Q. Since you became CEO of auto-parts manufacturer Linamar in 2002, it has been transformed into a $7.6 billion diversified global manufacturer of highly-engineered products powering vehicles, motion, work and lives. Can you talk a bit about the company’s transformation?
We started down the road of globalizing and diversifying our company close to 20 years ago, in an attempt to find new markets and additional avenues within which to grow. We didn’t want to have all our eggs in the auto-parts basket, so the goal was to find new markets to put our capabilities around metallic processing and lean manufacturing to good use. I’m pleased to report that while we have expanded, we have continued to significantly grow our automotive business. The idea was not to de-emphasize that at all, it was to add additional avenues within which to grow the company. Q. You are the only company I’ve heard of that has a 100-year plan in place. Please explain the thinking behind that.
It is indicative of our dedicated focus on the long term. Our goal is to create a company that will continue to grow and be successful over many, many years—not just this quarter or five years from now. We created the 100-year plan because we started giving thought to the key metrics that will shift and shape our world over the next 50 to 100 years. Of course, we can’t predict them all, but we can certainly identify some of them.
For instance, we know for certain that we will be looking at a growing global population, an aging population, and a population that is increasingly moving into cities. What do these things mean in terms of market needs? Which markets will be increasingly important as we move into the future? Obviously, transportation will be critical for getting around in urban centres. What might that look like, and what are the opportunities there? This was one area where we believe there will be a lot of change, and therefore, opportunity—and it happens to be an area that we already have expertise in.
Another area of opportunity that came up was food and agriculture. We know that we have a growing global population, and that all of those people need to be fed. So we asked ourselves, ‘What are the technologies that could be adopted in food and agriculture to increase the efficiency of the harvest?’ And ‘Are there technologies that could enable more of the food that is being grown to get to where it is most needed?’ The whole area of food and agriculture will see a lot of change and opportunity down the road, and we wanted to play a role in it. This thinking culminated in our acquisition of MacDon, a market leader in harvesting technology, last year. That’s an example of the 100-year plan being put into action. Q. A couple of the other (sort of surprising) areas that you’re interested in for the future are water and the aging population. Could you touch on why these are interesting to you?
As I indicated earlier, we try to look at markets where we believe there is going to be a lot of change and resulting new demand, as well as markets that can be transformed by evolving technologies. All six of the markets we identified check one or both of those boxes.
Water, again, is tied to the idea of a growing global population that is becoming increasingly urban. What will that mean in terms of accessibility to clean water, and how will it affect the aging infrastructure of most water systems today? This is another market with huge growth opportunities that we are very interested in playing in.
The aging population also has particular needs that will create new markets. Medical devices are just one example. We’re getting older, but unfortunately, we’re also getting fatter, and that means that there’s an increased need for things like hip and knee implants. That seemed like a potentially interesting market for us. Also, the aging population generally wants to stay in their homes for as long as possible, so what can be done in terms of technology, automation and robotics that will allow people to do that in a safe and healthy way? There are some really interesting market opportunities there, as well. Q. Despite all the change happening in the sectors you just touched on, you have said that “Right now is the most opportunistic time I have ever seen in the auto industry.” Please explain what you meant by that
How vehicles are powered is changing dramatically, and that is creating all kinds of exciting growth opportunities for us. At the moment, we are in the midst of an evolution in hybrid vehicles, battery electric vehicles and fuel-cell electric vehicles. At the same time, there are all kinds of other changes happening around mobility more broadly, like ride sharing and car sharing. All of these dynamics are transforming the automotive industry, and as I said earlier, change leads to opportunity.
All of this is leading to some exciting new areas of opportunity in our core business in terms of hybrid battery electric and battery or fuel cell electric vehicles, where we see massive growth happening over the next 15 years. But there are also interesting opportunities in thermally-powered vehicles and internal combustion engine vehicles.
Our customers are increasingly reluctant to continue to invest in manufacturing for internal combustion engines, which means that they are outsourcing a lot more of that product than they ever did the past. Today, 70 per cent of the content of an engine is manufactured in-house by the automakers themselves. But they are increasingly asking the supply chain to take that on. So, even though the overall number of pure internal combustion-only driven vehicles is certainly going to decline over the next 15 years, because the percentage elsewhere is growing, the addressable market is actually pretty steady and might actually grow a bit over the next 15 years, which is very interesting.
Autonomous vehicles are also very interesting to us. There is a lot of push to get us there, just from a safety perspective, that I think makes a lot of sense. But it will take some time for these technologies to develop. People seem to believe that full autonomy—‘Level 5’ hands off, where there is no steering wheel—is coming soon, but it won’t happen nearly as quickly as they think. A lot of technology development has to happen, as well as security work and infrastructure integration work.
What we will see is increasing levels of automation at other, lower levels, like Levels 2 and 3, which is what is evolving right now, and Level 4. What does this mean for us? We are personally not producing a driverless system, but we think there are interesting dynamics in terms of vehicle-to-vehicle communication and how that can improve our driveline systems or what an autonomous vehicle looks like, how it drives, and how it’s going to be managed as a fleet. Will people own these vehicles, or will they be owned by a central fleet? Each possibility comes with different dynamics around how that vehicle is designed.
Today, vehicle designs are all about horsepower, and these are things that matter to drivers. But if you are no longer a driver, you won’t care about horsepower; you will care about getting from point A to point B safely and comfortably. And fleet owners care a lot more about fuel efficiency and vehicle uptime, quality and speed to repair if there is an issue. All of a sudden, things that were important in the past will not be as important.Q. Can you touch on how AI is affecting your company, and how you plan to embrace it going forward?
That is a really exciting area of evolution that is allowing us to do things much differently than we have in the past—both on our shop floors and in our offices. AI-driven machine learning will allow us to automate tasks, perform analysis and make better predictions. And that will free people up to focus on other important areas, such as innovation, product improvement and cycle time improvement, cost improvement and logistics—areas that, frankly, are a lot more interesting than the repetitive tasks that will be automated.
Our jobs are will not go away, but they will change. In effect, AI will shift the ‘jobs to be done’. At the same time, we’re growing as an organization. If I look back over the last five or six years at how our business has evolved, we’ve grown our overall workforce by around 40 per cent. Our indirect workforce has grown significantly faster—by closer to 70 per cent, and our direct work is more like 20 or 25 per cent. When I say direct and indirect, direct is somebody who is directly loading and unloading a machine; and indirect people are everybody else. My role is ‘indirect’; anybody who is not loading or unloading a machine is indirect. So, the jobs are not going away, they’re just changing.
As recently as 10 years ago, we would have had two direct employees for every one indirect. Two thirds of our workforce was direct and one third was indirect. Today, it’s about 50/50. So that has changed dramatically already. My feeling is that overall employment will stay the same or grow, but the jobs will shift from the floor into indirect roles—which, which by the way, pay more.Q. In the past, you have indicated your frustration at investors undervaluing your company. Is this getting any better?
Definitely not. In fact, I think it’s gotten a bit worse. Investors today are preoccupied by the idea that we are at the end of the ‘auto cycle’. The automotive industry is a cyclical one, and every ten-or so years, there is a dip in terms of production. Of course in 2009, that dip was extremely pronounced and much deeper than what would have been normal. I has been about 10 years since that happened, so a lot of folks feel like, ‘Oh, we must be due for another dip’, and they’re selling-off auto stocks. They aren’t taking the time to ‘look under the hood’ to find out, ‘Is this particular company launching any innovative initiatives that might offset that?’, or ‘Are there things about this company that will help it perform differently than the rest of the market?’ This shortsightedness has been a real problem for us.
Furthermore, we actually peaked in auto production in 2016, 2019 is the third year of declining volumes out of what is generally a four- year on average cycle down in this industry. The way I look at it, we are over halfway through the downturn and can start to look forward to volumes increasing again within the next 18 months or so.
When we do make it through the ‘auto filter’, the next piece is around propulsion. As indicated, there is a widespread perception that we’re all going to be driving electric vehicles tomorrow. And since we do a lot of power train work today— because that’s what 98 per cent of vehicles are—there is a perception that we’re not going to have a business in the future. That is not at all the case. We actually have a significant portfolio of product for hybrid, battery electric, and fuel cell electric vehicles in all different areas, whether it be structural components in the body, driveline components and systems, gearboxes for electric axels, battery housing or fuel tanks for hydrogen vehicles. And in addition, we’ve been winning a significant amount of business for electric vehicles. In fact, our global content per vehicle for electric vehicles two years from now is the same as our global content per vehicle was for ICE vehicles two years ago! But again, if people only look at us from a very high level and see that we still do a lot of power train work, they sell.
I think that’s a problem more generally in the investing realm. Very few investors are willing to study companies closely, understand what the opportunities are, and then buy and sell accordingly. There is a lot of automated trading driving off indexes or algorithmic trading and gut reaction happening: ‘auto stock: sell’; ‘power train: sell’. I actually think there is real opportunity here for investors who do decide to do a little more research, think a little more and make smart bets.Q. What is your advice for would-be entrepreneurs who are reading this and are interested in following in your footsteps?
First of all, I would say go for it, because as a wise hockey player once said, you will miss 100 per cent of the shots you don’t take. If you think you’ve got an idea for something and can build a business around it, do it. There is nothing more rewarding than taking an idea and building something.
Second, I would recommend setting bold goals. If we set small goals, we achieve small things, and if we set bold goals, we achieve big things. Bold goals force you to think a little bit out of your comfort zone, and to define your market more broadly in order to meet those bigger sales targets. So set bold goals and measure your progress. You achieve what you measure. So decide which metrics are important to measure, track them, and push towards your goal.Linda Hassenfratz is the CEO of Linamar. She was named Canada’s Outstanding CEO of the Year for 2018. In 2016, she and her father Frank were inducted into the Canadian Business Hall of Fame and Fortune has named her to its 50 Most Powerful Women International list. She is a board member and the past Chair of the Business Council of Canada.
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[This article has been reprinted, with permission, from Rotman Management, the magazine of the University of Toronto's Rotman School of Management]