Nexteer's lessons for Chinese investors

Chinese money and Chinese patience saved Nexteer Automotive.

Last year, the Michigan-based supplier of steering systems generated sales of $3.9 billion after its new owners — the city of Beijing and a Chinese aerospace conglomerate — bankrolled a global factory expansion.

But in the transformation from its identity as the steering operations of General Motors and Delphi Automotive to the company now known as Nexteer, there were bumps in the road, including management churn and difficult labor talks.

Steering the story

What helped start it all? A Chinese company saw Delphi's storied steering business go up for sale.

Nexteer's comeback offers useful lessons for Chinese investors seeking deals in the bargain bin of distressed U.S. suppliers, said former Nexteer CEO Bob Remenar.

"A lot of water has passed under the bridge, but Nexteer today is a robust business," said Remenar, who departed in 2012. "The whole U.S. footprint, with UAW factory jobs, is working."

Nexteer had a storied history as GM's in-house supplier. Saginaw Steering Gear invented power steering and tilt steering wheels. But it drifted into trouble after GM spun it off as part of Delphi Automotive in 1999.

Delphi entered bankruptcy in 2005, and it announced plans to sell Steering Gear the following year. Remenar, who had run Steering Gear since 2002, had to whip his division into shape for the sale.

Steering Gear was unprofitable despite its portfolio of fuel-efficient electric power steering units. Remenar closed four plants in Spain, Italy, France and Alabama, and he laid off one-third of his salaried work force.

But Delphi could not find a buyer, so GM took it back in 2009.

One year later, a potential buyer emerged: Pacific Century Motors, a venture formed by the city of Beijing, which also owns Beijing Automotive Industry Corp., one of China's big state automotive enterprises, and AVIC Aircraft Corp., which makes components for aircraft and autos. It was a delicate negotiation.

Pacific Century wanted UAW wage concessions, but in June 2010, hourly workers rejected Nexteer's $12-an-hour starting wage offer. After Nexteer restored family health care coverage, the union accepted the deal. In return, the UAW demanded assurances that the buyer would not transfer jobs out of U.S. factories. Pacific Century agreed, while a rival bidder did not. That did the trick, said Remenar. The next month, Pacific Century bought Nexteer for $465 million.

Although it wasn't the first Chinese acquisition of an American automotive supplier, it was one of the biggest at the time. Nexteer's customers wanted assurances that Remenar and his managers would remain.

Once again, Pacific Century agreed. The new owners dispatched three Chinese executives to Michigan to keep an eye on operations, but Remenar made day-to-day decisions.

Company Chairman Guibin Zhao "would come to Michigan periodically, and I went to China fairly often," Remenar said. The three U.S.-based Chinese executives "did not have decision-making positions. They observed. They did not decide."

The new owners raised Nexteer's r&d budget by 50 percent, and bankrolled expansion into new regions.

"They did throw a lot of capital into the business," Remenar said, "and they were in it for the long term."

With Pacific Century's financial support, Nexteer lined up new customers. The company enjoyed a major win when Ford Motor Co. installed its electric power steering in the 2011-model F-150 pickup.

But Nexteer's turnaround hit a rough patch in 2012. Late that year, Remenar resigned as company president. At the time, Nexteer denied reports that Remenar was upset about the company's long-term incentive package. Remenar now confirms that he had tried and failed to negotiate better long-term bonuses for his management team.

"I said we have to pay competitively," Remenar said. "We negotiated a while. The frustration became greater and greater. I couldn't accept it."

Company spokeswoman Lynn Pavlawk could not be reached for comment after repeated efforts.