Item 1. Business
ITEM 1.
BUSINESS
Overview
We are a leading manufacturer and distributor of premium automotive parts used in the maintenance, service and repair of vehicles in the automotive aftermarket industry. Through organic growth and several recent acquisitions, described
further below, we have strengthened our capabilities as a supplier of custom-engineered products for on-highway (commercial and light vehicles) and off-highway (construction and agriculture, and all other) applications. We sell our products
primarily to automotive aftermarket retailers, warehouse distributors, original equipment manufacturers and original equipment service part operations in the United States, Canada, Europe, Asia, Mexico and other Latin American countries.
As of December 31, 2022, we managed our business pursuant to two operating segments, each focusing on a specific line of parts. Our Engine Management segment generates revenue from the sale of automotive engine parts, including ignition,
emission control, fuel, electrical and safety related system products, and wire and cable parts. Our Temperature Control segment generates revenue from the sale of automotive temperature control systems parts, including air conditioning
compressors and other climate control parts.
Beginning in the first quarter of 2023, our business will be organized into three operating segments – Engineered Solutions , Vehicle Control and Temperature Control .
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Engineered Solutions is a new operating segment created by carving out all non-aftermarket business from our existing Engine Management and Temperature Control operating
segments, which will now solely reflect parts sales to aftermarket channels. This will provide clarity regarding the unique dynamics and margin profiles of the markets served by each segment. Our Engineered Solutions segment will supply
custom-engineered solutions to vehicle and equipment manufacturers in non-aftermarket end markets, such as-
•
Commercial and Light vehicles
•
Construction
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Agriculture
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Power Sports
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Marine
•
Hydraulics
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Lawn & Garden
The Engineered Solutions segment sells into highly fragmented global end markets and is expected to provide a platform for future growth. Our growth strategy is long-term
and we do not expect growth to be linear given the nature of customized engineering and the period of time between the awarding of new business and start of production. Some of our growth drivers in this segment include:
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Developing new customer relationships
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Cross-selling opportunities with existing customers
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Introducing new products to both new and existing customers
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Increasing content per unit
Segment offerings include product categories from both of our legacy operating segments, and offer a broad array of conventional and future-oriented technologies, including those that are specific to vehicle
electrification as well as those that are powertrain-neutral.
Vehicle Control is the new name for our Engine Management operating segment; it will include our core aftermarket business after the carve out of all non-aftermarket business
moved to the new Engineered Solutions operating segment. Within the Vehicle Control segment there will be three new major product groups:
(1)
Ignition, Emissions & Fuel , which will include the traditional internal combustion engine (ICE) dependent categories;
(2)
Wire Sets & Other , which will include spark plug wire sets and other related products, and are product categories we have noted to be in secular decline based upon product life cycle; and
(3)
Electrical & Safety , which will include powertrain neutral vehicle technologies such as electrical switches/relays, safety related products such as anti-lock brake and vehicle speed sensors,
tire pressure monitoring, park assist sensors, and advanced driver assistance components.
Our Temperature Control operating segment remains substantially unchanged, as only a small portion of its business will be moved to Engineered
Solutions , and this legacy aftermarket business segment is poised to benefit from the broader adoption of more complex AC systems. Those systems will provide passenger comfort regardless of the vehicles powertrain propulsion, and are
being developed to cool batteries and other products used on electric vehicles. Segment offerings will continue to provide thermal products in the aftermarket business under two major product groups:
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(1)
AC System Components , which includes compressors, connecting lines, heat exchangers, and expansion devices
(2)
Other Thermal Components , which includes parts that provide engine, transmission, electric drive motor, and battery temperature management
This change will better align our operating segments with our strategic focus on diversification, and provide greater transparency into how we are positioned to capture growth opportunities of the future. The change will also better reflect
the impact of our recent acquisitions.
The following table summarizes both our reporting structure during 2022 and our planned 2023 reporting structure:
Operating Segments as of 2022
Planned Operating Segments in 2023
Engine Management:
Vehicle Control (Aftermarket):
Ignition, Emissions, Fuel & Safety
Ignition, Emissions & Fuel
Wire and Cable
Wire Sets and Other
Electrical & Safety
Temperature Control:
Temperature Control (Aftermarket):
Compressors
AC System Components
Other Climate Control Parts
Other Thermal Components
Engineered Solutions (non-Aftermarket):
Commercial Vehicle
Light Vehicle
Construction & Agriculture
All Other
Our Business Strategy
The automotive aftermarket is a mature industry with participants that manufacture, distribute and sell vehicle replacement parts to professional technicians and to individual consumers, who perform “do-it-yourself” repairs on their personal
vehicles. While generally a stable industry, the aftermarket tends to be influenced by trends such as the number of vehicles on the road, the average age of vehicles on the road, and the total number of miles driven per year. Weather extremes
like unseasonably hot or cool temperatures in the summer can also have an impact on aftermarket product demand.
Other economic factors such as the level of new vehicle sales and production rates, which more recently have been impacted by global supply chain disruptions, can have a more direct impact on the on-highway and off-highway end markets we
supply, such as commercial and light vehicles, construction, agricultural, power sports and others. Typically, these economic factors have a more indirect impact on the aftermarket.
While approximately 80% of our business is to the automotive aftermarket, we seek to enhance and diversify our business through the following:
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Leveraging our manufacturing and distribution capabilities to secure additional business globally
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Supporting the service part operations of vehicle and equipment manufacturers with value-added services and product support for the life of the part
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Developing new product lines that complement our existing product offering and that have the potential for high growth
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Expanding our product offering in the medium and heavy duty, commercial vehicle, construction and agricultural equipment, power sports, and other end markets
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Executing our acquisition strategy
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In 2021, we completed three acquisitions that expanded our business into specialized non-aftermarket end markets that complement our core aftermarket business. In addition to providing access to product technologies suitable to the
aftermarket, and manufacturing and engineering capabilities to support our operating strategy to bring more product manufacturing in-house, these acquisitions provide geographic expansion in Europe and Asia.
With over 100 years in business, we believe that our success is attributable to our focus on being a key strategic partner to our customers, and in doing so provide:
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Professional grade products and solutions within our areas of expertise.
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Comprehensive product coverage for all vehicles on the road through our offering of professional grade engine management and temperature control products.
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Supplier and customer focused initiatives designed to improve order fill rate and maintain high levels of product availability
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Expanding our product coverage to include a broader product mix in categories such as
o
Electrification, including electric vehicles (EVs) and hybrid electric vehicles (HEVs),
o
Connectivity and safety related products, such as
➢
anti-lock brake (ABS)
➢
vehicle speed sensors
➢
tire pressure monitoring
➢
park assist sensors
➢
advanced driver assistance components to meet the needs of our customers
In 2022, we introduced approximately 2,400 new products to the aftermarket, of which approximately two-thirds were powertrain neutral. We support our products with superior value-added services provided by our marketing and sales teams that
provides our customers with offerings such as data-driven category management, technical support as well as product selection, assortment and application support for all of our products. In addition, we have a team dedicated to providing
technical training, in-person and virtually, on diagnosing and repairing vehicles equipped with complex systems.
We are committed to expanding our design, engineering and manufacturing capabilities, and vertically integrating production processes to bring more manufacturing in-house. We engineer, tool and manufacture many of the products we offer for
sale and the components used in their assembly. We have found this level of vertical integration, in combination with our manufacturing footprint in low cost regions, provides advantages in terms of the cost, quality and availability of our
products.
Examples of vertically integrated processes:
➢ plastic molding operations
➢ automated electronics assembly
➢ stamping and machining operations
➢ design and fabrication of processing and test equipment
➢ wire extrusion
➢ teardown, diagnostics and rebuilding of remanufactured air conditioning compressors,
diesel injectors and diesel pumps
We also believe that our technical capabilities have afforded us opportunities to expand our product coverage in our core aftermarket business and in the non-aftermarket end markets we supply for on-highway and off-highway applications, and
have better positioned us to satisfy customer demand for both traditional, internal combustion engine (or ICE) applications, and non-ICE (electric or hybrid electric) applications.
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Our manufacturing footprint is geographically diverse with a greater presence in North America and Europe compared to many of our peers. We leverage our footprint to improve our cost position by locating labor-intensive processes within our
low-cost plants, and by investing in automation and undertaking continuous improvement initiatives in our domestic facilities.
Our Products & Services
The following describes our business more particularly under our existing operating segments as of December 31, 2022 – Engine Management and Temperature Control .
Our periodic reports for the first quarter of 2023 and reporting periods thereafter will focus on our new reporting structure and operating segments as of the first quarter of 2023 – Engineered Solutions , Vehicle Control and Temperature Control .
Engine Management Segment
Our Engine Management Segment manufactures and distributes a full line of critical components for most years, makes and models of vehicles on the road, including new technologies. Key product categories within our engine management portfolio
include: (i) ignition, such as electronic ignition control modules, camshaft and crankshaft position sensors, ignition wires and coils; (ii) electrical, such as switches and relays; (iii) emissions, such as exhaust gas recirculation valves,
pressure and temperature sensors and variable valve timing (VVT) components; (iv) fuel, such as mass airflow sensors, fuel pressure sensors, electronic throttle bodies and fuel injectors, including diesel injectors and pumps (new and
remanufactured); and (v) safety-related systems, such as various sensors including anti-lock brake (ABS), vehicle speed, tire pressure monitoring (TPMS) and park assist sensors.
We continuously look to expand our product offering. Recently, we have done so by adding late-model coverage for existing product categories, and new product categories in response to new and evolving vehicle technologies, including diesel
control modules, pumps and components, turbochargers, evaporation emission control system components, exhaust gas temperature sensors, active grill shutters, battery current sensors, and Advanced Driver Assistance Systems (ADAS) components,
including blind spot detection sensors, cruise control distance sensors, lane departure sensor cameras and park assist backup cameras. For example, our offering includes more than seventy product categories for one of the first mass-produced
hybrid electric vehicles (HEVs). As more HEVs enter the aftermarket, we intend to expand our product offering to service this important segment.
Ignition, Emission Control, Fuel & Safety Related System Products . Replacement parts for ignition, emission, fuel and safety related systems accounted for $824.7 million, or 60%, of our
consolidated net sales in 2022, $786.5 million, or 61%, of our consolidated net sales in 2021, and $691.7 million, or 61%, of our consolidated net sales in 2020.
As the use and complexity of vehicle systems continue to develop and proliferate, we expect to identify and benefit from new sales opportunities. All new vehicles are factory‑equipped with numerous electronic control modules designed to
monitor and control the internal combustion process and the emissions, transmission, safety and comfort systems of the vehicle. Newer automotive systems include Advanced Driver Assistance Systems and Collision Avoidance Systems to alert the
driver to potential problems, or to avoid collisions by implementing safeguards. Many of these systems use on-board computers to monitor inputs from sensing devices located throughout the vehicle. Our sales of sensors, switches, actuators,
valves, solenoids and related parts have increased as automobile manufacturers continue to equip their cars with these more complex engine management systems.
New sales opportunities have also arisen in the United States as a result of government regulations regarding safety and emissions. Legally, automobiles must now comply with emissions standards from the time they were manufactured and, in
most states, until the last day they are in use. Emissions laws and fuel economy regulations have had a positive impact on sales of our ignition, emissions control and fuel delivery parts since vehicles failing these laws may require repairs
utilizing parts sold by us. Similarly, as government-mandated safety devices, such as anti-lock braking systems and air bags mature, requiring servicing and repair, we anticipate increased sales opportunities for many of our products such as ABS
sensors, TPMS sensors and traction control products.
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Wire & Cable Products. Wire and cable parts accounted for $150.6 million, or 11%, of our consolidated net sales in 2022, $151.4 million, or 12%, of our consolidated net sales in 2021, and $144
million, or 13%, of our consolidated net sales in 2020. These products include spark plug wire sets, battery cables, pigtails, sockets and a wide range of electrical wire, terminals, connectors and tools for servicing an automobile’s electrical
system.
Temperature Control Segment
Our Temperature Control Segment manufactures and distributes a full line of critical components for the temperature control (air conditioning and heating) systems, engine cooling systems, power window accessories and windshield washer systems
of motor vehicles. Key product categories within our temperature control portfolio include: air conditioning compressors (new and remanufactured), air conditioning repair kits, clutch assemblies, blower and radiator fan motors (brushless and
brushed), filter dryers, evaporators, accumulators, actuators, hose assemblies, thermal expansion devices, heater valves, heater cores, A/C service tools and chemicals, fan assemblies, fan clutches, oil coolers, window lift motors, window
regulators and assemblies, and windshield washer pumps.
We continuously look to improve our cost position through strategic transactions with manufacturers in low cost regions.
In 2014, we formed Foshan GWOYNG SMP Vehicle Climate Control & Cooling Products Co. Ltd., a China-based joint venture that manufactures light vehicle and heavy duty air conditioning accumulators, filter driers,
hose assemblies, and switches.
In 2017, we formed Foshan FGD SMP Automotive Compressor Co., Ltd., a China-based joint venture that manufactures light vehicle and heavy duty belt driven air conditioning compressors.
In 2019, we acquired a minority interest ownership position in Foshan Che Yijia New Energy Technology Co., Ltd., a China-based manufacturer of electric air conditioning compressors.
We believe these transactions enhance our position as a basic low-cost manufacturer and leading supplier of temperature control products and create opportunity for growth in the China OE market. The joint ventures also provide complementary
manufacturing capabilities and opportunities for synergy with our other manufacturing facilities, which we believe results in a more reliable supply of products, supporting our customers’ needs for consistent and reliable service levels.
In 2022, we acquired Kade Trading GmbH, a supplier of temperature control products throughout Europe. We believe this acquisition provides synergies to our other recent acquisitions in 2021 into specialized end markets, and an entry point
into the European market for our temperature control products with a strong focus on the continuing electrification of thermal systems.
Compressors . Compressors accounted for $222.5 million, or 16%, of our consolidated net sales in 2022, $206.7 million, or 16%, of our consolidated net sales in 2021, and $163.1 million, or 14%, of our
consolidated net sales in 2020. Included in consolidated net sales for the compressor product line is the revenue generated from the sale of kits.
Other Climate Control Parts . Other climate control parts accounted for $159.8 million, or 12%, of our consolidated net sales in 2022, $141.7 million, or 11%, of our consolidated net sales in 2021, and
$118.9 million, or 11%, of our consolidated net sales in 2020.
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Our Brands
We believe that our brands are an important component of our value proposition, and serve to distinguish our premium engine management and temperature control products from those of our competitors. We market and distribute our products under
our own brands, such as:
Engine
Management
Products
Temperature
Control
Products
We also distribute our products to customers for resale under private labels and the following co-labels:
Engine
Management
We have also developed our product offering and brand strategies to support our customers’ initiatives to market a tiered product assortment designed to satisfy end-user preferences for quality and value. We believe that this alignment makes
us an invaluable business partner to our customers.
Our Customers
We sell our products primarily to:
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Automotive aftermarket retailers , such as O’Reilly Automotive, Inc. (“O’Reilly”), AutoZone, Inc. (“AutoZone”), and Canadian Tire Corporation, Limited.
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Automotive aftermarket distributors, including warehouse distributors and program distribution groups , such as Genuine Parts Co. and National Automotive Parts Association (“NAPA”), Auto Value
and All Pro/Bumper to Bumper (Aftermarket Auto Parts Alliance, Inc.), Automotive Distribution Network LLC, The National Pronto Association (“Pronto”), Federated Auto Parts Distributors, Inc. (“Federated”), Pronto and Federated’s
affiliate, the Automotive Parts Services Group or The Group, and Icahn Automotive Group LLC (doing business as Pep Boys, Auto Plus, AAMCO and Precision Tune Auto Care).
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•
Original equipment manufacturers and original equipment service part operations , such as General Motors Co., Ford Motor Co., Woodward, Inc., Deere & Company, Caterpillar Inc., Daimler Truck
AG, Case/New Holland, Eberspacher, Mobile Climate Control, Volvo/Mack Truck, and Harley.
Our three largest individual customers accounted for approximately 59% of our consolidated net sales in 2022. During 2022, O’Reilly, AutoZone and NAPA accounted for 27%, 17%, and 15% of our consolidated net sales, respectively. Net sales from
each of these customers were reported in both our Engine Management and Temperature Control Segments.
Competition
The automotive aftermarket industry is comprised of a large number of diverse manufacturers varying in product specialization and size. In addition to manufacturing, aftermarket companies must allocate resources towards a dynamic distribution
process in order to maintain the flexibility and responsiveness on which their customers depend. Aftermarket manufacturers must be efficient producers of small lot sizes, and must distribute, with rapid turnaround times, products for nearly all
domestic and import vehicles on the road today.
We compete primarily on the basis of product quality, product availability, value-added services, product coverage, order turn‑around time, order fill rate, technical support and price. We believe we differentiate ourselves from our
competitors primarily through:
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a value‑added, knowledgeable sales force;
•
continuous product development, engineering & technical advancement;
•
extensive market leading product coverage in conjunction with market leading brands;
•
knowledgeable category management, including inventory stocking recommendations for our distributors to get the right parts on the shelf for their marketplace;
•
rigorous product qualification standards to ensure that our parts meet or exceed exacting performance specifications;
•
sophisticated parts cataloging systems, including catalogs available online through our website and our mobile application;
•
inventory levels and responsive logistical systems sufficient to meet the critical delivery requirements of customers;
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breadth of manufacturing capabilities; and
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award-winning marketing programs, sales support and technical training.
We offer a variety of strategic customer discounts, allowances and incentives to increase customer purchases of our products. For example, we offer cash discounts for paying invoices in accordance with the specified discounted terms of the
invoice. We also offer rebates and discounts to customers as advertising and sales force allowances, and allowances for warranty and overstock returns are also provided. These discounts, allowances and incentives are a common practice
throughout the automotive aftermarket industry, and we intend to continue to offer them in response to competitive pressures and to strategically support the growth of all our products.
We are one of the leading independent manufacturers and distributors serving North America and other geographic areas in our core businesses of Engine Management and Temperature Control. In the Engine Management Segment, we compete with:
ACDelco, Aptiv Plc, Denso Corporation, Continental AG, Hitachi, Ltd., Motorcraft, Robert Bosch GmbH, Visteon Corporation, NGK Spark Plug Co., Ltd., Dorman Products, Inc. and several privately-owned companies primarily importing products from
Asia. In the Temperature Control Segment, we compete with: ACDelco, MAHLE GmbH, Denso Corporation, Motorcraft, Sanden International (U.S.A.), Inc., Continental AG, Dorman Products, Inc., and several privately-owned companies.
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Our business operates in highly competitive markets, and we face substantial competition in all markets that we serve. In addition, in the aftermarket, we face competition from automobile manufacturers who supply many of the replacement parts
sold by us, although these manufacturers generally supply parts only for cars they sell through OE dealerships.
Sales and Distribution
In the traditional aftermarket channel, we sell our products to warehouse distributors and retailers. Our customers buy directly from us and sell directly to jobber stores, professional technicians and to “do-it-yourselfers” who perform
automotive repairs on their personal vehicles. In recent years, warehouse distributors have consolidated with other distributors, and an increasing number of distributors own their jobber stores or sell down channel to professional technicians.
Retailers are also consolidating with other retailers and have begun to increase their efforts to sell to professional technicians adding additional competition in the “do-it-for-me,” or the professional technician segment of our industry. As
automotive parts and systems become more complex, “do-it-yourselfers” are less likely to service their own vehicles and may become more reliant on professional technicians.
In the heavy duty aftermarket, we sell our products to recognized distributors who buy directly from us and sell directly to fleet operators and repair facilities for use in the repair and maintenance of medium to heavy duty vehicles. We also
sell our products to the service parts divisions of heavy duty OEMs for distribution into the independent heavy duty aftermarket.
In the original equipment market we sell our products to manufacturers of automotive, heavy duty truck, construction, agriculture, alternative energy, lawn/garden and powersports/marine vehicles and equipment, as well as their tier suppliers
and system integrators. We also sell and support the service part divisions of each of our customers.
We sell our products primarily in the United States, with additional sales in Canada, Europe, Asia, Mexico and other Latin American countries. Our sales are substantially denominated in U.S. dollars.
For information on revenues and long-lived assets by geographic area, see Note 21 “Industry Segment and Geographic Data” of the Notes to Consolidated Financial Statements in Item 8 of this Report.
Our customers have come to depend on our sales personnel as a reliable source for technical information and to assist with sales to their customers ( e.g. , jobber stores and professional technicians).
In this manner, we direct a significant portion of our sales efforts to our customers’ customers to generate demand for our products, and we believe that the structure of our sales force facilitates these efforts by enabling us to implement our
sales and marketing programs uniformly throughout the distribution channel.
Another way we generate demand for our products is through our training program, which offers training seminars to professional automotive technicians. Our training program is accredited by the National Institute for Automotive Service
Excellence (ASE) Training Managers Council. Our seminars are taught by ASE certified instructors in real time either in-person or by webinars online and feature more than 30 different topics. We also offer on-demand training webinars online on
more than 150 different topics. Through our training program, we typically teach approximately 60,000 technicians annually how to diagnose and repair vehicles equipped with complex systems related to our products, and we have approximately
16,000 technicians who are registered to participate in such sessions through our online platform.
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Seasonality
Historically, our operating results have fluctuated by quarter, with the greatest sales occurring in the second and third quarters of the year and revenues generally being recognized at the time of shipment. It is in these quarters that
demand for our products is typically the highest, specifically in the Temperature Control Segment of our business. In addition to this seasonality, the demand for our Temperature Control products during the second and third quarters of the year
may vary significantly with the summer weather and customer inventories, as evidenced by the strong customer demand in 2022 fueled by the record heat across the country in 2022 and the replenishment of customer inventory levels after very warm
summer conditions in 2021. While the COVID-19 pandemic caused large shifts in sales demand between quarters in 2020, our business returned to a more normalized pattern of seasonality and variability in demand of our Temperature Control products
in 2022 and 2021. As such, our working capital typically peaks near the end of the second quarter, as the inventory build-up of air conditioning products was converted to sales, and payments on the receivables associated with such sales were yet
to be received. During this period, our working capital requirements were funded by borrowing from our revolving credit facility in our Credit Agreement.
Working Capital and Inventory Management
We seek continuous improvements in our inventory management system, which are designed to reduce inventory requirements and enhance our ability to compete on the basis of product availability, product coverage, order turn‑around time and order
fill rate. We have a pack‑to‑order distribution system, which permits us to retain slow moving items in a bulk storage state until a related order is received. This system reduces the volume of a given part in inventory. We also expanded our
inventory management system to improve inventory deployment, enhance our collaboration with customers on forecasts and inventory assortments, and further integrate our supply chain with both our customers and suppliers.
We face inventory management issues as a result of overstock returns. We permit our customers to return new, undamaged products within customer-specific limits (which are generally limited to a specified percentage of their annual purchases
from us) in the event that they have overstocked their inventories. In addition, the seasonality of our Temperature Control Segment requires that we increase our inventory during the winter season in preparation of the summer selling season. We
accrue for overstock returns as a percentage of sales after giving consideration to recent returns history.
Our profitability and working capital requirements are seasonal due to our sales mix of Temperature Control products. Our working capital requirements typically peak near the end of the second quarter, as the inventory build‑up of air
conditioning products is converted to sales and payments on the receivables associated with such sales have yet to be received. These increased working capital requirements are funded by borrowings from our revolving credit facility in our
Credit Agreement. In 2022, we strategically increased inventory levels to help offset potential supply chain risks associated with extended lead times and delays transporting our product.
Suppliers
We source materials through a global network of suppliers to ensure a consistent, high quality and low cost supply of materials and key components for our product lines. As a result of the breadth of our product offering, we are not dependent
on any single raw material.
The principal raw materials purchased by us consist of brass, electronic components, fabricated copper (primarily in the form of magnet and insulated cable), steel magnets, laminations, tubes and shafts, stamped steel parts, copper wire,
stainless steel coils and rods, aluminum coils, fittings, rods, cast aluminum parts, lead, steel roller bearings, rubber molding compound, thermo‑set and thermo plastic molding powders, and chemicals. Additionally, we use components and cores
(used parts) in our remanufacturing processes for air conditioning compressors, diesel injectors, and diesel pumps.
In the case of cores for air conditioning compressors, diesel injectors, and diesel pumps, we obtain them either from exchanges with customers who return cores subsequent to purchasing remanufactured parts or through direct purchases from a
network of core brokers. In addition, we acquire certain materials by purchasing products that are resold into the market, particularly by OEM sources and other domestic and foreign suppliers.
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We believe there is an adequate supply of primary raw materials and cores; however, disruptions in the global economy have impeded global supply chains, resulting in longer lead times and delays in procuring component parts and raw materials,
and inflationary cost increases in certain raw materials, labor and transportation. In response to the global supply chain volatility and inflationary cost increases, we have taken, and continue to take, several actions to mitigate the impact by
working closely with our suppliers and customers to minimize any potential adverse impacts on our business, including initiating cost savings initiatives and the pass through of higher costs to our customers, which began in the fourth quarter of
2021. We believe that we have also benefited from our geographically diversified manufacturing footprint and our strategy to bring more product manufacturing in-house, especially with respect to product availability and fill rates.
Environmental, Social and Governance (ESG) and Human Capital
We support and seek continuous improvement in the pursuit of environmental, social and corporate governance (ESG) practices that embody our culture and what we believe it means to be a good corporate citizen.
Our Culture
Our Company was founded in 1919 on the values of integrity, common decency and respect for others. These values are embodied in our Code of Ethics, which has been adopted by the Board of Directors of the Company to serve as a statement of
principles to guide our decision-making and reinforce our commitment to these values in all aspects of our business. These values also serve as the foundation for our continued focus on many important environmental, social and governance issues,
such as environmental stewardship and our efforts to identify and implement practices that reduce our environmental impact while achieving our business goals; our attention to diversity, equity and inclusion, employee development, retention, and
health and safety; and our community engagement initiatives, to name a few.
Environmental Stewardship
We have made significant strides with respect to our ESG initiatives, building awareness of the environmental impact of our operations, and challenging ourselves to reduce our impact by reducing our usage of energy and water, reducing our
generation of waste, increasing our recycling efforts and reducing our Scope 1 and Scope 2 greenhouse gas emissions (“GHG”).
As a leading manufacturer and distributor of premium parts used in the maintenance, service and repair of vehicles, we are proud of the role our parts play in replacing failed components that are necessary for vehicles to operate safely and
efficiently, and in extending the service life of vehicles on the road. We believe our product offering also contributes to a greener car parc through several key product categories that are critical components in automotive systems designed to
improve fuel economy and reduce harmful emissions, such as fuel injectors, exhaust gas recirculation valves, sensors and tubes, and evaporative emission control system components. We also bring to market alternative energy products, which utilize
cleaner burning fuels or are designed for electric or hybrid electric vehicles.
Our remanufacturing processes divert certain types of used automotive products from traditional waste streams and reprocess them for their original purpose. We remanufacture key product categories within our offering, such as air conditioning
compressors, diesel injectors and diesel pumps, resulting in the production of premium automotive products within these categories through processes that we believe save energy and reduce waste.
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Human Capital
We believe that our commitment to our employees is critical to our continued success, and has led to high employee satisfaction and low employee turnover. To facilitate talent attraction and retention, we strive to have a diverse, inclusive
and safe workplace, with opportunities for our employees to grow and develop in their careers, supported by strong compensation, benefits and health and wellness programs, and by programs that build connections between our employees and their
communities. Our employees share our corporate values of integrity, common decency and respect of others, values which have been established since our company was founded.
As of December 31, 2022, we employed approximately 4,900 people, with 2,000 people in the United States and 2,900 people in Mexico, Canada, Poland, the U.K., Germany, Hungary, China, Hong Kong and Taiwan. Of the 4,900 people employed,
approximately 2,500 people are production employees. We operate primarily in non‑union facilities and have binding labor agreements with employees at other unionized facilities. We have approximately 75 production employees in Edwardsville,
Kansas who are covered by a contract with The International Union, United Automobile, Aerospace and Agricultural Implement Workers of America (“UAW”) that expires in August 2026. We also have approximately 1,400 employees in Mexico who are
covered under union agreements negotiated at various intervals. For clarification, the employee numbers described above exclude the employees of our joint venture operations.
Although the COVID-19 pandemic has led to some challenges in finding adequate labor, generally we believe that our facilities are in labor markets with ready access to adequate numbers of skilled and unskilled workers, and we believe our
relations with our union and non‑union employees are good.
Diversity, Equity, Inclusion, and Belonging. We believe that a diverse workforce is critical to our success, and we continue to focus on the hiring, retention and advancement of women and
underrepresented populations. Our recent efforts have been focused in three areas: inspiring innovation through an inclusive and diverse culture; expanding our efforts to recruit and hire world-class diverse talent; and identifying strategic
partners to accelerate our inclusion and diversity programs. Over the last 5 years, approximately 50+% of our hires and promotions have been women or racially diverse individuals. To further our commitment to diversity, in 2021, we established
a Diversity, Equity, Inclusion, and Belonging steering committee to develop key structures within our organization to promote equality, inclusion and awareness among our employees.
Health, Safety and Wellness . The success of our business is fundamentally connected to the well-being of our people. Accordingly, we are committed to the
health, safety and wellness of our employees. We provide our employees and their families with access to a variety of innovative, flexible and convenient health and wellness programs, including benefits that provide protection and security so
they can have peace of mind concerning events that may require time away from work, or that impact their financial well-being; that support their physical and mental health by providing tools and resources to help them improve or maintain their
health status and encourage engagement in healthy behaviors; and that offer choice where possible so they can customize their benefits to meet their needs and the needs of their families.
Compensation and Benefits. We provide competitive compensation and benefits programs that meet the needs of our employees. In addition to wages and salaries, these programs include annual cash
bonuses, stock awards, a 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, family care resources, and employee assistance programs.
Talent Development. We invest significant resources to develop the talent of our high potential employees. We deliver numerous training opportunities, provide rotational assignment opportunities,
offer continuous learning and development, and implement methodologies to manage performance, provide feedback and develop talent opportunities for talent.
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Our talent development programs are designed to provide employees with the resources they need to help achieve their career goals, build management skills and lead their organizations. We provide a series of employee workshops and mentoring
programs that support professional growth and development. Our annual review process encourages manager and employee conversations throughout the year to enhance growth and development.
Social Engagement and Community Service
We believe that building connections between our employees, their families and our communities creates a more meaningful, fulfilling and enjoyable workplace. Through our SMP Cares ® initiative, we sponsor corporate giving and
volunteering programs to encourage our employees to connect with our local communities and engage in the local causes that they are passionate about.
Our volunteering efforts include organizing blood drives with the American Red Cross, and fundraising for the March of Dimes, United Way, and many others. In 2022, we collaborated with our employees to donate over $135,000 to local community
organizations, schools, shelters, Ukraine, Project Hope, AACF, Habitat for Humanity, Love Independence, local parks, and Toys for Tots. We are a lifetime trustee of the University of the Aftermarket Foundation (“UAF”), and we donate $10,000
annually to fund scholarships to support the next generation of technicians and automotive professionals, which we believe is an important way to sustain and give back to our industry. We are also proud to sponsor annual scholarship contests for
future automotive technicians, including our Women in Auto Care scholarship that aims to empower women entering the automotive industry. Since our first scholarship contest in 2015, we have awarded $275,000 in scholarships. We have continued to
expand our scholarship program, and in 2022, we awarded four students each with a $5,000 scholarship to Women in AutoCare and to Blue Streak Better Then, Better Now Scholarship. We continue to encourage participation in these initiatives as we
believe they are essential in the support of our core values.
Governance
Our commitment to ESG is spearheaded by our Board of Directors. Specifically, our Nominating and Corporate Governance Committee established an ESG steering committee among our executive officers including our Chief Executive Officer &
President, Chief Legal Officer & Secretary, Chief Human Resources Officer, and Senior Vice President of North American Operations. This ESG steering committee is tasked with developing specific strategies to ensure that our operations adhere
to our corporate governance values and advance our ESG objectives. The multidisciplinary approach of our steering committee allows it to leverage our expertise in operations, engineering, supply chain, human capital management, finance, legal
and other fields to push our ESG initiatives ahead from all angles.
Continued Commitment
With each year, we intend to further our commitment to ESG initiatives, improving our environmental stewardship, finding ways to give back to our communities, and enhancing the diversity and inclusion of our workforce while offering
opportunities for development. Information on our ESG initiatives can be found in our most current sustainability report and on our corporate website at ir.smpcorp.com under “Environmental & Social
Responsibility” and at smpcares.smpcorp.com. Information in our sustainability report and on our corporate websites regarding our ESG initiatives are referenced for general information only and are not
incorporated by reference in this Report.
Available Information
We are a New York corporation founded in 1919. Our principal executive offices are located at 37‑18 Northern Boulevard, Long Island City, New York 11101, and our main telephone number at that location is (718) 392‑0200. Our Internet address
is www.smpcorp.com . We provide a link to reports that we have filed with the SEC. However, for those persons that make a request in writing or by e-mail (financial@smpcorp.com), we will provide free of
charge our Annual Report on Form 10-K, our Quarterly Reports on Form 10-Q, our Current Reports on Form 8-K and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These
reports and other information are also available, free of charge, at www.sec.gov .
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