Base of support Featured

1:13pm EDT July 27, 2005
Don Johnson talks as if his career were preordained.

“If you live and grow up in Central Illinois, the premier employer in Central Illinois, obviously, is Caterpillar,” he says. “I started at Caterpillar and had a 25-year career.”

But experience elsewhere can only take you so far when moving into a new position as head of a major company.

“The first thing I did when I came in (to Aftermarket Technology Corp. last January), I spent the first three months on the road talking to hundreds of employees and talking to the management team about their frustrations with the company, how they thought it could improve and what they wanted to see out of the company,” says Johnson, who serves as chairman, president and CEO.

It was an extremely valuable approach, one that helped Johnson form his plan to remake the company. While the formal titles may impress business types, it’s Johnson’s role fine-tuning the company that may be his most important. Like the mechanic who is forever fiddling under the hood of his auto, Johnson continues to retool the company.

His plans include adding a third leg to the company to balance out the logistics and drive train operations, finding a way to get out from under the constraints of the previous owner and getting more from his employees.

The final leg
Johnson likes to think of Aftermarket Technology as three-legged stool. The first leg comprises remanufactured drive train products, predominantly remanufactured transmissions, engines and other drive train-related components. Leg two is the logistics organization.

And while the company had revenue of about $395 million last year, Johnson knows that two-legged stools aren’t the most stable and he began investigating adding a third leg to the company.

The company announced in June that the third leg would come in the form of an agreement with Fallbrook Technologies Inc., a technology development and intellectual property licensing company. ATC will design and build transmission applications based on Fallbrook’s NuVinci continuously variable planetary (CVP) technology.

“The agreement is a strategic move in ATC’s growth and diversification strategy, leveraging its ongoing transmission remanufacturing and engineering expertise into the transmission manufacturing arena,” according to the press release announcing the deal. “ATC’s selection of Fallbrook’s NuVinci technology as the basis for this part of its overall growth and diversification strategy represents a major validation of the NuVinci CVP’s market potential.”

According to Johnson, “As we begin to market this new transmission technology, ATC will remain focused on growing our drive train remanufacturing business with our current and targeted customer base. We believe in this technology as another building block in our company’s growth and diversification strategy.”

In addition to a third leg, ATC is enhancing its existing operations. It created an advanced engineering group to look at new products and new capabilities and to work with the business development team, whose job is showing customers “how we can drive their business successes in the marketplace and enhancing our revenue flow in the process,” Johnson says. “That particular wing of the business is boding real well as we look forward to that third leg.

“It’s all about new products. So what we wanted to do was grow the business organically with new customers and also organic growth with existing customers.”

The introduction of the engineering group helped the company sign $35 million in new business in logistics last year. Building the existing operations and adding a third leg is a natural approach for Johnson, something he picked up in his time at Caterpillar and Ford, where he transformed the automaker’s parts supply and logistics organization.

“If you look at the strategies I launched at Ford, it was about improving the processes, improving the physical distribution capabilities and also improving IT,” Johnson says. “If you took one of those legs away, the strategy fell. We supported all three legs, and the strategy blossomed into being best in class. At ATC, we have logistics and we have drive train, which is two out of the three legs. What we’re looking for now is a growth strategy to drive organic growth in logistics and drive train, which are two of the legs of the stool.

“And the third leg of the three-legged stool is to add another leg to the company, which allows us to further diversify the revenue and customer base.”

The people
When Johnson arrived at ATC in 2004, he recognized there was a problem with the company’s focus.

“The thing that surprised me the most was the lack of business development or new growth resources set aside to do nothing but that,” Johnson says. “The people were asked to do that on a part-time basis — run the operation and oh, by the way, try to drive growth while you’re at it. That never works.

“So, what we decided to do to help change that mindset is rearrange the work behind people and set aside a business development organization that dedicated 100 percent of their time to go out and work with customers.”

That required changes to the management team, and Johnson brought in people from outside the organizations to add expertise.

“Ironically,” Johnson says, “the thing that surprised me the most, once I freed up those resources, (was) how people really gravitated toward growth. Fundamentally, people want to see an organization grow, but you have to put them in an environment and a process to do that. That’s what we did.”

He did it by recognizing what was good in one part of the company and applying it to the other.

“We found out that in the drive train organization, which again is the predominance of the revenue, there was no real business development function,” Johnson says. “It was focused on driving new growth and driving value to your customer set. We were basically order-takers working on a remanufactured unit when that OE wanted to throw an order over the wall for us to bid on.”

Johnson sought to make the drive train side of the business more like the logistics side.

“In logistics, we had a very aggressive business development organization — going out there knocking on doors and driving the business growth,” he says. “That happened about two-and-a-half years ago.

And I give my predecessor credit for that. What we didn’t have, which is on the drive train side of the business, is the same type of effort.

“So, in mid-’04, we put that in place. People focused on our customers to understand their needs and introduce new products and look for ways to help them control their costs and improve their sales in the marketplace.”

ATC has seen an almost immediate impact to its operations.

“We’re seeing a very significant sales pipeline, both on the logistics and drive train side of the business that we face now in terms of opportunities going forward,” Johnson says. “We won’t win all of them, but we’re going to win our fair share.

“If you look at what happened right after we implemented (in the drive train operation), during the first six months of existence, which was the last six months of ‘04, we saw $35 million of new business signed, which was great. We were off and running.”

Out with the old
When Johnson arrived at ATC, the company was a victim of its structure.

ATC was formed when Aurora Capital Group performed a roll-up of much of the light vehicle utility remanufacturing capability in North America. The company wanted to leverage the power that one company could provide to serve the original equipment spare organizations of the automotive original equipment manufacturers.

“When I was hired, it was about, ‘Don, how can you launch a growth strategy to allow Aurora to exit in their 10th or 11th year in this fund?’ which is amazingly patient for a private equity firm,” he says. “That whole growth strategy was built on the fact that we need to provide value to our customers in both logistics and drive train — what do they need and how do we deliver it at a competitive price? How do we help them manage their cost but also improve performance in the marketplace from a sales perspective and a customer satisfaction perspective?

“We launched those initiatives in both logistics and drive train to help drive business growth organically in our two main legs of the stool.”

The problem was that ATC was managed in a leveraged buyout (LBO) environment by the board and the subsequent management team. In addition, Aurora controlled 40 percent of the company’s stock.

“What happened over time, because it was managed as a leveraged buyout, there really wasn’t a growth strategy,” Johnson says. “When I was asked to interview for this position, (Aurora was) having a hard time getting out of our investment. I was brought on because of my background to drive that growth strategy.

“My background is, I was one of the customers. I know what customers want in terms of logistics because I used to be a logistics buyer. Second, I know the service parts business, and I know how I can add value to my customers, and that’s the most important ingredient for growth.

“If you understand you can affect transportation, you can affect inventory, you can affect material costs in the things that we do, then how can we put together the most comprehensive proposal that attacks all three of those elements to give the customer the best equation to win the business, and, at the same time, help our business grow? And that’s really what I bring.”

He has that and a mechanic’s ability to turn a company from an adequately running machine into a fine-tuned, high-performance engine.

HOW TO REACH: Aftermarket Technology Inc. (630) 271-8100 or http://www.goatc.com