Hello, My Name is … SMI

Following a year of growth, the company formerly known as
Specialty Manufacturing reintroduces itself

Despite a new name and recent acquisitions, SMI leaders want you to know they’re committed to offering the same quality and price commitment they always have.
In June, Specialty Manufacturing of Pineville, N.C., added its former rival, Transpec of Sterling Heights, Mich. to its family of companies. The company, now called SMI, also owns SpecFlor and Pretoria Transit Interiors. It is now the only U.S. manufacturer of stop arms and crossing gates.

Since the 1991 introduction of Federal Motor Vehicle Safety Standard 131, stop arms have been a required safety device across the United States. With nearly two dozen states requiring crossing gates and a number looking to join states such as Florida, Louisiana and New York in requiring double stop arms, SMI controls an even larger stake in the market for a key element of school bus safety.

But Doug Campbell, SMI’s vice president of North American sales, reassures customers that fewer suppliers won’t mean less quality or higher prices.

“We’re sensitive to the size of our company given today’s marketplace,” he said. “We will be working closely with the product development teams at various OEMs to see what they need. We want to be known as positively reacting to the wants of the end-use customer, providing them with longer life products at a fair price.”

With more states calling for more requirements, making a product that is affordable enough to fit into a transportation director’s budget will likely increase sales at SMI. But more than this, Campbell sees SMI’s role in the industry as part of the fundamental mission to get students to school safely.

“Our principal responsibility is to our kids,” he said. “Just about everyone at all three companies has kids. When my son gets on the school bus, I’m always thinking, ‘How do I make it safer for him to get on the bus?’”

Industry Consolidation
In July of 2006, Ellison Company sold Specialty Manufacturing to Century Park Capital, a Los Angeles-based private equity firm. CEO Gray Ellison continued as shareholder and manager. Then, the company announced two more acquisitions with the February purchase of Pretoria Transit Interiors and the June purchase of Transpec.
For some, the consolidation mirrors an industry-wide trend.

Last month, FirstGroup finalized its acquisition of Laidlaw, claiming approximately 40 percent of the contracted market for school transportation. Similarly, in 2005 BESI acquired Tie Tech. A year later, BESI acquired its former competitor in the seating market, Carolina Coastal Seating.

One parts seller who wished to remain anonymous said these consolidations can sometimes cause initial supply problems. While he’s found no such problems with SMI, he worried about an industry where “the big boys keep getting bigger and bigger.”

Cost Commitment, Product Consolidation
Amid the atmosphere of market control worries, SMI is being proactive in reaching out to OEMs, dealerships and aftermarket sellers. Recently, the company sent individual representatives out to reassure them that prices will not suddenly rise.

“There are market pressures out there, but we’re trying to keep our costs as they are today.” Campbell added.

To counteract the impact of rising commodity and operating costs on its product prices, SMI introduced Kaizen manufacturing quality-improvement strategies popularized by Toyota and the Six Sigma processes developed by Motorola as it strives to generally improve operational performance.

Additionally, the company plans to leverage the combined resources of the Specialty Manufacturing, Transpec and Pretoria. Since announcing the acquisition, SMI has internally promoted Paul Vidri from engineering manager to director of engineering, overseeing the combined team of 15 engineers from the former rivals.

“If you look at the strengths of our engineering team, we’ve got great resources to really be innovative and create all kinds of wonderful and valuable safety-oriented products,” Campbell said.

Naturally, the company will also combine its product lines, selecting its most successful crossing gates, stop arms and roof hatches.

“That’s not an easy task because there’s a lot of brand loyalty on both sides after over 15 years in the trenches,” Campbell said. ”So we really have to be careful that all the clients are atisfied with what we come up with.”

SMI said it will combine the best design aspects found in either line into new products. A new crossing gate for the bus front premiering at the 2007 NAPT Trade Show integrates Specialty’s arm with Transpec’s housing and motor. The company has also pitched the idea of combining the push-button, quick-release from Transpec’s roof hatch with Specialty’s handle.

“We’ve had some very exciting brainstorming sessions,” Campbell said.

By next summer, SMI will offer a complete catalog of consolidated and integrated products. In the meantime, the company is asking the OEMs for suggestions on what will serve their customers best. SMI stresses that despite the new company name, the Transpec or Specialty brand names will not disappear.

“People know Transpec hatches. They know Specialty crossing arms. Those names and that brand recognition are going to stay,” Campbell said.

Foreign Competition
Some in the industry have speculated that consolidation in general may create an incentive for off-shore competitors to enter the market. Alternatively, others suggested an American company looking to enter the consolidated market might manufacture its products abroad in order to keep costs low.

But company president Mike Leitert believes SMI’s investment in patenting new technology, local assembly, geographic proximity to the OEMs and connecting with customers locally will give it an advantage over potential rivals on the other side of the globe.

While the company is headquartered and has a manufacturing center in North Carolina, it maintains other manufacturing centers in Arkansas, Michigan and Tennessee.

SMI does have one potential North American rival, though.

BMR Manufacturing, Inc., a 25-year old Canadian manufacturer of school bus safety products, produces competing crossing gates and stop arms. Founded in 1972, the company has developed some of its own original safety technologies, including stop arm drive systems and permanent, magnetic crossing gate locks.

But the company is based Campbellford, Ontario, 100 miles west of Toronto, and is focused largely on retrofits and replacements with a limited reach in the United States. While company founder Jim Reavell said he’s made “some inroads” with the school bus body manufacturers, his Canadian address may prove a deterrent to developing full-fledged relationships with the school bus OEMs.

Further, BMR produces fewer than 10,000 stop arms and crossing gates per year. This means, for now, the company seems unlikely to be a true competitor in providing stop arms and crossing gates for the 40,000 new school buses Reveall estimates are manufactured each year.

Even without serious competition on the horizon, Leitert remains dedicated to pleasing SMI’s customers. He also wants to assert that even though SMI has no direct competitor, the company will continue to innovate.

“There’s always going to be competition out there,” he said. “Whether it’s today or next week or next year, it’s out there. So we want to keep on being on the cutting edge of design and development.”