Incorporated: 1966 as Linamar Machine Ltd.
Sales: C$545 million (1995)
Stock Exchanges: Toronto
SICs: 3462 Iron & Steel Forgings; 3531 Construction Machinery; 3714 Motor Vehicle Parts & Accessories; 6710 Holding Offices; 7300 Business Services; 3728 Aircraft Parts & Equipment
Canadian-based Linamar Corporation is one of the fastest-growing manufacturers of high precision machined and assembled components in the world. Approximately 80 percent of the company’s business comes from the automotive industry, including large contracts for the production of steering, engine, transmission, and braking system components. With an impressive customer base of General Motors, Chrysler, Detroit Diesel Corporation, and Ford, company revenues increased over C$100 million from 1994 to 1995. The remaining 20 percent of the company’s business is in the manufacture of farm equipment. Headquartered in Guelph, Ontario, Linamar operates through 17 autonomous companies located in such diverse countries as Hungary, Russia, and Kazakhstan.
The driving force behind Linamar Corporation is its founder and principal owner, Frank Hasenfratz. A native of Hungary, Hasenfratz emigrated from the land of his birth in 1956 during the chaotic and violent Soviet invasion and occupation. Arriving in Austria as a refugee, he served as a translator for his fellow Hungarians who also fled after the Soviet invasion. Working his way to France, he met some Italian crewmen who allowed him to travel free to Canada on their freighter. Met by immigration officials when the ship docked in Quebec City, Hasenfratz was interviewed, given immigration status, and provided with a total amount of C$5.00 to start a new life. Not knowing where to go, the young man of 22 years remained a few days in the railway station in Quebec City, and \then traveled to Guelph when he heard of an employment opportunity. He was hired by W.C. Woods Company as a machinist, but was laid off after a short stint of six months.
Undismayed, and full of confidence in himself, Hasenfratz soon found another job as a machinist. From 1958 to 1964, he worked diligently in order to save his money for the right entrepreneurial opportunity. In 1964, the time was right. With $600 he had saved from his six years of work, he opened a one-man machine shop in his own garage. His first contract was for the manufacture of automotive oil pumps. By 1966, Hasenfratz’s firm was incorporated as Linamar Machine Ltd., and had grown large enough to employ five people at the Linamar Ariss Plant in Guelph. During the same year, the ambitious businessman received his big break—a contract to manufacture automotive oil pumps for Ford Motor Company of Canada.
Throughout the late 1960s and the decade of the 1970s, Hasenfratz worked hard to expand the customer base of Linamar. Gradually, not only did the company garner larger and larger contracts for component parts from Ford Motor Company of Canada, but also from defense industry firms located in both the United States and Canada. As his customer base grew, so did revenues and the number of employees. By the end of the 1970s, Linamar’s revenues totaled C$7 million and over 80 people were employed at the company’s Ariss Plant in Guelph.
Growth and Expansion During the 1980s
By 1980, sales at Linamar had increased to C$10 million, and Hasenfratz was ready to implement an aggressive acquisitions strategy to quicken the pace of his company’s growth. One of the first purchases made during the 1980s was White Farm Equipment of Canada, Ltd. Having previously engaged in subcontract work for the company, Hasenfratz jumped at the opportunity to acquire White Farm which, in spite of its annual sales base of approximately $280 million, had filed for bankruptcy under chapter 11. The first year after White Farm’s acquisition, Linamar made a handsome profit, but shortly thereafter a minority partner in the transaction activated a provision in a shareholder agreement and Hasenfratz was forced to sell his interest in the company. Nonetheless, Linamar had greatly benefitted from the acquisition, since the company had gained expertise in the design and manufacture of farm equipment.
Like many other companies during the 1980s, Linamar’s growth was due to its acquisition policy. But the difference between Linamar and other larger corporations at the time was that Linamar integrated acquisitions quickly into its manufacturing operations, rather than breaking up its acquisition into divisions or component parts and then selling them to the highest bidder. Major acquisitions during this period included Bata Engineering (renamed Invar Manufacturing Ltd.), located in Batawa, Ontario. The rationale behind the acquisition was to take advantage of the company’s expertise in the production of sophisticated components for defense and commercial applications. Perhaps the most important acquisition during the 1980s, however, was Western Combine Corporation. Western manufactured the Rotary Combine model 8570 for Massey Ferguson in North America, and was soon selling it globally under the auspices of Linamar.
The strategic acquisitions of Bata Engineering and Western Combine were augmented by Linamar’s policy of developing its own semi-autonomous subsidiaries. Located mostly in Guelph, the first of these subsidiaries was Linex, created to provide more high precision metal component parts for the automotive and defense industries, and office equipment manufacturers. Hastech was initially formed to manufacture aerospace and defense components, while Spinic manufactured high-volume brackets, spindles, and water pumps for the automotive industry. Emtol was established to provide Linamar with a new facility able to produce large component parts for the defense, agricultural, and automotive industries, including such items as engine blocks, injector bodies, and anti-lock braking system valve housings. Similarly, both Roctel and Transgear were created to provide highly specialized machined components for the automotive industry.
The impetus behind Linamar’s formation of its own network of subsidiaries was the changing scene of the North American automotive industry during the early and mid-1980s. As the foreign car companies captured more of the automobile market during the entire decade of the 1970s, the American car manufacturers began to fight back. The 1980s saw a renewed commitment to higher quality and more durable automobiles by the Big Three manufacturers, including Ford, Chrysler, and General Motors. In order to achieve the goal of consumer satisfaction and, consequently, a larger share of the car market, the Big Three companies began a comprehensive policy to reduce the number of suppliers, and increase the outsourcing of components rather than individual automotive parts. As a result, Ford, Chrysler, and General Motors took extreme measures to evaluate all their suppliers, and awarded long-term contracts to those who had a passing grade. If supplier firms did not receive a passing grade, their contracts were not renewed or they were asked to upgrade their manufacturing facilities.
Linamar management recognized that the Big Three intended to reduce the number of their suppliers, and immediately established a pilot program at the Transgear subsidiary to meet the newly formulated expectations. Linamar reduced costs, began taking time studies of value-added activities, converted its production lines to the new Japanese Kaisen system (which reduced inventories up to 40 percent), clustered its machinery in team groupings that manufactured an entire component, and retrained its employees to work as a team rather than as individuals on an assembly line. With all of its effort to satisfy the demands of the Big Three, Linamar was justly rewarded. By the end of the 1980s, the company had won major contracts from Ford, Chrysler, and General Motors. Most importantly, however, in a complete turnaround from just 10 years earlier, nearly 80 percent of all the company’s business came from the automotive industry.
The 1990s and Beyond
With an established reputation for reliability, meticulous accuracy, and low manufacturing costs, Linamar began to reap the benefits of its hard work. In 1992 alone, the company’s Spinic subsidiary won the Ford Quality 1 Preferred Customer Award, its Linex subsidiary won the Saco Defense Supplier of the Year Award, and parent Linamar received the extremely prestigious Canada Award for Business Excellence in the Quality Category. When any customer visited one of the company plants located in Guelph, one saw streaming flags indicating Ford’s Quality 1, Chrysler’s Pentastar, and General Motors’ Mark of Excellence Awards.
As we continue to move toward the year 2000, we will maintain our high level of capital investment to equip our management team and manufacturing operations with the latest in highly productive technology and equipment. We will not waiver from our drive to constantly improve and to identify those market areas that will give the company the ability to sustain long-term growth.
Hasenfratz, of course, was not the kind of entrepreneur to rest on his laurels. During the 1980s, a state-owned firm located in Hungary, Mezogep, had improved upon a component made for combines by a German corporation. Linamar had been importing the component, called a “cornhead,” since 1989. Recognizing the potential market for the component, Hasenfratz returned to his native land and purchased Mezogep in 1992. Industry analysts initially criticized the purchase as misguided, since Hungary had developed a notorious reputation as an unproductive labor market. But Hasenfratz thought this criticism itself was mistaken, especially since the industry held the traditional attitude of most foreign firms working in Eastern Europe—namely, that an American or Canadian manufacturing firm should take advantage of the cheap labor force to lower its own manufacturing costs.
Defying traditional attitudes, Hasenfratz decided to take the opposite approach toward the labor market. He strongly believed that, if the management was good, then the assembly line workforce would be equally as good. Hasenfratz proceeded to hire hard-working, corruption-free managers who, in turn, hired people like themselves. He also reached a unique agreement with his Hungarian management team, including ownership and profit incentives if certain manufacturing goals were met. By 1995, results from the Mezogep operation had even outstripped Hasenfratz’s own expectations. Growing into one of Linamar’s most successful businesses, Mezogep recorded profits of more than US$3 million, reported efficiency levels between 80 percent and 90 percent, and had added two divisions while employing 560 people. Recently, Mezogep has widened its manufacturing base to include an automotive division which makes component parts for the international automotive market.
Hasenfratz didn’t stop with the purchase of Mezogep, which merely seemed to whet his appetite for overseas expansion. In 1992, in conjunction with its Western Combine Corporation subsidiary, Linamar airlifted over 100 tons of farm equipment to Russia by employing the world’s second largest airplane. Although there had been a long history of failed dealings between Russian farmers and other North American and German combine manufacturers, Hasenfratz was confident that his company wouldn’t make the same mistakes. Consequently, Hasenfratz sent along three Russian-speaking farmers from Canada, along with a comprehensive system that not only included combines, but also large drying machines and huge storage bins for grain. Again, Hasenfratz had anticipated what was needed to create a successful project. Working closely with their Russian counterparts in the city of Chelybinsk, the Canadian farmers helped collect one of the largest harvests ever in the area.
Insisting on supervising the harvest of grain for a period of three years, and implementing both a training program and a repair program for the equipment, the experience soon became a showcase for international cooperation. Proving that grain-handling equipment and methods used in North American could be adapted to regions in Russia with the same production of high-quality grain at lower costs, additional pilot programs were quickly established. Equipment and technical assistance from Canada were used in Kazakhstan and Ukraine, and Linamar also set up a joint venture plant in Russia to manufacture combine equipment. Interestingly, the plant chosen for the operation was a former military plant used by the Russian army but closed due to lack of funds.
In addition to expanding the company’s activities in Eastern Europe and Russia, Hasenfratz positioned Linamar to take advantage of the burgeoning North American market. Hasenfratz sees the North American Free Trade Agreement (NAFTA), which combines the U.S., Canada, and Mexico in a free trade agreement, as the counterpart and answer to the European Common Market. A strong advocate of a thoroughgoing, unregulated free trade among the United States, Canada, and Mexico, in 1993 Hasenfratz negotiated a five-year contract with Volkswagen of Mexico to manufacture automobile components for the Golf and Jetta models.
In the summer of 1996, Linamar was listed as one of the 200 fastest-growing companies in the world by the Deloitte & Touche Consulting Group/Braxton Associates. With the hiring of over 400 workers in 1996 alone, Linamar has become Guelph’s largest industrial employer. The growing contracts for machine parts to the Big Three American automotive companies—Ford, Chrysler, and General Motors—puts Linamar in position to break the C$1 billion mark by the year 2000.
Linamar Transportation, Inc.; Linex Manufacturing, Inc.; Hastech Inc.; Spinic Manufacturing Company, Ltd.; Emtol Manufacturing, Ltd.; Invar Manufacturing, Ltd.; Roctel Manufacturing, Ltd.; Autocom Manufacturing; Vehcom Manufacturing; Transgear Manufacturing, Inc.; Ouadrad Manufacturing, Ltd.; Comtech Mfg., Ltd.; Traxle Mfg., Ltd.; Portage Manufacturing, Inc.; Western Combine Corporation; Mezogep Incorporated; Linamar U.S.A., Inc.
“Canada’s Top Manufacturer Takes Aim,” Prospective Business Magazine, Volume 3, Number 4, pp. 35–40.
“Confessions of an Automotive Supplier,” Canadian Industrial Machinery, March 1994, pp. 16–44.
Hutchison, John, “Thinking Big About Small Business Exports,” Canadian Business Review, Autumn 1996, pp. 18–20.
Lindsay, Wendy, “Precision Plus,” Trade and Commerce Magazine (Supplement), 1993, pp. 3–15.
Nadler, John, “Double Agent,” Canadian Business, January 1995, pp. 37–40.
Nottingham, Lucy, “Integrated Risk Management,” Canadian Business Review, Summer 1996, pp. 26–28.
Nunn, Tom, “Linamar Leaps on to List,” The Record, June 21, 1996, p. A3.