Workers Are Bonded to the Business
It’s 8:30 a.m. and workers at Bonded Motors Inc. in South-Central Los Angeles pore over the company’s daily financial report. Every morning, they search for ways to pump up the bottom line by cutting the cost of materials, equipment and even subscriptions to trade publications.
At most companies, it’s an exercise reserved for top executives. But at Bonded, where employees are eligible for four productivity bonuses each year, everyone gets into the act.
“Everyone is involved in the finances of this company--the truck drivers, janitors, secretaries, everyone,” said Bonded’s founder and chief executive, Aaron Landon. “If there’s a problem somewhere, we’ve got 200 people trying to fix it.”
The daily performance reports, part of Landon’s open-management style, get much of the credit for the growth of Bonded, which has blossomed in a gritty part of town not known for financial success stories.
Bonded’s work force has doubled in the last five years and an additional 50 workers are expected to be hired in 1997.
Sales of the company’s remanufactured engines, which power old Chevys, Fords, Toyotas and other domestic and Japanese vehicles, have almost tripled in the last three years. Landon has told the handful of Wall Street analysts who follow the company to expect sales and income growth of at least 30% a year “for the next several years.”
Bonded’s success comes as the remanufactured-engine industry undergoes a sharp restructuring.
Like most of its hundreds of competitors, Bonded was once content to be a small shop, selling most of its replacement engines to local garages and small auto parts stores.
But a few years ago, the growing influence of large chain stores such as Pep Boys and Trak Auto forced a decision: Expand enough to be able to service the entire country or be prepared to slowly fade away.
Bonded chose to grow. Over the last two years, it’s opened distribution warehouses in Washington, Ohio, Georgia and Pennsylvania. In April, the company sold a one-third stake to the public for about $5 million. Landon and other executives own the remaining shares.
“We’re among the top 10 nationally, but we don’t even have 1% of the market,” said Bonded Chief Financial Officer Paul Sullivan. “Consolidation is taking place and the smaller players will get squeezed.”
Bonded is keeping an eye out for one of those squeezed companies as an acquisition target next year. Its goal is to find a manufacturing site east of the Mississippi River to cut the cost of shipping to East Coast customers.
Unlike manufacturing companies that have abandoned Los Angeles in recent years, Bonded has no plans to reduce its local operations or depart.
“I think a lot of people don’t understand just how good a place South-Central is to do business,” Landon said, noting the relatively low land costs, an industrious work force and special California “revitalization zone” tax incentives worth about $500,000 a year.
“If we had tried to put this operation in Orange County, it would have cost us a fortune,” said Landon, seated in his modest office off the floor of the factory, which is about twice the size of a typical supermarket.
If Landon appreciates South-Central, his employees, many of them local residents, appear to appreciate Bonded’s financial incentives.
Quarterly bonuses are based on the company’s financial performance, and in a good year a $20,000-a-year assembler can take home as much as $2,400 in bonuses.
“You’d be surprised at how many people look at that [financial] report on the bulletin board each morning,” said Willard McLaughlin, who has worked his way up to lead quality control inspector after 10 years at the company. “We take it very seriously.”
Company executives say the incentive plan and mandatory, twice-monthly meetings between employees and management increase net income by about 5% by encouraging people to work harder and reduce defects and waste.
In the past, worker recommendations led the company to buy new hoists and machinery that made the factory run more efficiently, and to install a new phone system after secretaries worried that customers were spending too long on hold.
That success has allowed Bonded to cement relationships with some of the biggest names in auto parts retailing.
Today, three out of four Bonded engines, which come from area wrecking yards or are traded in by customers, are sold to major retailers such as Pep Boys and Trak Auto. These replacement engines usually fetch $800 to $1,000 at retail and are installed in cars and light trucks that typically have been on the road for 10 years. The fact that consumers are keeping their cars longer has fueled demand for the remanufactured engines.
In the first nine months of the year, the company sold $14.2 million worth of engines and earned $1.22 million. For all of last year, revenue was $13.6 million and net income was $1.28 million.
Wall Street analysts following the company are waiting to see a few more quarters of that kind of growth, but so far they’re giving the company favorable reviews.
“They’ve met or exceeded our forecasts and they’re doing exactly what they said they would when they went public,” said Michael Lyall, director of corporate finance for Commonwealth Associates in New York.
Lyall has set a $12 one-year target price for the company’s stock, which went public at $5.875 a share and hit a high of $9.75. It closed at $8.875 on Wednesday, down 12.5 cents on Nasdaq.
Looking ahead, Landon says Bonded intends to open a Colorado distribution center by year’s end and create or acquire the new manufacturing site next year.
It also intends to expand its open management efforts by introducing an employee stock ownership plan to get employees more involved in the company. He is counting on his employees to add to Bonded’s growth.
“Not a lot of things thrive in South-Central, but we do, and that’s because of the people that work here,” Landon said.
