small. A leveraged buyout with the aid of a Wall Street financial buyer is not acceptable because the buyer could load the company with debt. Acquisitions are too expensive. Expansion is a possibility.
The next step - to cash in now, or risk an expansion as the business cycle ages - is Glenn Reid's call. He's not tipping his hand, even to his family.
'I don't think he'll sell, but there is a price for everything,' said Jim Reid of his father. 'And he has a number in his head.'
Investment bankers, too, are waiting for a signal. They expect that Glenn Reid, who turned 68 late last month, will make his intentions known soon because of the 'Rule of 68.'
The rule states that any entrepreneurs still in charge at that age are unlikely to leave on their own.