Moving Beyond Borders, Manifolds.

A New chapter at Wescast

No longer simply a 'foundry,' Wescast has added design, machining and testing to bolster its position as a full-service supplier that no longer limits itself to just one product.

our years ago this month, Wescast Industries, Inc. (headquartered in Brantford, Ontario, Canada) was selected to appear as the cover story for modern casting. At that time, the firm's initial still-recent public offering and entrance into machining and stainless steel production certainly provided plenty of news to share.

What a difference four years can make.

The Wescast of 2001 has a new president/CEO, a still-new greenfield facility in Ontario and another one going up in Hungary. This company's niche-- trimmed from hundreds of parts in the 1980s to one (the exhaust manifold)--is now being re-expanded for the first time in 15 years. Where "free advice" was about all that was offered four years ago, full-blown design and testservices now exist. The firm's exhaust manifold market share now stands at 52% in North America, and customers outside of the Big Three are looking Wescast's way. Sales, by the way, have doubled over the past four years to $401 million (Canadian) on a 63% increase in manifold shipments.

Not too bad for a little stove-making operation that Dick LeVan's (Wescast chairman) grandfather got a piece of (along with four others) when he put up $5000 to save the bankrupt Western Foundry Co. in 1901.

Evolving with the Times

If one thing can be said about Wescast, it has been agile enough to constantly reinvent itself, often before the customer itself recognizes the need. A snapshot of the company at the onset of each of the last four decades would illustrate a very different firm.

"Back in 1985, we realized that we couldn't reduce variability to the extent we wanted--even with all the process controls we could think of--with our mix's changing sand-to-metal ratios, and different sizes and weights," said Bill LeVan, vice president of technology. "We reduced the variation by stabilizing the product."

Besides the advantages seen in quality and efficiency, LeVan said the one-product focus delivered numerous "found" benefits, among which include true product function insight and an intimate sales-customer relationship. "Having one product allowed us to truly know the engineers and their plans. One Wescast sales engineer could become the 'manifold expert' for three customers. Also, when you make only one product, it's hard to be in the dark about a new project or a job at the risk of being lost."

After adding machining, Wescast saw the type of value-added it could offer, even in a function largely outside their "core" realm of experience. Two years ago, it ventured out again, this time in product design and testing.

While Wescast had the luxury of "manufacturing chasing demand" in the 1990s, it hasn't rested on its laurels, fully aware that the automotive supply base is ever changing. "Let's face it," said Ruth McDonald, director of corporate development and investor relations. "There's a movement away from cast iron components in vehicles. The opportunity for Wescast is that we can use our expertise for other parts in the vehicle. We're looking to include other nonpowertrain components that will provide growth in the future."

As a result of its track record and holistic approach as a supplier, Wescast is uniquely positioning itself as a growth and technology company. John Novak, an automotive supply analyst with TD Securities, Toronto, points to the firm's profitability, positive labor relations, highly developed management team and very smooth transition from a family-run to a professionally managed, publicly-held business. "Wescast is probably one of the most profitable suppliers in the automotive industry," he said. "Its return on equity is 5-10% above the industry norm, and its net profit margins are double the industry's average."

The firm's total gross margins (manifold, tooling, prototype and other) have surpassed 32% each of the last four years. Plus, despite a 22% decrease in North American production by the Big Three in the first quarter, the firm's total sales are down only 3%, thanks to market share gains and greater penetration with silicon-molybdenum (SiMo) ductile iron and machining.

Technology, People and Capacity

After Dick LeVan ran the company for 35 years (he remains as chairman), he found his successor in Ray Finnie (previously the top executive of FAG Bearings, Ltd.) in late 1998. "It's been very gratifying to watch," McDonald said. "Their vision is so much in synch with one another."

In Wescast's case, the formula for success has been focus--in the products it casts, its approach to business and in managing its high internal growth rate. Asked how to define today's Wescast, Finnie responds, "We're not just a foundry anymore. We've followed a deliberate path in blending a very unique company here of a foundry, machinist and automotive supplier."

Asked to cite the reasons for Wescast's success, Finnie said, "You must invest heavily in technology, people and production capacity to be successful in this business."

While some casting suppliers may be reluctant to venture beyond anything that doesn't involve core, mold and melt equipment, Wescast views its investment in design and testing--and technology in general, for that matter--as part of the game. "A lot of companies are happy to be Tier 2 suppliers, but they don't escape anything from a cost or quality standpoint," said Finnie. "We want to be perceived as the technical expert. We will invest in whatever resources there may be to help make the customer successful."

The genuine approach to human resources is evident through Wescast's perennial recognition as one of Ontario's top employers. The core of Wescast's operating culture is its participative management plan, HEART, an acronym for "Helping Everyone Achieve Rewards Together." (See "Wescast: Leadership with HEART," modern coasting, March 1998.) Composed of four principles--identity, participation, competence and equity, the Scanlon-based plan has led to tremendous employee involvement and product/process improvements. "If you asked our people a fundamental business question, 90% of the time they'd know the answer, and 99% of the time they'd tell you the target for mold production," said LeVan. "An Intranet site shares detailed information ranging from plans for development in hot end systems to 10-week forecasts. The access to information is huge."

Added Finnie: "We're obsessive about continuous improvement. There's an attitude around here that there's always another drop in the lemon. Priorities are quickness, reliability and low cost." An illustration of the firm's continuous improvement record can be seen by the fact Wescast increased manifold shipments from 9 to 14 million units between 1997-99, with virtually no new capacity additions. "We attacked scrap and machine downtime," said LeVan. Today, he said, a best-practices meeting takes place every six weeks, at which individual plants share their approaches and results of what is and isn't working.

Wescast also has continually invested in new capacity over the past 10 years. It built Wingham Machining and rebuilt Brantford Casting in '91, added Strathroy Machining in '93, built Stratford Steel in '98 and built North Huron Casting in '99. Commissioning its North Huron Casting Plant in Wingham, Ontario, and starting its new Hungarian joint venture (Weslin) represented only a portion of the $50 million invested in new production capacity last year. Another $110-115 million is planned for 2001, including $36 million for Weslin.

"We're working extremely hard at formulating our long-term plans," said McDonald, noting the much improved "bench strength" throughout the organization. "The planning horizon is longer now than it's ever been."

Gaining Business 'Up the Chain'

"There's a push toward the full-service supplier, particularly for design," said LeVan. "We never thought that we'd have more CAD operators at a plant (24 in Brantford) than pourers. We're doing most of the CAD work for Ford and now doing a huge prototype business. It's no longer a specialty type service anymore."

He said that the growth in component design is natural with the Big Three's push for emission reduction. "They look to us to optimize the manifold itself, to offer the alloys for high temperatures and to improve the flow of gases through the manifold."

"Offering true design allows us to be the technology leader," said Finnie. "Today's customer demands that you bring the technology to them."

According to Rick Williams, director of product design and development, Wescast's design/modeling competence, communication tools and testing capabilities are recognized as among the best in the industry. Among its many tools is a 3-D virtual reality flow simulation that allows engineers to watch the exhaust gases on a computer screen to determine exactly how each design contributes to gas flow.

Williams demonstrated the power of Wescast's design resources through two recent projects submitted for approval. On a recent North American truck program, Wescast created a design with a potential weight savings of 20%. On another job, his team optimized the flow in a previous tubular design that gained 6 horsepower and a 2-4 sec improvement in catalytic converter lightoff time. Much work also is being done on alloy development to improve high-temperature properties.

The firm has an offsite lab that features a variety of testing equipment, including materials, flow bench testing, an engine exhaust simulator (EES) and an advanced starch model prototyping system. The entire lab will be relocated next summer to a $12 million Technical Design Centre being built in Brantford. When completed, this facility also will house the corporate offices and the R&D foundry, machining and welding facilities.

The heart of the 5000-sq-ft lab is the EES. With the direct involvement of the Big Three, Wescast's product design team designed and built the equipment in-house in 1999. "We have tools like finite element analysis and computer aided engineering, but there are still very important physical tests," said Paul Slater, test engineering leader.

The EES simulates the OEM's dynamometer test, which runs engines at wide-open throttle and at extremely high temperature differentials in an attempt to crack the components. The test provides a wealth of thermal shock and fatigue data.

The ability to simulate this test serves Wescast's interest in several ways. First, the extremely scarce dynamometer time would otherwise slow Wescast's development work, particularly when testing can not commence until an engine design is ready. "We endeavored to simulate mounting conditions on a cylinder head and simulate the heat through the engine," said Slater. "This is an intermediary step to understand how a manifold will perform. We can prove out or modify manifold designs far in advance of the availability of other engine components."

Second, it gives the customer greater confidence that a manifold will succeed and also validates other items such as fastening strategies. "Knowing that these parts succeeded on our equipment is true value to the customer," Slater said. "Some OEMs reduced the number of dynamometer tests based on knowledge that a component passed on the EES."

In running the test, the cylinder head is mounted on a natural gas burner chamber that supplies the heated air into the heads and manifold. The exhaust gas temperature is brought up very quickly and held at the OEM specification. An upward temperature of 1652F (900C) is typical and parts are cycled 450-4000 times, with hot and cold exhaust gases alternately forced through the manifold.

The in-house testing capability, said Slater, allows Wescast's designers to creatively push the envelope to a far greater extent than they could afford to otherwise. Besides the pass/fail and ancillary data it can provide customers, Wescast engineers also confirm/adjust certain assumptions in modeling. "It validates the CAE model internally. Each manifold tested builds the knowledge base and understanding for the entire design process."

Asked about the type of impact the design and testing investment has had, Williams replied: "We can show the customer--with a very high degree of confidence--that our design will perform as well or better than existing manifolds, often quieter, more durable and with less emissions. Internally, it has generated a lot of excitement throughout Wescast and highlighted the resources our team can provide to help with manufacturing problems." Among these, he said, are things like modeling sand filling of coreboxes, using thermal imaging tools for maintenance, and incorporating new Intranet sites, as has been done by process modeling technicians.

The North Huron Plant

One of the industry's most talked about greenfield foundries of recent years is the new Wescast Casting North Huron (WCN) Plant in Wingham, Ontario, just a mile or so from its other Wingham Casting and Machining facilities. Ground was broken for the 85,000-sq-ft plant in March 1999, with the first pour taking place nine months later.

The plant was designed to have an annual capacity of 5 million manifolds (100% SiMo ductile iron). Its 220 employees are currently producing about 60,000 manifolds per week.

Decisionmaking for the new plant was handled in-house and followed a careful methodology with representatives from engineering, maintenance and labor. "We recalled the long curve of Brantford's startup in the early 1990s and prevented those problems this time," said McDonald, noting that the firm is developing a proficiency in the rapid launch of casting and machining facilities.

Several of WCN's production systems are different from its Wescast brethren. This includes:

* pure magnesium ductile iron treatment;

* the firm's first installation of a different tight flask green sand molding line;

* a pressurized automatic pouring furnace;

* a vacuum mixer/cooler in its sand system.

The facility also features two 12.5-ton coreless induction furnaces and three acrylic-epoxy/[SO.sub.2] coldbox core machines. (For a list of the equipment at the plant, visit www.moderncasting.com)

Plant Leader Paul Hamel is especially proud of the fact that the plant completed goals of first production part approval process, and QS 9000 and ISO 14001 certification all in the same year. "It was a steep curve, but we had a stable, safe launch with low initial scrap rates." Despite unforeseen problems in learning and integrating the new production systems, the plant saw a positive cash flow in its second commercial month of production.

Weslin

Perhaps even bigger news is Weslin, Wescast's joint venture foundry with Linamar Corp. under construction in Oroszlany, Hungary. The $120 million, 22,000-sq-meter plant is being built for an annual capacity of 5 million manifolds annually and employment levels of 550.

According to Finnie, the opportunity for the joint venture emerged after Linamar (a Guelph, Ontario-based precision machining firm) experienced numerous casting problems on its Hungarian machining lines. "Linamar needed a good foundry partner there and one that understood the automotive psyche and rules," he said. "Meanwhile, our vision was to have a foundry and machine shop in that region and also to diversify into other components showing growth potential in Europe. This arrangement allowed us to leverage their experience there."

The investment on foreign soil closely aligned with an identified market opportunity for cast manifolds on the other side of the Atlantic. According to Finnie, castings represent only 40-50% of the total manifold market in Europe, as opposed to a 90% share in North America. "We're convinced that cast manifolds can offer greater performance and cost savings."

McDonald said a paradigm of "tubes are better" exists in Europe (they are lighter and can withstand high temperatures), despite the fact that the welds and angles of tubed manifolds don't optimize the flow of gases. "Cast designs provide a much more efficient flow of gas and light off the catalytic converter faster, reducing total emissions."

To change the mindset, McDonald said that Wescast will use its design and testing technologies to demonstrate its expertise in horsepower, torque, emissions and exhaust gases, as well as the ability to interface with the engine and hot end systems. Through reverse-engineering and seeing engine projects at their earliest design stage, Wescast believes it can penetrate the manifold business to a level of 25% over the next 5-7 years. "We've set up design centers in England and Germany," McDonald said. "We feel we are positioned quite well for growth in Europe."

After considering Poland and the Czech Republic, Hungary was selected due to economic attractiveness and its work force (the region had high unemployment primarily due to mine closings). The Oroszlany location is 80 km west of Budapest and 60km from Gyor, home of the Audi engine plant.

The plant will be modeled after WCN, but with greater flexibility, said Hamel. It will feature manual pouring and smaller core machines in greater numbers (due to smaller production runs and more diverse product lines). In addition to SiMo ductile iron, the plant also will produce compacted graphite iron and other ductile iron grades.

"The idea is to service all European customers from Weslin," said McDonald, noting that the only transfer business will be the 1 million manifolds being shipped to England currently. "With the exception of any new orders that will be launched in Canada in the short-term, all other business will be new."

Noting that the facility is close to completion and will be launched later this year, McDonald said "We have to be able to launch the facility quickly and efficiently--a far more difficult assignment in a foreign land. We've brought several Hungarians to Canada for training for weeks at a time. We find that people are eager to learn and do well."

New Markets

Recognizing the "limits" (a bad word for a publicly held company) of manifold production and the ever-shrinking automotive supply base, Wescast has opted to apply its "focus" to other engine components where a close connection exists with the manifold. Years of producing complex, highly cored castings has put Wescast in a position of strength to take on other challenging parts, and for the first time in 15 years, it is doing so. The Weslin plant will mark the plant's foray into the European turbocharger business (a growing market which is 5-6 times larger than in North America). Like the manifold, turbochargers are highly cored, thin-walled and highly engineered products, said LeVan.

In May, Weslin was awarded a Tier 2 contract with 3K Borg Warner to supply turbocharger housings for Audi AG and Renault SA. Included are two machined iron turbocharger housings for the Audi A4 1.8L engine for three years (about 184,000 housings/year). In January, it will begin casting the turbocharger system parts for Renault for use in the Clio and Kangoo platforms. "This new business represents a new customer and further diversifies our product base in the hot end systems," said Finnie.

The hot-end system work consists of the exhaust manifold, the catalytic converter and, in some applications, the turbocharger housing. According to McDonald, the trend toward a closed-cap catalytic converter forces a closer design with the exhaust manifold to reduce the lightoff time and temperature. It's an automatic extension for Wescast, she said.

The firm also received an order last winter from Nissan North America (the first major order from a Japanese automaker) to supply manifolds and catalytic converter cans for the new V6 program starting in 2002. Normally constructed of steel sheet, this converter container is unique in that it's being cast, something that has caught the attention of the engineer, said Finnie.

"We will approach new products very carefully," said LeVan, noting that new products cannot sacrifice the manifolds and its continuous improvement efforts. "Weslin will allow a seed facility for new products, with the idea that a focused facility might be employed as the market is developed."

With the movement toward hotter-running engines, Wescast also began offering an alternative to its own product and that of fabricated stainless steel manifolds when it built Stratford Steel in 1998. It received its second major stainless steel order (and the largest in existence) from Jaguar in February, tripling the plant's revenues over the next two years. As a result of the new business, Wescast is phasing out its stainless steel pump business that accompanied its Magalloy acquisition in 1995.

The Next Chapter

A report on Wescast in another four years could reveal a new chapter, or even a new book altogether. Among the possibilities are the impact of future production changes and engine power sources--both of which are being closely monitoring by Wescast. "Alternatives for the internal combustion engine will be viewed as an opportunity," said Finnie, who won't yet venture a guess toward its timetable, just that it will be a transformation, not a revolution. "Someone will need to supply those components for high-volume production, and we will view that as an opportunity as it arises."

McDonald said the firm also has been analyzing an expansion in Mexico to take advantage of the significant increase in engine production over the past three years. "We're already shipping 1.2 million manifolds there today. An expansion there would fit into our strategy and complement our current facilities."

Finnie also noted that the long-term vision could include exploring nonpowertrain parts. "Yes, we'll take a look at aluminum, as iron, in some cases, will not take the customer where it wants to be.

"We've had a deliberate strategy to be in an opportunistic situation. We're prepared and organized to make investments when we find suitable opportunities."

Wescast Industries Sales
Millions of $ Canadian
1996  197.7
1997  229.4
1998  284.8
1999  355.2
2000  401.1
Wescast's total sales have
grown at a compounded annual
growth rate of 19% over the
past four years. The only
significant new capacity during
this time came online at
mid-year in 2000 with the
ramping up of North Huron.
Note: Table made from bar graph

Wescast Industries, Inc.

Brantford, Ontario, Canada

Market: Automotive/light truck.

Products: Cast and machined ductile iron and stainless steel exhaust manifolds, and related components.

Mold Processes: Green sand

Melt Processes: Coreless induction.

Core Processes: Coldbox.

2000 Sales: $401.3 million (Canadian).

Casting Facilities: Wingham Casting, Wingham, Ontario; Brantford Casting, Brantford, Ontario; North Huron Casting, Wingham, Ontario; Stratford Steel Div., Stratford, Ontario; and Westlin Autoipari, Oroszlany, Hungary.

Machining Facilities: Wingham Machining, Wingham, Ontario; Strathroy Machining, Strathroy, Ontario; United Machining, Sterling Heights, Michigan.

Year Founded: 1901 (Western Foundry Co., Ltd.)

Total Employees: 2362.

Senior Management Team: Richard W. LeVan, Chairman; Raymond T. Finnie, President/CEO; William R. LeVan, Vice President Technology; Randolph J. Straka, Vice President Operations; Paul A. Lawrence, Vice President Sates & Marketing; Timothy J. Armstrong, Vice President Quality & Information Systems; Darell W. Dutton, Vice President Human Resources; and D. James Slattery, Vice President and CFO.