The Ross Effect

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Illustration by Mark Elliott

Wilbur Ross compares his ability to buy companies and resurrect them back to profitability to the Phoenix rising from the ashes; however, a comparison to boxer Sugar Ray Leonard may be more apt. Leonard won world championships in five different weight classes while suffering just three defeats. Following a similar career path, Ross has managed to find success in several different industries: automotive, textiles, and steel — and he’s looking for more.

While many who toil within Detroit’s automotive industry have heard or read about Ross, one of Wall Street’s most successful turnaround artists, he’s little understood in a town that doesn’t take well to outsiders (witness Daimler’s nine-year odyssey with Chrysler). But Ross, 69, is no carpetbagger. He created International Automotive Components Group (IAC) out of the wretched refuse of other companies, such as Lear Corp. in Southfield and Collins & Aikman in Troy, with the objective of turning them into a profitable enterprise.

Consider, in October 2006, IAC completed the previously announced acquisition of Lear Corp.’s European Interiors Systems Division on a debt-free basis in exchange for 34 percent of the stock in IAC. The transaction expanded IAC’s presence in Europe to 22 manufacturing facilities in nine countries, with approximately $1.5 billion in
annual revenue.

In early 2007, Ross purchased Lear’s former North American Interior Systems Division and brought it into IAC Group North America, based in Dearborn. The deal involved 26 manufacturing plants and two Chinese joint ventures. Lear also contributed $27 million in cash for a 25-percent interest in IAC North America and warrants for an additional 7 percent, according to IAC’s Web site. IAC reported sales of $5.5 billion in 2007.

In addition, the company purchased most of Collins & Aikman out of bankruptcy court for pennies on the dollar, but only after it outbid other suitors for the more valuable portions of the company prior to its complete liquidation. The linchpin was its move to purchase nine plants from the supplier, including Mexican plants that supplied Ford Motor Co., out from under Cadence Innovation — which thought it had the deal done — for $17 million and other liabilities. That raised the total to $68 million, according to court filings.

On a side note, IAC was issued a $200 million secured line of credit by GE Corporate Lending. IAC will use the loan for working-capital needs, GE officials say. “GE understands the challenges and opportunities facing auto suppliers,” says Jeff Vanneste, IAC’s chief financial officer. “They worked closely with us and structured a financing solution to maximize liquidity and flexibility.”

While many see the automotive industry as a high-risk, not-high-enough-reward enterprise, Ross views the market very differently. For the last three years, auto suppliers have been filing Chapter 11 at record levels. They’ve been struggling with slowing auto sales and rising raw material prices, and the final nail in the coffin has been exploding oil prices, which recently rose above $100 per barrel.

“We’re not risk-takers,” Ross says. “We think we’ve bought things very carefully. We’ve been at this a long time. Very few times we’ve had to sell things at a loss; we’re very [risk-averse].”

Ross, who spends much of his time at his home in Palm Beach, Fla., is a soft-spoken man with a dry wit and a demeanor more reminiscent of the comedian Bob Newhart than J.R. Ewing, the colorful risk-taker from the 1980s TV series Dallas. However, Ross may be more like the latter than the former, as he has a long history of making “risk-averse” investments pay off in big ways, and he agrees that his strategy is closer to “Go Big or Go Home.” However, that’s largely because he’s supremely confident in his decisions, once they’re made.
 

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