Universal Manufacturing Company

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Universal Manufacturing Company

405 Diagonal Street
Algona, Iowa 50511-0190
U.S.A.
Telephone: (515) 295-3557
Toll Free: (800) 545-9350
Fax: (515) 295-5537
Web site: http://www.universalmanf.com

Public Company
Incorporated: 1945
Employees: 102
Sales: $20 million (2005)
Stock Exchanges: over the counter
Ticker Symbol: UFMG
NAIC: 441310 Automotive Parts and Accessories Stores

A longtime authorized engine remanufacturer for Ford Motor Co., Universal Manufacturing Company, based in Algona, Iowa, is an independent remanufacturer and distributor of automotive parts, including electric fuel pumps, transfer cases, disc brake calipers, master cylinders, and steering products sold under the ReTech name or other private labels. Through subsidiary Universal Distribution LLC, the company also distributes Ford, Chrysler, General Motors, Mopar, and Motorcraft transmission and engines, as well as HESCO domestic and import engines.

Customers are primarily automotive dealers, warehouse distributors, parts supply stores, specialty trucks parts suppliers, four-wheel drive specialty suppliers, and other remanufacturers in Iowa, Nebraska, and central and northwest Illinois. To a lesser extent Universal serves aircraft, agricultural, marine, and recreational vehicle markets. The company operates a 77,000-square-foot factory in Algona along with a 10,000-square-foot warehouse capable of being converted into extra manufacturing space. In addition, Universal leases warehouses in Peoria, Illinois; Des Moines, Iowa; and Omaha, Nebraska. In 2007 Universal agreed to sell its distribution unit. Universal is a public company, its shares traded over the counter.

WORLD WAR II ORIGINS

Universal Manufacturing grew out of the measures taken by American industry to support the military after the United States entered World War II in late 1941. Automakers such as Ford ceased production of new cars and trucks to concentrate on the manufacture of tanks, airplanes, and other military vehicles and equipment. As a result, Americans had to rely on used vehicles until well after the war when Detroit was finally able to retool and once again ramp up production. To keep the aging cars on America’s roads running, engines and other parts had to be remanufactured, but getting them to customers posed another problem because the railroads, the primary means of shipping, were mostly devoted to moving troops and military materials. To solve both of these problems, Ford developed a program to allow certain of its dealerships to act as authorized engine remanufacturers who distributed their products in their own markets, thereby easing transportation concerns. For the dealers, on the other hand, remanufacturing offered a welcome source of income at a time when they had no new cars to sell and procuring used cars was difficult. Universal was incorporated in Nebraska in December 1945, several months after the war came to a close, and in 1946 began remanufacturing engines as a Ford Authorized Remanufacturer (FAR).

With the war at an end, Ford reduced the number of authorized remanufacturers, awarding statewide franchises. In the neighboring state of Iowa, an Algona, Iowa, car dealer named Fred Kent, Sr., and his partner, a Mr. Wheeler, won the Iowa franchise, and began turning out remanufactured engines at the plant constructed by Kent-Wheeler Mfg. In 1954 Universal acquired Kent-Wheeler and transferred all of its manufacturing to Algona, where the combined operation thrived.

In 1963 a 46-year-old native of Omaha, Earl Lierly, took over as Universal’s president and chairman of the board. He was an old hand with the Ford organization, having spent the previous 20 years working in Omaha at J.V. Thorndike, a dealership owned by James Vern Thorndike, who had been a Ford dealer since starting out in Sioux City, Iowa, in 1916 before branching out to Omaha later. A year after Lierly took charge, Universal was taken public.

Lierly headed Universal for 23 years, finally retiring in 1986. He stayed on as a director, serving in this capacity until his death in 1993 at the age of 76. Under his leadership, Universal expanded until it ran 19 production lines and was remanufacturing all the parts authorized by Ford, distributing them on a wholesale basis to all of the Ford and Lincoln-Mercury dealerships in its service area. In addition, a subsidiary, Allied Sales Company, remanufactured engines for both Ford and non-Ford vehicles and marketed them to automotive dealers and auto parts supply houses. Universal also used its warehouses in Des Moines, Peoria, and Omaha to distribute Ford clutches, pressure plates, and torque converters.

Replacing Lierly as president was Donald D. Heupel, who would guide Universal through a transitional period in the company’s history and well into the next century. By the end of the 1980s, Universal was serving 348 Ford dealers, who provided more than 90 percent of the company’s revenues of about $10 million, down from the high of 433 dealers in 1980 but an improvement over the low of 336 in 1988.

The start of the 1990s also brought a recession and a sales slump in the automotive industry, as well as an increased demand for remanufacturer engines. In spite of poor conditions Universal did well, primarily because surging parts sales all but compensated for a drop in engine sales as car owners opted to repair their old cars rather than buy new ones. As a result, revenues declined modestly, from a record $10.7 million in fiscal 1990 (ending July 31, 1990) to $10.3 million in fiscal 1991. Earnings per share suffered even greater erosion, however, dropping from a record high of $1.23 in fiscal 1988 to $1.05 in fiscal 1990 and $.74 in fiscal 1991. A major cause for this decline was Ford’s Extended Service Plan, which required that Universal maintain larger inventories of later model parts. While they commanded a higher price, these parts were also expensive to produce, a factor that hurt profits.

Again in fiscal 1992 strong parts sales compensated for a soft automotive market. Sales improved to $10.6 million but earnings per share continued to slip to $.73 per share, or about $593,000 in net income. More significantly Ford revealed a new vision for the network of authorized remanufacturers, which it wanted to take a more active role in the distribution of remanufactured products for Ford warranty. Universal concluded that the time had come for a change in strategy in order to maintain ongoing growth. The company began to pare down the number of product lines it operated, and ceased remanufacturing engines, instead buying them from other Ford Authorized Remanufacturers. In this way, Universal could concentrate on remanufacturing component parts, which it could then supply to other remanufacturers and Ford dealers.

COMPANY PERSPECTIVES

Universal Manufacturing will seek to be a world class remanufacturer and distributor of automotive products. We will strive to maximize shareholder economic value and exceed customer expectations by delivering the highest quality and value in our products, services and relationships to our customers. We will also seek to develop new opportunities utilizing our unique technological, manufacturing, distribution, and customer service capabilities. Recognizing our people as our greatest asset, we will work to achieve this mission by involving all employees in the organization.

RECORD RESULTS: FISCAL 1993

In fiscal 1993 Universal began to implement this new strategy by purchasing remanufactured engines from another Ford Authorized Remanufacturer while at the same time selling some of its small parts to other Ford Authorized Remanufacturers. Moreover, Universal instituted some distribution programs aimed at Ford dealers, involving transmission assemblies, Ford-branded car care products, and diesel truck parts. When the fiscal year came to a close on July 31, 1993, Universal had achieved record sales, which topped the $11 million mark for the first time. Net income, on the other hand, dipped another $20,000 and earning per share fell to $0.70.

The new Ford distribution programs and sales to other Ford Authorized Remanufacturers made significant inroads in fiscal 1994. Sales of car care products, for example, increased from $42,000 to $341,000, and transmission assemblies’ sales improved from $55,000 to $276,000. Moreover, sales to other remanufacturers grew from less than $100,000 to nearly $900,000. As a result, Universal posted net sales of more than $13.1 million in fiscal 1994 and net income of $765,000, or $0.94 per share.

In fiscal 1995 Universal did some modest restructuring. Allied Sales was dissolved as a separate company and the operations became a Universal division. Increased sales to other Ford Authorized Remanufacturers and an expanding distribution program with Ford and Lincoln-Mercury dealers resulted in a 13 percent increase in revenues in fiscal 1995 and 20 percent in fiscal 1996, growing from $14.8 million to $17.8 million during this period. Net income improved to $819,000, or $1 per share, in fiscal 1995, and more than $1.1 million, or $1.39 per share, in fiscal 1996.

Record results continued in fiscal 1997, with sales to other Ford Authorized Remanufacturers leading the way, especially the sale of remanufactured electric fuel pumps. Net sales approached $19.1 million for the year and net income improved slightly over the previous year, totaling $1.41 per share. To help maintain this momentum, Universal invested in equipment and changed some processes in fiscal 1997. Alternator rotor winding equipment and testing equipment for power steering pumps was purchased. In addition, Universal made plans to add a 10,000-square-foot warehouse next to its Algona facility, completed in November 1997. Bar-coding capability was also added.

Sales improved modestly, to nearly $19.4 million, in fiscal 1998, while net income dropped slightly. The most significant development came late in the fiscal year, May 1998, when Ford announced a new strategy. It called for current remanufactured parts to be deauthorized and superceded by what it called Ford Quality Renewal (FQR) parts, which would also replace Motorcraft and new Ford service parts. Universal became one of a handful of distributors to handle FQR engines and transmissions, and would also distribute FQR, Motorcraft, and Car Care Products as a Ford Authorized Distributor (FAD). Universal had exclusive distribution rights for remanufactured engines, transmissions, and other powertrain components, but competed with other FADs in Motorcraft parts and remanufactured small parts.

RESTRUCTURING: 1999

In time, the Ford Authorized Remanufactured products produced at Algona would be replaced by the new FQR lines. To maximize the potential of the new arrangement, Universal began to beef up its distribution operation, adding a number of same-day delivery routes. To better adapt to the new business model, at the end of fiscal 1999 Universal was divided into two divisions, separating manufacturing from distribution. Hence, Universal Distribution LLC was formed to focus on the growing product distribution program. It was also set up to handle the distribution of products from outside vendors. In October 2000 Universal expanded its operation by merging with a General Motors parts distributor, Dubuque, Iowa-based Rainbo Oil Co., which did business as Value Independent Parts. A new partnership was formed called Rainbo Company, L.L.C., and continued to do business as Value Independent Parts (VIP) under Universal’s management. The enterprise would have ten sales outlets in nine cities catering to car dealerships, independent parts suppliers, and repair shops in Northeast Iowa, Northern Illinois, and Southwest Wisconsin.

KEY DATES

1945:: Universal Manufacturing is founded in Omaha, Nebraska.
1954:: Company moves to Algona, Iowa.
1964:: Company goes public.
1986:: Longtime president and chairman, Earl Lierly, retires.
1999:: Universal Distribution LLC is formed.
2003:: Universal requests delisting from NASDAQ.
2007:: Agreement reached to sell Universal Distribution.

Other changes took place as Universal made the transition to the new century. A larger warehouse was taken in Des Moines and space added to the Peoria facility in fiscal 1999, and the following year a larger warehouse was leased in Omaha. Also in fiscal 2000, Universal launched the ReTech brand of remanufactured products; this was initially limited to transfer cases and transfer case motors but was soon expanded to include fuel pumps, power steering pump, steering gears, and rack and pinion steering gears. They covered all makes and models and were intended for the independent automotive aftermarket.

After a meager increase in sales to $19.5 million in fiscal 1999, Universal enjoyed an 11 percent increase to more than $21.6 million in fiscal 2000. The following year proved even better, as revenues in fiscal 2001, led by growing sales of remanufactured engine and transmission assemblies and Motorcraft parts, jumped 50 percent to $32.4 million. Earnings were negligible, however, just $0.13 per share, due in large part to the expense connected to the deauthorization of some remanufactured product lines once the Ford Authorized Remanufacturing program had been phased out. When the fiscal year came to a close, Ford announced more sweeping changes, ones that adversely impacted Universal’s business. Starting in January 2002 Ford would require separate sales agreements for Ford-brand assemblies and Motorcraft replacement parts, and companies were forbidden to do both. As a result, Universal would have to choose one line or the other, knowing that either way it would experience a significant drop in sales.

Universal elected to distribute Ford powertrain assembles and give up the sale of Motorcraft parts. As a result, in fiscal 2002 Universal suffered the first loss in its history, about $1.73 per share, on sales of $24.6 million, a 24 percent drop from the previous year. In addition to losing Motorcraft Parts, VIP was crippled by the loss of ACDelco parts as well. Universal decided to sell VIP, close the La Crosse, Wisconsin, location, and sell four distribution operations. To save money, smaller facilities were then leased in Des Moines and Omaha.

Sales continued to tumble in fiscal 2003, decreasing 40 percent to $14.8 million, and Universal recorded a second consecutive annual loss. To save on the costs associated with complying with more stringent reporting requirements imposed by the U.S. Securities and Exchange Commission, Universal voluntarily delisted its common shares from the NASDAQ Small Cap Market, turning instead to the Pink Sheets.

Universal rebounded in fiscal 2004, increasing sales 22 percent to $18 million and returning to profitability, earning $.81 per share. Most of the gains came from increased sales of ReTech products, especially fuel pumps, due to an expanding customer base. Revenues increased another 11 percent to more than $20 million in fiscal 2005, while earnings per share grew to $1.21. ReTech fuel pump sale led the way, and ReTech disc brake caliper sales also played an important role, increasing from sales of $169,000 the prior year to $576,000 in fiscal 2005. Universal again turned a profit in fiscal 2006 but in May 2007 the company decided to focus exclusively on its manufacturing operation. It announced an agreement to sell Universal Distribution to a Texas company, AER Sales L.P.

Ed Dinger