IAC 'out of ditch,' moves on without founder Ross

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Photo by Automotive News Ross

Auto industry investor Wilbur Ross Jr. continues to divest his business assets now that he is US secretary of commerce. And as he does, the biggest automotive supplier company in his portfolio is mapping out a new future of its own.

US-based International Automotive Components Group, founded by Ross and 61% owned by his former WL Ross & Co. investment, is recuperating from what it calls a "very rocky year" in 2015 that included unsuccessfully trying to sell the business, losing customer trust and missing earnings expectations by $100m (€94m).

IAC is now refocusing its operations and products, phasing out nonautomotive activity and claiming record earnings before interest, taxes depreciation and amortization.

"We've gotten out of the ditch and we are doing very well going forward," CEO Steve Miller said last week during a phone interview. "We are going to continue to be a major force in the automotive interiors space going forward."

IAC, which supplies automakers with cockpits, instrument panels, flooring and acoustics, recorded a record amount of new business in the first quarter of 2017 — more than $4bn (€3.7bn) in sales for the life of the programs — following all-time revenue of more than $6bn (€5.7bn) in 2016, Miller said. It also achieved record liquidity in 2016. He declined to provide specific financial figures for the privately-held supplier.

IAC — No. 43 on Automotive News' list of the top global original equipment part suppliers in 2014 and 2015 — had been experiencing substantial growth since Ross formed the company in 2006. But by 2015 when the billionaire investor contacted Miller to lead IAC, the company was spreading itself too thinly.

"We were experiencing operational difficulties in launching new products at four of our facilities," Miller said of IAC's 2015 problems. "The momentum had come to a grinding halt."

Ross, 79, had already stepped down as chairman of the board in 2014 and was no longer directly involved in IAC's business operations. He remained affiliated as the company's chairman emeritus when he hired Miller, whose career includes CEO roles at Delphi, Federal-Mogul and Bethlehem Steel.

Miller, 75, promised the board that he and his management team could turn IAC into "something of much greater value" if given the time.

Miller's early moves include cutting production of some non-core business assets, such as washing machine fascias and snowmobile parts, to focus on high-margin automotive components. He also streamlined decision-making by cutting his direct reports from 17 to four.

But IAC now finds itself in the news for a different reason. Ross was tapped in November by President Donald Trump to become secretary of commerce and lead US trade negotiations.

Ross promised not to take any action as secretary that would benefit any company in which he has a financial interest.

Aside from IAC, Ross' automotive involvement included a Brazilian auto parts supplier, the overseas shipping company Diamond S Shipping. He also owns a natural oil and gas firm. As part of his ethics agreement, Ross is giving up his position at the shipping company, but he will retain a stake in the company.

James Rockas, special assistant to the secretary of commerce, said Ross continues to divest himself of his assets that were potential conflicts of interest for Ross — particularly in his role negotiating trade agreements.

"Per his ethics agreement, Secretary Ross is in the process of divesting from IAC and all other interests from which he has agreed to divest," he said in an email to Automotive News.

Miller says he has not spoken about business operations with Ross since he called him to lead IAC.

"Wilbur has not been directly engaged in any of the business decisions that we have made since the time I got here over a year and a half ago," he said.

All discussions have been with IAC Chairman Stephen Toy, co-head of WL Ross & Co., and with board member Patrick Machir, a principal at WL Ross & Co. But that investment firm is now owned by Invesco, an investment management company with $770bn (€726bn) in assets.

Miller says IAC is moving forward without Ross and without any current plans to sell the company or launch an initial public offering. The company made past efforts to go public with an IPO.

"The company is not for sale and I do not see an IPO in the near term," Miller said. However he alluded to the possibility that undefined "transactions" could materialize, other than an IPO.

Last year, IAC created a joint venture with Shanghai Shenda Co., a Chinese producer of automotive textile materials. The venture is essentially a spinoff of IAC's soft trim and acoustics business, while hard-trim business will remain under IAC. IAC will maintain a 30% ownership of the venture and run it, while Shanghai Shenda provides the capital. That arrangement will free up IAC's capital to operate its hard-trim operations.

The joint venture is expected to generate more than $1bn (€943m) in annual sales from floor carpets, acoustic insulators, package trays, trunk trim and flooring products.

"Now that we are one of the big dogs in the interiors space, we have changed our focus from top-line to bottom-line," Miller said. "We're now out to create value for our owners and create a much stronger company."

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