Auto-parts magnate Linda Hasenfratz on NAFTA, Trump and sexism in the boardroom
Linamar's auto parts business is built on free trade, which means its second-generation CEO will be taking an active role in the NAFTA renegotiation—and hoping common sense prevails in the White House
It took a while for the full Linda Hasenfratz effect to take hold at Linamar Corp. In 2002, when the daughter of founder Frank took over as CEO, net earnings for the Guelph, Ontario-based auto parts maker were $57 million on sales of $1.4 billion. After six up-and-down years, Linamar took a $47-million loss in 2009 on revenue of $1.7 billion. Since then, the company has been on a roll. Year after year of double-digit growth has pushed revenue to $6 billion, with $522 million in profit. It has added roughly three factories annually for a total of 58 plants in 13 countries across Asia, North America and Europe. Under Hasenfratz fille, Linamar has become a company of many fingers in many pots, building parts for everything from commercial and passenger vehicles to mining, agricultural and construction equipment. As her growth-through-diversity strategy (1) has propelled Linamar's expansion, Hasenfratz has seen her own influence grow. She has become a prominent figure in discussions about international trade and the advancement of women in business. She was at the White House when Ivanka Trump met Justin Trudeau, and she will be a key voice in the renegotiation of NAFTA. That means we could be watching the Hasenfratz effect unfold for years to come.
There was a list recently where Linamar showed up as one of the companies in Canada whose stock seemed undervalued. Do you agree?
I one-hundred-per-cent agree it's undervalued.
Why do you think that is?
I think there's a real preoccupation with technology shifts in the industry that they are translating into negative consequences for Linamar. We do a lot of work in the engine and in the transmission, as well as the driveline and body, so investors think our engine and transmission business is at risk in an environment where we have less internal combustion engines, and more electric or hybrid vehicles. They make the assumption, therefore, that Linamar's addressable market will decline. It's way more complicated than that. We think global vehicle volumes will continue to grow at the top line. [She gets her laptop and opens it to a graph.] With the growth that's expected globally in terms of the number of vehicles, even with internal combustion coming in at 40% of the market instead of the 95% that it is today, we would still be making 50 million internal-combustion-engine vehicles a year by 2030. The amount of outsourcing (2) is going to increase as time goes on as well.
The global market is also affected by trade, which leads us to NAFTA. Canada is going to be in the thick of renegotiations this summer. How worried are you about that?
Well, I don't think it's something we should not worry about. It is critical for industry to have a voice and ensure we are not implementing new tariffs or new non-tariff barriers. The automotive industry, as an example, is a highly integrated industry across all three countries in North America. On average, a part crosses a border seven times before it pulls into somebody's driveway. For us to add cost at every one of those junctures is, uh, crazy. Nobody has the ability to absorb that cost, so it will fall to the consumer. That means the consumer will stop buying vehicles, and the market will collapse. Also, 80% of the world's production and sales of vehicles are outside of North America. For us to add cost to our North American-built product makes us less competitive on a global basis. I do believe the U.S. administration understands that.
You have said: "Mr. Trump is a businessman, he will make fact-based decisions." How can you say that, based on the fact-free administration he has run so far?
I guess because I believe that, when it comes to policy and actions that will affect the economy, Trump and all the rest of his team will do the calculations to say, what will the impact be? Ultimately what they want is more American jobs, not less American jobs.
It feels like the automotive industry, and your part of it, is hinging on this very fragile agreement. Is that fair to say?
I don't know that I would call it a fragile agreement. This agreement to reduce the cost of trade within our continent is a strong and powerful one that has allowed us to optimize technology, investment and cost across the three countries to come up with a great globally competitive product with great technology. I wouldn't say that that's fragile.
But it is fragile in the sense that Donald Trump was ready to rip it up until he got a call from Trudeau apparently convincing him not to. It seems very whimsical.
It's not whimsical and it's not fragile, and it's not easy or in anybody's best interest to rip it up. Sure, there's opportunity to modernize the agreement, and it probably should be. There's a lot of pieces of NAFTA where a more modern approach was already agreed to with TPP. So this doesn't have to be a really complex—
But TPP is gone now, right?
I know it's gone. (3) But Canada, Mexico and the U.S. all agreed to a variety of terms within TPP. So if you want to modernize pieces of NAFTA, what I'm suggesting is, you have to look no farther than an already-agreed-to trade agreement—that, admittedly, was never implemented—to find pieces that everybody felt made sense.
You've been to the White House and met Donald. What was your impression?
I was happy to see how engaged he was in the topic of the day, which was around supporting women in business and women entrepreneurs. He was interested, asked questions, listened to responses and seemed genuinely engaged in the idea of trying to make a difference, which is great.
I read a figure the other day—in Silicon Valley, only 8% of venture-backed founders are women. And in the top 100 list of companies in Canada, there are only four women CEOs. What would you say is an achievable goal, a target that you would like to see in terms of the involvement of women in business?
Obviously equal opportunity makes the most sense. When I look at our own company, our goals are equivalent representation to our overall demographic at every level. So if we have 20% women in the company, we should have 20% women at every level of management. When it comes to things like board representation, I think we should target 50%. (4) That represents the population, and I think we can work our way toward that. When it comes to women in leadership positions, I think we're seeing enormous progress. You've chosen to focus on a couple of statistics that are smaller.
They're just representative.
I don't think they're representative. Because if I look at women in leadership positions in, let's say, the financial sector, I'm pretty sure the average is around 34%. If you look at the top 100 boards or companies in Canada, I saw a statistic recently that something like 40% of new director positions last year were women. The overall percentage in that same top 100 companies, of women on those boards, is 25%. In 2011, it was 15%. Dramatic difference.
Huge, yes. So what's keeping women out of the corner office?
I don't think we are being kept out. I think we are making our way toward it. The first step is filling the pipeline, and the pipeline is being filled.
So you don't look at this issue and see a problem, you see—
I see progress. And I think momentum is building. I look at women in science, technology, trades, engineering, math—huge momentum building there as well. The incoming class to the University of Toronto engineering program this year is 46% women. Isn't that incredible? And people say, "Oh there's no women in engineering." That is not true.
When you speak to groups of women entrepreneurs and women in business, do they get the fact that it's improving so dramatically?
I think they are starting to. But there's not enough people telling the story the way I tell it. And a hell of a lot more people telling the story that there is "only X, isn't that terrible?" Which to me is the wrong message.
You've schooled me on that.
Since we're talking about the future, let me ask one more question. You set a revenue goal for Linamar of $10 billion in 2020. You're going to be a little bit under that, partly because of the recession.
We still have a target of $10 billion. I think we are likely to hit that some time around 2022 or 2023.
But that's not where you're going to stop.
Absolutely it's not where we're going to stop.
Do you want to cast out to 2030 and establish a target for that?
I think it would be premature to do that. But I think if we continue to grow in and around the double digits, we could be $20 billion by 2030.
All right, that's now on the record.
[She laughs] Oh, shit!
(1) Linamar has identified six markets that will be key for its business over the next century: power, transportation, food, water, infrastructure and age.
( 2) About 30% of engine and transmission content is outsourced by automakers to suppliers like Linamar—leaving a potential $200-billion global addressable market, according to Hasenfratz.
(3) Trump announced the Trans-Pacific Partnership was dead three days into his term.
(4) Hasenfratz is currently the only woman on Linamar's six-person board of directors.
Trevor Cole is the award-winning author of five books. His latest is The Whisky King, a non-fiction account of Canada's most infamous mobster bootlegger. Tweet him @trevor_cole