LAKEWOOD, NJ —

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.

Our latest Executive Interview features Frank Pagano, CEO of Lakewood, NJ-based Coni-Seal, Inc. Recently, as part of an investment group, Pagano acquired the assets two aftermarket businesses including Qualitee International. Pagano recently took some time to give aftermarketNews.com a breakdown of these new businesses and where they are headed.

From what we understand, you and your investment group are involved in several entities that participate in the automotive aftermarket. Can you explain all of them for us, and how they are tied together, if at all?

The original company is Coni-Seal, Inc. We manufacture brake hydraulics and chassis parts. The company is owned by me and Robert Pagano, the chairman of the board. Coni-Seal has been a major supplier to program groups and retailers and does quite a bit of export business. In the last few years we began expanding our product base into other under car areas, which included chassis parts.

I have an interest with a few investors in two other companies. AutoPartSource is a company that evolved out of assets purchased from the former Qualitee International. Qualitee was a supplier of brake friction, brake drums and rotors, hydraulics, clutch parts and filters to the automotive aftermarket. We believe that with initial support from Coni-Seal management, we can assist AutoPartSource in gaining market share with their present product offering.

The second company, also created out of the assets of another company, is New World Friction. New World Friction is a basic manufacturer of metallic, ceramic and organic disc pads. Their VGX brake pad is well accepted in the aftermarket. The previous owners were not aftermarket people and struggled a bit. Our initial results are very positive. I am very proud of the products that this company supplies.

New World supplies friction to AutoPartSource and co-manufacturers. The company produces excellent products that stand beside the major brake manufacturers with respect to quality. Our goal to position all these products as premium products made with quality and backed by the reputation and service performance that has made Coni-Seal a successful company.

On April 29, the investment group that you chair, also purchased certain assets of Madeco ULC/Novatek (on behalf of Rosigno Industries). Can you please explain the relationship between Coni-Seal, AutoPartSource and Rosigno Industries.

At this time AutoPartSource and New World Friction are affiliated to Coni-Seal through some common ownership. These companies were attractive to me and to our management team as a vehicle for growth. Rosigno is the name of a holding company for these two companies. Roscigno is the name of the town that my grandfather came from in Italy. He developed the Coni-Seal name and owned six U.S. patents.

Coni-Seal management is the same. We have created new management teams at AutoPartSource and New World friction and have built on some strong talent that was underutilized due to lack of hands on management focus.

Can you also tell us if there are plans to integrate the two companies you bought this year?

Although we recognize synergies, particularly in product coverage, there are no integration plans at this moment. That might seem strange but the majority of mergers or consolidations in the marketplace in many industries do not fare well.

We will be slower to make movement in this direction than others might. We believe these types of transactions need time to evolve. Cultures need to evolve, teams need to gel and operational performance needs to begin to take hold. Only after these types of things occur would we even consider consolidation.

I think everyone can learn a lesson from AOL/Time Warner. It had nothing to do with money. I have recently watched competitors try to merge quickly in order to gain some efficiencies. Typically, most companies in the aftermarket are pretty lean already. Throwing things together quickly can have damaging results. In the case of one of our competitors, it has cost them millions of dollars in losses.

Once all the teams are in place and the companies are operating effectively, satisfying each and every customer every day, then and only then will we consider integration.

We will, however, take advantage of the cross-selling opportunities that exist between Coni-Seal and AutoPartSource. There are numerous opportunities for us in the marketplace.

Are there plans to make more investments this year?

At this stage we think time is needed to digest the recent acquisition. I am very pleased with our initial results. Profits have come earlier than expected and we have seen tremendous energy from the people involved. The new companies were faced with some significant challenges. For example, our supply chain was interrupted with the closing of Qualitee and Novatek and the start of AutoPartSource and New World Friction. These types of things are not always understood by the vendor community.

We have plenty of work to do. However, if another great opportunity came before us we certainly would feel compelled to take a look.

From what we’ve heard AutoPartsSource is focusing on becoming a leading under car parts supplier. What’s involved in this process?

We are familiar with these parts and feel comfortable pursuing additional opportunities in under car parts. The largest customer group of the former company is an under car distributor. These distributors carry the wear items that also sell well in the traditional and retail channel. Being closer to the people who install the parts keeps you closer to reality. The under car distributors help us get a better fix on just what technicians want and expect and at what price points they are willing to accept. Our commitment is to offer parts with realistic pricing while retaining the quality and performance required by the very demanding service market.

Coni-Seal and AutoPartSource have worldwide sourcing expertise combined with excellent quality assurance processes. For example, we have people on our payroll in Asia who play a pivotal role in our success. Speed to market and flexible supply chains are what deliver market share. In addition, our reputation for execution sets us apart from many other companies of our size. Coni-Seal has earned a number of vendor awards this year and in years past.

The maturing of the hydraulics business (due to the increasing use of disc brake systems) is what drove us to explore other product areas. In 10 years we grew 15 times our size. We believe in focus. We have proven that we can make this work by introducing our chassis program three years ago. We are already supplying very large customer groups and retailers who value our commitment to quality, value and high service levels. We have dedicated engineers who focus on quality assurance and are now developing products for new vehicles.

Coni-Seal has been very successful at penetrating the traditional market via private-label programs. Will that continue to be the strategy going forward? Will that be the strategy for the newly acquired entities?

We will continue this at Coni-Seal. We think there’s a significant opportunity in this area with AutoPartSource. In fact, this was the major thinking behind the asset purchase. The prior companies were not gaining the scale necessary to provide healthy growth. In today’s marketplace you need a variety of customers. Your best customer today can be acquired by someone else tomorrow. Unless you are selling Wal-Mart, you are vulnerable.

A key point to remember is that due to consolidation, these mega-buyers need to have assurances that their suppliers have enough scale to support their buying clout while having the sustainability to provide value with consistent supply. If they purchase product away from a major brake company or large conglomerate, their vendor is expected to supply the same type of quality at a lower price while performing to the same expectations. Sometimes we have to remind these buyers that our sales are in the millions and not billions so we cannot provide all the same services. We focus 90 percent on the product. Getting it to them, better, faster and with value. Our growth strategy has this fact at its core.

What, if any, OE presence does Coni-seal or the new entities have? Is there a desire for you to increase your OE presence?

This is not our focus although there are some opportunities in our friction plant to do some limited OE business. Interestingly, a Chinese company has asked us to consider supplying them friction for their OEM production. They respect the quality of the products here in North America and look for ways to partner and develop better products. China is not just about ‘cheap’ anymore.

With the purchase of Qualitee, you now have a manufacturing and marketing presence in Canada. What are your plans for growth in that market, and globally?

This was another case of underutilization. Coni-Seal does quite a bit of business in Canada and we will be able to offer more availability of parts and local availability of friction going forward.

Almost 60 percent of the friction business is controlled by two companies, although that is slowly changing. The introduction of ceramics has allowed more product availability, more merchandising and higher profit opportunities in this category. We produce a premium ceramic product with the ability to sell it at a realistic middle of the market price.

We also have a patented shimming process. Our staked-on shim disc pad has features and benefits that technicians desire. Most importantly, our product tests well against the major industry players. We supply the type of product that most customers could only buy from the large brake companies. Our size, overhead structure and marketing approach allow our product to reach technicians at a reasonable price point, that allows them to sell the consumer a better brake job.

The many flavors and varieties are opening up the market for other players. Branded suppliers will not always offer a private label. We are ready willing and able.

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