How Klarius took on the dragon, and won

It’s been almost 18 months since Quinton Hazell came home. After 24 years in US ownership, in February last year the independent aftermarket’s oldest and most famous brand returned to British soil when it was bought from Affinia Group by Klarius. It was a move that made the industry sit up and take notice: here was a relative newcomer to the aftermarket, a specialist in exhausts, taking on one of the biggest names in the sector.

“I think it shocked the industry,” says Tony Wilson, founder and chairman of Klarius. “We’ve generated more rumours in the marketplace than anybody else over the last 10 years: we’ve been owned by our customers; we’ve been mafia run…” He laughs. “I suppose it’s a form of flattery. Some people have been a bit scared about what’s been happening in the market because, quite clearly, when someone grows, somebody else fails. And we’ve taken substantial market share.”

When Wilson and his team bought QH, the company wasn’t in great shape. It was trading off its heritage but losing money.

But while Wilson was realistic about the challenge of restoring it back to its former glory, he wasn’t daunted. Klarius, having already turned around £7 million losses within a year of buying Arvin Meritor’s aftermarket emissions division in 2007, had been waiting for an opportunity to grow.

“When QH came up for sale, we jumped at the chance,” says Wilson. “It was just an unbelievable fit. We needed to expand our parts range, and it’s just such a great company.

“Quinton Hazell, like Arvin Meritor, had been neglected,” says Wilson. “As with most companies when the parent decides they’re going to sell, the first thing they do is stop investing. And in the automotive sector, if you stop investing, you start losing market share because investment in this sector is all about new parts. It’s all about keeping up with demand. But that’s not difficult to remedy, is it,” he says in true down to earth Wilson style. “It just takes a good lump of investment and some clear focus.

“QH had a massive set of loyal customers but they were getting a little brassed off with this big sleepy giant that just wasn’t working properly. When you buy an old house, you have to knock a few walls down, and that applies to business too. You’ve got to strip it back to solid foundations, and then you start building.

“At QH, there were some big walls to knock down,” he admits, “but what we found was a company full of frustrated people who just wanted to get the hell out there and do the job properly. They’d been restrained from doing that. Within 48 hours of the acquisition, we visited all the plants and spoke to every set of managers, and we said: ‘your handcuffs are off’.

As an example of just how far Quinton Hazell had slipped back in the market, when Klarius bought it, QH hadn’t produced a new part for two years. It had a lot of catching up to do, and in the last 12 months the company has brought 220 new parts to market, developed and manufactured at its UK and continental plants.

It is manufacturing, says Wilson,that will be QH’s ticket back to the big league. “QH has got unlimited potential,” he says. “And the massive difference between QH and other companies in the same business is that it is a manufacturer.”

Underlining this point, he recalls a conversation with a commercial fleet operator at an industry event the previous evening: “He told me he was having to wait 16 weeks for a new valve for a tanker. That’s 16 weeks that the vehicle is off the road. And why is it a 16 week lead time? Because the parts are being made in China.” Wilson is incredulous.

“All our plants are in Europe: in the UK, Spain and Germany. And they will continue to be. And we’re picking up orders from OE that normally source from Japan. We’ve just supplied a couple of hundred thousand water pumps to one manufacturer who’s production was stalled by lack of supply after the earthquake.”

At a time when many other suppliers are increasingly turning towards the Far East and other ‘low cost’ countries for their production, it is a strategy that goes against the grain. But it appears to be working.

“The view that you’ve got to get stuff manufactured in China because it’s cheap is nonsense,” says Wilson. “It’s nonsense because of the stockholding you have to take; it’s nonsense because of the delivery times. It just doesn’t work.

“We’re very proud of manufacturing in the UK. People still say ‘oh you can’t do that’, and Colwyn Bay was a great example. When we bought Quinton Hazell, all of the employees at that plant had been told it was closing and that they would be out of work in 10 months. The parent had placed the contracts in China. We reversed that decision in the first 48 hours of owning the company.

Quinton Hazell factories are now benefitting from the lean manufacturing techniques Klarius had already successfully applied to its existing emissions plants. “We took what was historically the model in the UK and in the aftermarket of manufacturing large batches and turned that into very rapid changeover. So we have small batch production over a very very much expanded parts range.

“We now have complete cell turnovers that two or three years ago would have taken two hours but now take eight minutes. That means that instead of doing batches of  500, we now do batches of 10. So we’re not sitting on mountainous amounts of stock. We’ve got rapid turnover and constant stock availability.”

This, he says, is probably the Group’s biggest strength and he reports that former customers who had become disillusioned by QH’s sluggishness are starting to come back. “They’re realising it has changed and they’re seeing others who are buying from us enjoy significant growth. We deliver product every day, overnight, and through partners we deliver same day. That allows our customers to take their own stock down. It’s tough out there at the moment and some of our customers are seeing massive financial benefits through doing business with us because we’re working their terms and we’re releasing cash. We’re taking stock out, and reprofiling for them.”

Since Klarius took over Quinton Hazell, it has invested some £5 million in getting it back into shape. It now boasts a portfolio of 100,000 part numbers and sells more than 90,000 parts every day. “That’s one Klarius part fitted every second,” says Wilson.

It’s an impressive performance but Wilson and his team don’t plan on stopping here. They have some ambitious growth plans.

“There are a number of ways you can grow your business,” says Wilson. “One is to sell more product to your customers, and, as our customers grow, we do that. But the reality is that there are only so many exhausts, for example, that you can sell into one market. When you get to a certain critical mass, you start to see diminishing returns.

“Another way is to sell product to new customers, and there are a lot of emerging markets out there that we haven’t historically been involved in. Russia, for example, is a market that has grown beyond all recognition in the last 10 years, and that’s a market we’re looking at strategically. Turky is another.

The company, says Wilson, is ready “for growth mode” again. It recently opened 16 new depots and distribution centres across Europe and there are more in the pipeline – and he says Klarius is in discussions with several parties with regards to another acquisition. It is also expanding its product offering and eyeing new categories. Following the launch of rotating electrics in January, it plans to launch a full range of shock absorbers next month, which, says Wilson, will rival established players such as KYB and Monroe. And batteries and tyres are even being considered. “Everyone says, ‘oh you can’t do tyres’, but you know, it’s a range of part numbers that sits in a central warehouse and gets distributed out.

From Klarius’ birth as a small engineering company making flanges and brackets for exhaust manufacturers, it has come a long way. And Wilson is enjoying every minute of it.“I just love it. It’s a lifestyle, not a job. And everyone here is part of it. We’re making something very special. It’s sad isn’t it,” he grins and shrugs happily. He looks like a man who has found his niche in life.

“QH is 65 this year,” he continues. “And what a man Quinton Hazell was. He fought the car manufacturers and he won. He was just so revolutionary for a man whose company made bits for cars. And I just love that ‘stuff you, I’m going to do it’ attitude.

When Klarius bought Quinton Hazell, it’s turnover leaped to €350 million overnight. And Wilson has pledged to double it again by the end of 2012. It’s a bold statement but he is determined to make the Welsh dragon great again. Sir Quinton, one suspects, would be proud.