Charles E. Johnson, President, Chief Executive Officer and Director of Proliance International
Posted September 19, 2005, 9 a.m. EST
Every other week, aftermarketNews.com offers an interview with high-profile individuals in the automotive aftermarket. We give executives free rein to express their views on anything from the state of their corporations to recent legislative news to future trends in their niche markets. Here you see what matters to the newsmakers themselves.
Charley Johnson is president, CEO and director of Proliance International, Inc. based in New Haven, CT. Johnson joined Proliance (which was formed by the July 2005 merger of Transpro, Inc. and Modine Aftermarket Holdings) in March 2001, ending a broad search for a new CEO of Transpro. The company’s customers include the leaders in aftermarket automotive distribution, such as AutoZone, NAPA, Advance, Pep Boys, O’Reilly and CARQUEST, among others. AftermakretNews.com spoke with Johnson about the origins of the merger, the challenges ahead and how the name Proliance came to be.
Let’s start with a simple question: How did this merger come to be? What made this type of deal attractive in the beginning?
The merger of Transpro and Modine’s aftermarket business came as a result of a shared vision: to serve successfully the highly competitive aftermarket of today and tomorrow a larger, financially stronger company would be needed. The deal required over two years of discussion and work to accomplish. While the term is sometimes overused, at the end of it all this deal was a “win-win” for both contributing companies. As a result, Modine becomes more focused on the OE side of the business, which is clearly at the center of its strategy, and Proliance becomes focused on the aftermarket. In recent years, Transpro retained and grew its market position but its margins have been challenged by commodity price increases and downward competitive price pressures. We do not expect this trend to stop as a result of the merger, and in fact, we anticipate that it will intensify.
However, we do anticipate that this transaction will afford Proliance a number of important attributes, including a stronger balance sheet and financial flexibility; better financial prospects compared to either company on its own due to the anticipation of over $30 million in expected annual cost savings after restructuring charges of $10 million -14 million over the next 12-18 months; increased scale with anticipated annual revenues of over $400 million with an expanded product and brand presence; broader geographic scope with manufacturing and distribution facilities across North and Central America and in Europe; and an experienced leadership team with an extensive roster of talented, proven managers coming from both companies. This was a compelling set of reasons to accomplish this merger.
How did the name Proliance International come to be?
Our new company name, “Proliance,” is rooted in the tradition of professionalism, or “Pro,” which has been established by both our contributing companies over the years. Being a “professional,” by Webster’s definition, is “having great skill or experience in a particular field” and this reflects the high standards to which we aspire. We don’t claim this as a title. Rather, we use the term with the knowledge that professionalism demands an ongoing commitment toward improving on those skills every day.
The second part of our new name speaks to the many alliances we have between the company and the people with whom we do business. Most importantly, the alliances we have with our customers are the foundation for everything else we do, and we commit ourselves to being an “opportunity builder” for them as we move forward. We know that if we can help our customers be successful, we will also be successful.
As part of the merger, you are the new CEO in addition to serving on its Board of Directors which consists of two independent directors from Modine’s board and two Modine senior executives, as well as five independent directors from Transpro’s Board. Speaking from a company-wide perspective, how else has the organizational structure changed since the combination of the two companies?
We have organized our domestic business around our specific customer groups and have teams in place working towards meeting the specific needs of each group: Our Retail and Re-distribution Team is focused on serving the needs of our larger customers, Our Branch Team is focused on servicing our customers out of our over 120 local distribution branches, and finally our Heavy-Duty Team is focused on the particular needs of the customers servicing the heavy-duty market. We also have two international business units in Europe and in Mexico/Central America.
What were the challenges (unexpected or not) facing Transpro before the merger? And what type of issues do foresee if any, going forward at this moment?
As I mentioned before, the market challenges we faced before the merger of downward competitive pricing pressure and commodity price increases have continued to be challenging.
While our restructuring program is expected to take 12-18 months, we are working to get as much done as we can in the least amount of time possible so we can start to realize these synergy savings as soon as it is practical. Our goal is to operate at “World Class” levels of cost and organizational effectiveness.
We have also worked to keep the integration activity relatively seamless to our customers so that the merger provides only benefits to them. This has taken an immense amount of planning and now that the deal is done, we are now executing our plans. Both Transpro and Modine were well established companies so, as you can imagine, there are some cultural differences we are working to normalize. In this context, we are using our “Five Strategic Corporate Values” to unify us and to give us a “common language” to utilize for decision-making and to provide a more effective interface among associates.
Upon news of the merger, you mentioned how this would benefit your shareholders, employees and customers. Could you elaborate on the type of long-term growth opportunities that have resulted since the Transpro-Modine merger?
One must keep in mind that the merger only occurred near the end of July, so we are only a short time into our various activities. I can say that we are not finding, so far, any things that we did not expect as a result of our up-front planning. We have said that we will continue to look for ways to make our company stronger and we continue to explore other strategic alternatives.
During the past year, the industry has witnessed a number of mergers and consolidations taking place within the manufacturing and distribution segments. How do you think this will impact the market overall?
Markets generally migrate toward higher efficiency in delivering products and services to their respective customer groups. This applies to all levels of manufacturing and distribution. Clearly, our markets are becoming more concentrated and with this trend comes tremendous buying power on the part of large customers and customer groups. On the consumer retail side, Wal-Mart is the ultimate example of this. I expect that further consolidation will need to happen in the supply sector of the aftermarket for survival and prosperity to become a reality, with the additional note that the supply side is now a global scene.
Where do you feel the direction of the automotive, as well as, the heavy-duty aftermarket is going?
We see continued growth of the aftermarket, tempered by the various external and internal factors impacting the market. OEM product quality is certainly better than 10 years ago, however we have a larger car parc and vehicles are lasting longer. Our market “sweet spot” looks favorable with regard to the number of vehicles reaching ages where they will likely need replacement parts. However, the impact of higher fuel prices has yet to be felt in the market, and this is likely to have different effects in different market segments. The heavy-duty aftermarket, after several years of depression has shown considerable resiliency in the last couple of years. We expect this to continue in the near future, however this is highly dependent on the overall economy continuing to roll along.
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