Affinia Profile

Affinia Group Completes Transformation
Aftermarket Company Establishes Global Footprint

When Affinia Group began operation in December 2004 the company enjoyed many strengths. The Affinia “Family of Brands” included some of the most respected names in the industry, resulting in market share leadership throughout North America. At the same time, Affinia was experiencing steady sales growth because of the fundamental strengths of the aftermarket and long-term customer relationships. Despite these strengths, however, Affinia leadership recognized that the world was changing and transformation would be required.  

Off-shore manufacturers of on- and off-highway replacement products, which long enjoyed a cost advantage, were now achieving improved quality. As a result, professional installers in the U.S. and around the world were selecting an increasing number of replacement products manufactured in off-shore locations.

"The other major shift that was taking place was the increasing prosperity of consumers outside of North America, particularly in China, India and Eastern Europe, and the growth of private vehicle ownership in those regions of the world," said Terry McCormack, president and CEO of Ann Arbor-based Affinia Group. "For us to participate in these emerging markets we had to adopt a more global perspective and deploy manufacturing, sourcing, distribution and service around the world."

With the launch of a five-year $152 million restructuring program, Affinia set about the difficult and at times painful process of global transformation. The goals were to create a company capable of securing the best possible quality and prices for its customers regardless of where products were manufactured and to capitalize on growth markets. Affinia’s global quality commitment to product specifications and production management was put into place to assure customers of consistency in fit, form and function regardless of where component parts are made.

In addition to the launch of the global restructuring program, Affinia also established a solid corporate infrastructure for the company, including treasury, legal, human resources, IT, strategic planning, corporate communications and others. Seasoned professionals in each of these areas have played key roles in the restructuring program, which has been self funded and completed without the need for outside consultants.

"Any organization undertaking fundamental changes as we envisioned for Affinia must have solid core values," McCormack said. "Early on in our transformation, we dedicated Affinia as a purpose-driven company that would rally all of our people around common objectives. We encapsulated our purpose into a mission statement that is withstanding the test of time: We will inspire our people, delight our customers and impress our investors with the world’s most innovative aftermarket products and services that are of consistently high quality and always market competitive."

Over the past five years, Affinia has closed 44 manufacturing and distribution facilities in the U.S., Europe and Canada representing 2.4 million square feet of space. In addition, product lines have been consolidated and simplified and new facilities and trade alliances formed in Mexico, India, Asia and Eastern Europe. In its most significant global expansion, Affinia purchased an 85 percent interest in one of the world’s largest drum and rotor plants in China.

Using its transformation plan as a guide, Affinia has established a global footprint, assuring its ability to provide customers with an outstanding value proposition for all products, including filtration, brake and chassis replacement components. The company serves several markets on a global basis, including automotive, commercial transportation, construction, agriculture and industrial. Sales outside of the U.S. represented 45 percent of total sales during 2008, an increase of more than $100 million from the previous year.

Another element in the company’s global transformation has been fundamental structural changes in virtually every aspect of the business. Affinia has enhanced the use of information technology, developed electronic solutions for product category support, invested in research and development and launched innovative new products, all the while receiving accolades from key accounts for product quality and service. Customer-focused promotions have helped to fuel brand loyalty and maintain close working relationships with trade partners and professional installers.

Affinia’s global transformation is essentially complete and contributing to improved financial strength. At the end of the second quarter of this year, Affinia reported a gross profit margin as a percentage of sales of 19.1 percent, which compares to 14.1 percent when the company was founded at the end of 2004. More than 70 percent of this margin improvement is directly attributable to the successful implementation of the restructuring program.

Also contributing to Affinia’s financial strength and ability to continue growing is a debt refinancing that occurred during the second quarter of 2009. This transaction included placement of $225 million in senior secured notes and a new $315 million asset-based revolving credit facility. The result is increased liquidity and flexibility for future growth.

"We are a much leaner and more efficient organization today than we were five years ago," McCormack said. "The driving forces behind our transformation have been global expansion, innovation in every aspect of our business and increased diversity in our products, services, markets and people."

With annual revenues of $1.8 billion, Affinia currently manufactures and distributes products in 11 countries and sells into another 70. A workforce of more than 10,000 is responsible for assuring that Affinia maintains its No. 1 or No. 2 market position in filtration, brake and chassis in North America, Eastern Europe and Argentina. Affinia is a 98 percent pure aftermarket company, focused on the long-term growth and stability of replacement products and services.

Reinforcing Affinia’s global transformation has been a fundamental shift in culture: from a North America focus to a global perspective; from high cost to global cost; from product driven to customer driven; from intuitive to fact-based decision making. Within the space of five short years, Affinia’s leadership has essentially completed a corporate metamorphosis that positions the company well for the years ahead.

Affinia’s outlook for the future is bright. While the global recession is affecting every enterprise, the fundamentals of the company’s replacement components business model is solid. Affinia is a lean, efficient 21st Century company in every way with a global focus and customer-centric culture.