2929 California Street
Torrance, California 90503
Telephone: (310) 212-7910
Toll Free: (800) 890-9988
Fax: (310) 212-6315
Web site: http://www.motorcarparts.com
Sales: $428.07 million (2018)
Stock Exchanges: Nasdaq
Ticker Symbol: MPAA
NAICS: 336390 Other Motor Vehicle Parts Manufacturing; 423120 Motor Vehicle Supplies and New Parts Merchant Wholesalers; 335911 Storage Battery Manufacturing
Motorcar Parts of America, Inc. (MPA), based in Torrance, California, is a manufacturer and remanufacturer of aftermarket parts for automobiles and light trucks, particularly imported vehicles from European and Asian automakers. To a lesser extent, the company is involved in remanufacturing parts for domestic cars and light trucks, heavy-duty trucks, and agricultural vehicles. For years it primarily sold rotating electric products, particularly alternators and starters. With the help of several acquisitions, the company has expanded its product lines to wheel hubs, turbochargers, brake master cylinders, and diagnostic equipment for alternators, starters, and other applications, including electric vehicle power trains. Geared toward the do-it-yourself market, most of MPA's products are sold under private labels, using brand names such as Quality-Built, Pure Energy, and Reliance. Customers selling MPA parts include major retailers such as Advance Auto Parts, AutoZone, Pep Boys, O'Reilly Auto Parts, and Genuine Parts Company (which owns the NAPA brand). The firm also provides remanufactured products to automobile makers for use in replacement under warranty. Its extensive list of primary products includes more than 14,000 separate items. Besides its California facility, MPA manufactures auto parts in company-owned plants in Mexico and Malaysia.
In the late 1960s, Marks started his import parts business, originally called Motorcar Parts and Associates, out of his home in Jerrico, New York. Without partners or financial backing, he relied heavily on his relationship with his U.S. and European contacts to function as an import car parts broker. Although he could have made a comfortable living as a broker, Marks was intent on building a company. In 1968 he incorporated Motorcar Parts & Accessories, Inc., in the state of New York and initially started doing business in Plainview. His timing proved to be prescient, as the import trend only heightened in the 1970s when the Japanese began to sell large quantities of Toyotas, Nissans, and Hondas in the United States. In 1979 Marks was joined by his son, Richard Marks, who gained experience in the business by owning and operating his own import automotive parts store.
For almost 20 years MPA acted as a distributor of imported auto parts. It was not until 1986 that the company became involved in remanufacturing starters and alternators for foreign cars, aimed at the do-it-yourself customer. A spike in foreign auto sales during the 1980s made such a move an attractive idea. As those vehicles began to age, they would need replacement alternators and starters, anywhere from four to eight years after purchase. Moreover, the sale of imports continued to pick up in pace. In 1985, according to the research firm R.L. Polk & Co., there were 14.5 million import car registrations in the United States, but by 1992 that number grew to more than 22.3 million, meaning that MPA could look forward to an increasing need for replacement parts as these vehicles entered their so-called prime repair age. Americans were also holding onto their cars longer, a fact that also boded well for MPA's entry into the remanufactured replacement parts business.
Initially the company conducted its remanufacturing efforts overseas at two plants run by foreign affiliates located in Singapore and Malaysia that were only separated by an hour's drive. Both businesses, MVR Products Pte Limited and Unijoh Sdn, Bhd, were 70 percent owned by Mel and Richard Marks and 30 percent owned by Vincent Quek, a Singapore resident. MPA provided the raw materials to the affiliates, which remanufactured parts on an independent contract basis. Although the company's Asian affiliates enjoyed much lower labor costs, MPA also began remanufacturing in the United States in 1987, establishing a plant in Torrance, California.
The remanufacturing process involved a number of steps, starting with the procurement of used alternators and starters, known in the business as “cores.” Most of the cores were obtained as trade-ins from direct customers in exchange for a credit against future purchases. General consumers were in turn encouraged by credits to trade in their used starters and alternators when they purchased new or remanufactured parts. As a supplemental source, MPA also purchased cores from brokers who specialized in the buying and selling of cores in the open market.
Once received, the cores were assessed and stored, sorted by make and model for inventory purposes. Only when they were needed for the remanufacturing process would the cores be completely disassembled into component parts. Parts that could not be reused, either because they were damaged or were simply subjected to too much wear, were discarded and replaced with new components. Discarded parts were subsequently sold off as scrap.
Reusable components were cleaned by specialized equipment and materials, in keeping with the specifications of that particular unit. This step was followed by thorough inspection and testing through MPA's quality control program, which was QS 9000 approved (the internationally recognized automotive quality system certification designation). Component parts that made the grade were then ready to be placed on an automatic conveyor for use in the assembly of a final starter or alternator. Further quality control testing was conducted throughout the assembly process by separate quality control personnel. Finished products were also subjected to testing to make sure they performed up to expectations.
With the advent of computer-aided design and manufacturing (CAD/CAM) technology, MPA was able to move beyond the simple remanufacturing of starters and alternators. Company personnel now sought to reengineer the items. Original equipment products were thoroughly analyzed, and MPA isolated ways to improve performance. CAD technology was then used to design better component parts. Moreover, MAP sought to better serve its customers through its private label programs by tailoring products to specific geographical conditions or other special needs.
The company also published a comprehensive catalog of import and world car starters and alternators that featured a product identification system to allow counter personnel to quickly locate part numbers. The catalog provided a glossary of technical terms and an explanation guide to clarify instructions and note additional parts that might be required for the installation process. Helpful photographs to assist the novice were included as well.
As the flood of foreign vehicles that Americans purchased in the 1980s began to enter prime repair age in the 1990s, MPA saw its revenues and profits steadily climb. For fiscal 1992 it generated $13.7 million in sales and $500,000 in earnings. There was clearly considerable room for growth, as the foreign vehicle aftermarket for alternators alone was $231 million in 1992 and was expected to increase to more than $325 million within four years. Even during periods of weak economic conditions, such as the early 1990s, MPA was well suited for growth, with consumers opting to keep their vehicles longer and save money by purchasing remanufactured parts. As a result, the company also chose to concentrate on recruiting retail automotive chains as customers, believing that these chains represented the fastest-growing segment of the automotive aftermarket industry. In anticipation of increased business, MPA moved much of its New York operations to California, where manufacturing and warehouse space were consolidated in a new 125,000-square-foot facility. Administration and sales continued to operate in offices located in Woodbury, New York.
In fiscal 1993 MPA reported $17.5 million in sales, a significant improvement over the previous year, as well as a $600,000 profit. To fuel the company's continued growth, Marks took MPA public in 1994, netting nearly $5.7 million in an initial offering of stock. He also secured a $5 million credit line from Wells Fargo bank. For fiscal 1994 MPA saw its sales improve to $20.6 million and net earnings top $1 million for the first time.
Prospects appeared even brighter in fiscal 1995: MPA's plan to concentrate its sales efforts on major auto parts retailers paid off when the AutoZone and Pep Boys chains signed on. To better serve its East Coast and southern markets, in May 1995 the company also established a 31,000-square-foot warehouse and distribution facility in Nashville, Tennessee. MPA then added the Canadian Tire chain as a customer in fiscal 1996, as well as Delphi, which chose MPA to supply remanufactured alternators and starters for imported vehicles under General Motors' AC Delco private label.
Sales to these new customers helped support MPA's upward trend in sales and profits, resulting in revenues of $28.3 million in fiscal 1995 and $44.9 million in fiscal 1996. Net earnings grew to $1.6 million in fiscal 1995 and $3.6 million in fiscal 1996. The company's success in appealing to major retailers was reflected in the fact that more than 70 percent of MPA sales in fiscal 1996 were to the automotive chains, with the rest mostly attributed to the large warehouse distributors such as Parts, Inc., and Hahn Automotive.
MPA continued to post impressive sales and earnings. In fiscal 1997, the company generated revenues of $86.9 million and a reported net profit of $5.5 million, followed by revenues of $113 million in 1998 and a net profit of $6.6 million. That trend would continue through much of fiscal 1999, but by the time the company prepared to report year-end results, questions by senior management and the board were raised about accounting procedures. The audit committee initiated an investigation, bringing in outside auditors, and by early August the company announced that, because it discovered “certain accounting irregularities,” it would have to restate its financial results for fiscal 1997, fiscal 1998, and the first three quarters of fiscal 1999.
It was determined that net income had been overstated by $2.68 million in fiscal 1997, nearly $600,000 in fiscal 1998, and $2.35 million for the first nine months of 1998. In the same company press release, it was announced that Mel Marks would step down as MPA's chief executive officer, although he would remain as chairman. Investor reaction to this news was swift. Because MPA was unable to file an annual 10K financial report, the Nasdaq halted trading of the company's stock. Moreover, MPA was now in violation of debt covenants in its revolving credit facility, requiring it to enter into some negotiations with the lender.
Soon MPA also faced a class-action lawsuit, which alleged that for “11 quarters in a row the company inflated its earnings by eliminating from its publicly issued financial statements the expenses for the used parts that were received during each quarter.” Seeking to recover damages, the suit contended that the company took advantage of its rising stock price to make a secondary offering of stock in 1997, with Mel and Richard Marks selling 100,000 and 150,000 shares, respectively, at a price of $16.63 per share. Following the announcement of a restatement of earnings and subsequent delisting by the Nasdaq, MPA shares were traded on the pink sheets at $1.50 per share.
In addition, MPA became the subject of an SEC investigation in early 2000. While that lingered, the class-action suit was settled in September 2001, with the plaintiffs receiving $7.5 million. Of that amount, $6 million was to be paid by the company's directors and officers and its insurance carrier. The balance would be raised by the company by selling 1.5 million shares of common stock to Mel Marks at $1 per share. Also in 2001 the founder of the company relinquished his position as chairman, although he stayed on as a director. He was replaced by Selwyn Joffe, who had been a director of the company since 1994 and had considerable executive experience at Wolfgang Puck Food Company as well as NetLock Technologies and Palace Entertainment.
The company suffered full-year operating losses in 2000 and 2001, as well as an ongoing SEC investigation of its financial irregularities. In 2002 Chief Financial Officer Peter Bromberg admitted making false statements about the company's earnings in its 1997 and 1998 annual reports and financial statements to the SEC. Richard Marks pleaded guilty to criminal fraud charges in December 2003. The SEC found Marks had knowingly engaged in double-counting of inventory and fraudulent reporting of revenues and had lied to and concealed returned products from independent auditors. Marks agreed to settle the SEC's civil charges against him by paying $1.2 million. He was permanently prohibited from serving as an executive or director of a public company. Both Bromberg and Marks eventually served prison sentences.
Despite these ignominious events, MPA remained a company involved in a viable niche of the automotive aftermarket parts industry and continued to hold promise for a return to future profitability and growth. Under Joffe, who ascended to CEO and president in 2003, the company began plotting a turnaround. In 2004 it changed its name to Motorcar Parts of America and introduced a new brand name, Quality-Built, for many of its rotating electrical products marketed to professional installers. Among the aims of Joffe's restructuring plan were to bolster its emphasis on business-to-business customer service, lean production, and inventory control, as well as getting the firm's financial house in order. As one sign of the success of these efforts, MPA was relisted on the Nasdaq (ticker symbol MPAA) in December 2007.
Another of Joffe's strategic plans was for the company to boost its market share and, eventually, diversify its product range through acquisitions. Toward that end, in 2008 and 2009, MPA picked up three existing remanufacturing operations for alternators and starters. These purchases were from Automotive Importing Manufacturing, Inc., of Rancho Cordova, California; the Florida-based company Suncoast Automotive Products; and Reliance Automotive of East Berlin, Connecticut, which became an MPA subsidiary. Following these transactions the company shifted the manufacturing component of each business from the United States to Mexico.
In its largest deal as of late 2018, MPA acquired the Toronto manufacturer Fenwick Automotive Products Ltd., known as Fenco, for $5 million in an all-stock transaction completed in 2011. The Fenco acquisition positioned MPA to broaden its product offerings significantly. Rather than the rotating electrical products located “under the hood,” Fenco specialized in “under the car” parts such as clutches, drive shafts, and brake components, marketing them to roughly the same retail auto parts chains and warehouse distributors servicing professional installers. Joffe predicted it would take approximately two years for MPA to absorb Fenco's operations, but he saw great potential for profitability after consolidating operations and streamlining logistics under MPA's business model.
This acquisition brought about a large increase in MPA's revenues, to a record $364 million for fiscal year 2012. However, integrating the Fenco acquisition proved more problematic than Joffe and his team had anticipated. As a Canadian company, Fenco calculated its accounts according to different regulatory standards, leading to accounting difficulties that forced multiple quarters of missed filing deadlines. Upon further inspection, MPA executives realized that Fenco's core business proposition was weaker than they had expected.
To underwrite the additional expense of facilitating Fenco's manufacturing and distribution into its own operations, the company issued a new, discounted private stock offering. This move put downward pressure on MPA's stock price, which was already trending lower as the Fenco business showed continuing losses and distress signals. The parent company ceased selling Fenco products to what had been its single largest customer, Advance Auto Parts, due to poor earnings. Finally, in 2013, MPA cut its ties with Fenco and allowed the manufacturer to enter Chapter 7 bankruptcy liquidation. MPA took a write-off of nearly $85 million on its failed investment and claimed approximately $30 million in tax breaks resulting from its losses.
Its unsuccessful acquisition aside, MPA's fundamental business remained sound. The replacement auto parts market was expanding as North Americans held onto their cars longer, considerably beyond the seven years of a typical vehicle's warranty. This trend was especially true during the severe and long-lasting recession that had begun in 2008. MPA retained solid relationships with the auto parts retailers and a reputation for fast delivery and strong customer service, in particular helping out the retail chains on inventory control and management. By 2014 it had returned to profitability, and its stock price was soaring.
Joffe's new plan was to expand the company's product line incrementally into new segments through more modest acquisitions that did not require significant leverage. With the acquisition of ZOR Industries in 2016, MPA gained a foothold in the categories of turbochargers and brake power boosters, each a sizable aftermarket. A more dramatic move came in 2017 when the company purchased D&V Electronics, an Ontario-based manufacturer of diagnostic and testing equipment for vehicle alternators and starters. With this purchase, Joffe said, the company was poised to enter and make a bid for market leadership in one of the fastest-growing segments of the auto industry: electric vehicles and hybrids. In July 2018 the company announced it had hired William J. Hardy, a seasoned executive from the tech industries, to serve as CEO of D&V, which would run as a wholly owned subsidiary.
Updated, Roger K. Smith
Central Auto Parts (Shanghai) Co., Ltd.; D&V Electronics Ltd.; D&V Electronic Technology (Shanghai) Co., Ltd.; Motorcar Parts de Mexico, S.A. de C.V.; Motorcar Parts of Canada, Inc.; MVR Products Pte. Limited; Unijoh Sdn. Bhd.
BBB Industries, LLC; Cardone Industries, Inc.; Remy International, Inc.
Binkley, Christina. “Motorcar Parts to Lower Its Earnings since 1997 as Its Chief Executive Quits.” Wall Street Journal, August 3, 1999.
Dorich, Alan. “A Fresh Start: Motorcar Parts of America Recently Underwent a Major Restructuring That Furthered Its Position as a Leading Auto Parts Remanufacturer.” U.S. Business Review, August 2006.
“Ex-motorcar Parts President Pleads Guilty to Fraud.” Los Angeles Times, December 17, 2003.
Faughnder, Ryan. “Buyer Struggles to Tune Up Car Parts Acquisition: Investor Presses MPA to Improve Earnings of 2011 Pickup.” Los Angeles Business Journal, February 25, 2013.
Fine, Howard. “Integration, Stock Offering Put Brakes on Parts Firm.” Los Angeles Business Journal, April 30, 2012.
———. “Older Vehicles Wear Well on Aftermarket Business: Shares Rise as Motorcar Parts Exceeds Analysts' Expectations.” Los Angeles Business Journal, August 18, 2014.
Maio, Patrick J. “Filling Need for Import-Car Replacement Parts.” Investor's Business Daily, July 1, 1994.
“Motorcar Parts of America Appoints CEO of Diagnostic and Testing Business.” Globe Newswire, July 18, 2018.
Narayan, Shwanika. “Auto Parts Maker Deals for EV Edge.” Los Angeles Business Journal, August 7, 2017.