Getting Hitched

The news that Canada’s second-largest manufacturer of dry-van trailers-Mond Industries Inc., headquartered in Mississauga, Ont.-had sold a 54% interest to Trailmobile Corp. for about $8.6 million caught few industry insiders by surprise. First, the value of Mond shares on the Toronto Stock Exchange bounced around like a pinball leading up to the Dec. 16 announcement, at one point recovering nearly all the ground it had lost over the past seven months in just a few days. But more to the point, further consolidation among North American trailer manufacturers just seems inevitable. “Somebody had to buy somebody,” quips George Cobham, president of Glasvan Great Dane Trailer Sales, a trailer dealership in Mississauga. “I think we need even more consolidation in the trailer business. There are too many producers. If you have such buy-outs, you typically generate debt, and that has to be serviced. This will support higher prices, and I also feel that would be a good thing. Trailers are an incredibly competitive business, and we need some actions to improve margins.”

The deal elevates Chicago-based Trailmobile from the fourth-largest trailer manufacturer in North America to No. 3, and makes it the only major trailer builder with production lines in both the U.S. and Canada. “We have a great partner in Trailmobile,” says Mond president Pat DiLillo, who with chief financial officer Denis Arsenault sold nearly 17 million shares to Trailmobile for 50 cents each. “They make products we don’t make, and with their expertise and knowledge we can take this company to another level. The move is great for Canada and great for the market.”

The task ahead for DiLillo and Trailmobile CEO Edward Winandi is to integrate the production, sales, and marketing functions of the two companies over the next year. Trailmobile is known for its workhorse dry vans, producing 23,000 semi-trailers in 1997 and generating revenues of $520 million US. It has an established network of Canadian dealers, operates plants in Charleston, Ill., Jonesboro, Ark., and Liberal, Kan., and has an 80,000-square-foot parts distribution centre in Kentucky. Mond, meanwhile, is Canada’s largest manufacturer of domestic intermodal containers, and also designs, builds, services, and repairs a line of standard and customized trailers, trailer chassis, dry freight vans, and temperature-controlled vans. The company builds 14 trailers a day, a figure DiLillo says will jump to 30 by April. He notes that the addition of a third production shift is likely in order to meet demand, and says Mond’s plant in Toronto-expected to be closed following the firm’s 1997 consolidation into a new 120,000-square-foot facility in nearby Mississauga-now will be open indefinitely.

The added capacity is important to Trailmobile, which wants to use Mond’s production lines to supply 2000 to 3000 53-foot dry vans each year to the Northeastern U.S. The Mond plants also will produce the 2000 dry vans Trailmobile had been exporting each year to Canada. “The trailer we’ll be making here will combine the best features and aftermarket components from both our existing Mond dry van and the equivalent Trailmobile product,” explains Bert Clay, Mond’s vice-president of sales and marketing. “So it may look the same as a currently offered unit, but there will be some subtle improvements.”

Mond will carry on with production of its other styles of product that have been popular in the marketplace-such as FRP (fibreglass-reinforced plywood) van trailers and containers and their chassis. The company will also continue to produce its Tuff-Plate van designed for hauling auto parts, which Mond started exporting to U.S. customers last year.

It also appears that everything will ultimately carry a “Trailmobile” rather than “Mond” nameplate. “We’re planning on developing a distinctive version of the Trailmobile nameplate for the units we build here in Canada, however,” Clay explains. “It will likely have a maple leaf logo incorporated somewhere within or on top of it.”

Glasvan’s Cobham feels that having the Mond plant take on a Trailmobile product will require a bit of alteration to the processes there, since his understanding is that Mond doesn’t have a full-scale paint shop, and has always bought their components pre-painted. Regarding traditional Mond specialties like FRP dry-vans, Cobham thinks there will continue to be a viable market in Canada, unlike in the States, where the high empty weight of FRP units runs head-on into the lower U.S. GVW limits.

“Up here, people such as pulp and paper shippers like FRP because of the smooth sides and the ability of the sidewalls to bulge a bit when they load or unload the big rolls with forklifts,” he notes. “I think Mond will be able to keep selling adequate numbers into Eastern Canada. Great Dane makes some FRP product, too, but it’s not a hot item for us. I think my dealership sold three in all of last year.”

The deal leaves Manac Inc. of St.-Georges, Que., as the last remaining Canadian-owned high-volume van manufacturer. In 1998, Manac built about 7500 units between its plant in Quebec and another in Orangeville, Ont., with about two-thirds of these dry-vans; Mond’s total output last year was about 4000 units.

“I think the purchase will be a good thing for the overall North American trailer industry,” says Charles Dutil, vice-president of marketing for Manac. “This isn’t the first recent consolidation we’ve seen in the trailer market, and I don’t think it will be the last. Wabash took over the assets of Fruehauf, Pines took over Great Dane, and there’s probably more to come. What exact effect will the Trailmobile-Mond deal have on Manac? Call me back in a year and I’ll be able to tell you better. But we think the future looks very solid, and we have some significant product developments about to be unveiled.” The impending products comprise a redesigned flatbed that will be announced shortly, and “something new” in the dry-van world that will go into production in early summer. Dutil says that if Manac’s order book for 1999 is any indication-production for the first half of the year is sold out-orders will stay strong.

It’s a sentiment echoed by Al Boughton, president of Mississauga-based Trail-Con Leasing Inc. “Our demand for dry-van trailers is looking as strong in 1999 as it was in 1998, when we purchased about 550 units,” he notes. Overseeing about 2650 of his own trailer units, plus managing 5000 more pieces for a number of private and public fleets, Boughton buys dry-vans from Mond, Manac, Great Dane, and Utility, and says it’s the traditional mix of price, quality, availability, and responsiveness that determines where a given order will go. And customer demand for trailers remains strong.

“There are still a lot of class-8 tractors being sold, plus people are upgrading their trailer fleets,” he says. “They want 53-foot trailers instead of their older 48s; they want roll-up doors instead of swing-out; they want air-ride instead of springs, and so on. Also, there’s another factor that I’ve noticed: fleets are selling some of their used equipment down into the States, spurred by our weak Canadian dollar. You know, $5000 US becomes $7500 Canadian really quick, and there’s a good market down there for used trailers.”

Cobham’s assessment of the 1999 dry-van trailer market for Canada reflects a belief that sales will drop slightly. “We’re coming off a couple exceptional years, and my guess is that we may see a drop of 3500 to 4000 trailers of all types, nationwide, this year,” he suggests. “But that still won’t be a bad performance at all, historically.” Cobham estimates total trailer sales in Canada at 25,000 units, give or take a thousand.

The exit of Mond as a Canadian-controlled trailer manufacturer and the return of Trailmobile to Canada is ironic, since Mond was able to grow in large part because of the void left by Trailmobile when it ceased operations here nearly seven years ago.

“Trailmobile had operated a plant in Brantford, Ont., for many years,” says one longtime industry observer, “and they produced a good, solid trailer there. Then-in the late Eighties, I think it was, soon after they’d had an employee pension-plan buy-out-Trailmobile tried to acquire Fruehauf Canada, which had a plant in Ingersoll, Ont., and was up for sale because Fruehauf in the States was retrenching. Problem was, the Canadian federal government got involved, and basically killed the deal by adding a lot of strings-because of fears of lack of competition, I believe.”

Soon thereafter, the Canada-U.S. Free Trade Agreement was implemented, followed by a recession. Among the casualties were Fruehauf Canada, Trailmobile Canada, and Roussy Inc., based in London, Ont. That left just Quebec-based Manac, started in the 1960s when a steel company-Canam-found it couldn’t get the kind of trailers it needed for that business and decided to design and build its own. The company began marketing into Ontario in the late 1970s, and established a second production facility, at Orangeville, Ont., four years ago.

“About this time, Mond decided to aim for the big time, and expanded very quickly to try to fill the void left by the loss of those other companies,” he continues. “They were trying to build everything for everybody, and suffered a lot of growing pains: labor shortages-in quality and quantity-as well as the drawbacks of having small, fragmented assembly lines, and, it seemed, constantly changing customer focus and pricing policies.

“I’ll certainly give Mond credit for achieving a lot, and I feel they’ve developed some excellent products over the years,” our observer sums up. “But I think a merger or buy-out of this nature was inevitable, and a smart move. It should help Mond and Trailmobile acquire resources that they need, and I’ll be looking forward to following how this ‘return of Trailmobile’ to the Canadian manufacturing scene plays out across the market.”

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