AIR-CON: TRACS on market

By: Ian Porter


Supplier pieces together the remnants of two flailing enterprises to create TRACS

AIR-CON: TRACS on market
Air-conditioning mechanic Paul McCormack works safely on pod repairs at TRAC’s Melbourne facility

There is usually a very good reason why large companies sell off smaller parts of their operations — the prospects for those smaller parts tend to be not very good.

So what would the outlook be for a two-man outfit made up of not one, but two, castoffs?

Forget about silk purses. How could you make any kind of working purse by stitching together two sow’s ears?

Well, it has been done, and the results are looking promising.

From a small management buyout in Perth in 1999, the two owners of Transit Refrigeration and Air Conditioning Services (TRACS) have built the company up from five employees and $5 million in turnover to 80 employees and $25 million in turnover.

What’s more, thanks to careful market analysis and some brave strategy, TRACS is now positioned to be able to take advantage not only of the Australian market but also those in North America and Europe and other countries.

A significant part of this success has been via a relationship with Perth’s Bus and Coach International (BCI), which resulted in TRACS being able to position its employees on bus production lines in China, first at BCI and more recently at the 100 per cent Chinese-owned plants of BLK, Yutong, Higer and Golden Dragon.

There have been hiccoughs along the way, and the company’s strategic plan is two years behind schedule, but TRACS will soon be supervising the installation of more air-conditioning units in buses bound for markets outside Australia than at home.

GETTING THE PARTY STARTED

The company got going in 1999 when Futuris Corporation subsidiary Air International sold its Western Australian service operation after Carrier Transicold cancelled Air International’s distribution franchise.

"That used to represent about 50 per cent of the sales, certainly in WA," says Garry Platt, managing director of TRACS and one of the two Air International executives who bought the WA operation. The other was Brett Claus, who had been operations manager in Perth for Air International.

"Carrier pulled the deal, making some of Air International’s state offices, South Australia and WA, not viable, so they were quite keen to sell it to us and see how much money we could lose."

At that point TRACS was doing transport refrigeration, upgrading air-conditioning on giant mining trucks and also some bus air-conditioning service work. Gradually it enlarged its network, opening offices in Queensland and Victoria.

In 2009, Carrier was back, this time offering TRACS the national distribution dealership for Carrier bus air-conditioning.

TRACS grabbed it, only to learn the full story in 2010 — Carrier withdrew completely from bus air-conditioning around the world.

While it may have looked as though TRACS had been left holding the baby, Carrier’s sell-off not only opened the doors to North America and Europe, it brought to TRACS the man who held the keys to those doors.

Carrier sold the European part of its bus air-conditioning business to private German vehicle heating company Eberspaecher and the North American part to Mobility Climate Control in the United States.

With Carrier out of bus air-conditioning, Melbourne-based Carrier veteran Gavin Blight had nothing to do, so he crossed to TRACS where he is now managing director of the TRACS subsidiary in China, Climatic Technologies International.

"I had the relationship with Carrier people in Germany," Blight says. "Garry and I went to Germany and set up the Australia and New Zealand dealership for the old Carrier products, now branded Eberspaecher Suetrak."

The other half of Carrier was sold in 2011 to Mobile Climate Control (MCC) in the US and TRACS has become MCC’s agent in Australia, too.

"So, pretty much, I now have the Carrier network back together for Australia and NZ under the one roof. Eberspaecher and MCC are competitors in other parts of the world."

Carrier was in the Australian market for 20 years, so there are plenty of buses out there needing spares and service. TRACS can now access most of the spares it needs from Eberspaecher and MCC, although it services virtually every kind of air-conditioning system.

"We could see the market changing, with more and more vehicles coming in from China," Blight says.

That meant opportunities to supply air-conditioning to Australian-made buses were going to dwindle.

RELATIONS WITH CHINA

Blight says thanks to his relationship with BCI, owned by Perth entrepreneur Ron Nazzari, Boyd Denning and others, TRACS got an opportunity to operate in China.

Even during his Carrier days there were issues with poor installation of air-conditioning systems on buses coming to Australia.

"There were so many problems, because the Chinese do not understand heating and climate control within an air-conditioning unit. Even today they can still put a cooling unit on the roof and heating on the floor," Blight says.

"What we identified was that if we were able to control the selection of the system and its installation in China, and then support the product when it got to Australia, we would have a much better program. That’s what we did.

"I had a fairly strong relationship with the people at BCI, who were setting up a new factory at Xiamen in Fujian Province. We approached them and told them our business model and what we planned to do."

The end result is that TRACS has an office in Shanghai to deliver systems designed in Australia and ensure they are sourced and installed properly in China.

The company imports Eberspaecher rooftop units into China, or MCC units from North America, depending on which market the bus is going to, and augments those with carefully vetted parts from Chinese suppliers, including compressors and piping.

"We supply the air-con systems to any bus body builder in China, then supervise and install the product, and we do a full final commissioning," Blight says.

It’s a system that works well, and is recognised in the industry as a success, so much so that others have tried to copy it.

Platt says another air-conditioning supplier he had talked to had tried to emulate what TRACS is doing.

"It was disastrous. They couldn’t get it to work."

Platt reckons the difference is that TRACS has Chinese technicians reporting direct to Australian management, so there is a level of understanding between the TRACS people and the body builder’s employees.

"I think the other company went in with a Western mentality where they were trying to control the body builder’s guys."

Platt says TRACS is now in the right place to capitalise on the increasing export effort by Chinese body builders.

The overseas buyers will not buy a bus unless they know the engine, transmission, air-conditioning and other systems will be supported in the operator’s market.

This will require a culture change for the Chinese bus builders, he says. Up to now, their idea of support if something broke was to send you a new part.

"You have to fit it. That’s their idea of support," he says.

The use of components made by well-known international companies is not just limited to air-conditioning systems, Blight says.

Chinese bus builders are increasingly using engines and transmissions made by leading manufacturers because it makes it easier to sell a bus to an overseas market.

This increased focus on export has raised the profile of Eberspaecher and MCC and, therefore, demand for TRACS’ service.

The TRACS supervisors now travel across China, to wherever Eberspaecher or MCC units are being fitted.

"We have also grown so that we are now doing the BLK product and we are also doing vehicles for Yutong that are going to the US and to Higer and Golden Dragon for Europe and the Middle East," Platt says.

"In 2015, we will have a few more body builders who are looking to export."

Platt says the Chinese bus industry is a close-knit community, where companies owned by family members or executives are often awarded contracts without open tender.

This will make it hard to crack the market for buses sold within China, Platt says, just like it has been in the Australian market.

MARKET SWITCHING OVER

TRACS has been trying to crack the Australian new bus market, but the body builders "had their supply chains and they were comfortable with them".

"We would have gone broke trying to rely on that Australian side of the business. In the four years since we acquired the Carrier business, we have probably put through 700 units.

"We would never have sold 700 units if we had chased the local body builders."

TRACS is still selling more units for buses coming to Australia than for buses headed to other markets, but Platt reckons that will switch around soon.

"If you look at our projections, it’s about 250 buses to Australia and 100 to other markets this year.

"We believe that will switch around. Three years ago our five-year plan had us supporting more units in the field overseas than for Australia but we have had a couple of setbacks," Platt says.

Some third-party deals fell through in China, volumes did not happen and TRACS is now effectively in year two of the five-year plan.

"We are probably on year two of the plan although we are in our fourth year of operations," he says.

The TRACS story is not as simple as an importer just bringing in cheap products and driving local manufacturers out of the market.

By assisting BCI to overcome its problems, this company made up of rejected parts, has put itself in a unique position to share in some of the success being enjoyed by China-based bus builders.

It might not yet be silk, but the purse TRACS has built already has to contain $25 million a year, and might need to expand further in the near future.

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