Mr. Gasket Inc. Business Information, Profile, and History

History of Mr. Gasket Inc.

Throughout its more than 30 years in business, Mr. Gasket Inc. has catered to a specific market: the automotive enthusiast looking for a part or accessory that will boost his car's performance or give it a unique appearance. In 1993, after being founded and run for the better part of three decades by Joseph F. "Joe" Hrudka, the company emerged from a two-year bankruptcy reorganization in two parts. The independent Performance Industries Inc. was headquartered in Tempe, Arizona, and operated by Hrudka until 1995. Mr. Gasket continued on as a Brooklyn, Ohio-based subsidiary of Connecticut's Echlin Inc. In the mid-1990s, Mr. Gasket's product line included UltraSeal high-performance gaskets, Hurst shifters and linkage, Daytona accessories, Lakewood traction bars and bell housings; Hayes clutches, Black Magic II louvers, Rodware chrome accessories, and Bandit lug nuts and wheel accessories.

The company was founded in 1964 by 24-year-old hot rodder Joe Hrudka. Called "the epitome of the blue-collar hero" in a 1984 Cleveland Magazine profile, Hrudka had taken courses at Ohio's Bowling Green State University for a semester, then dropped out to drag race with his brother, Tom. In the course of winning back-to-back National Hot Rod Championships in 1961 and 1962, Hrudka realized that faulty exhaust gaskets were a major stumbling block to many racers. Upon investigating the problem, the young man created the durable asbestos gasket that launched his company. He started selling the parts under the Speed Specialties name in the early 1960s and incorporated his company as Mr. Gasket in 1965 in a suburb of Cleveland, Ohio.

Characterized as an obsessive workaholic, Hrudka expanded from this base into the performance niche of the replacement auto parts industry. This market segment originally targeted the professional and amateur racing crowd, but over the years it expanded its appeal to motorists interested in improving the gas mileage, handling, and styling of their vehicles. Mr. Gasket grew exponentially in its early years by catering to brand-loyal, non-price-sensitive performance enthusiasts.

Mr. Gasket's sales quintupled, from $600,000 in 1967 to $3 million in 1969, the year Hrudka sold one-third of the company's equity to the public for $2.7 million. Two years later, the founder's remaining stake earned him $6 million when Mr. Gasket was acquired by W.R. Grace & Company for a total of $17 million. Hrudka stayed with Mr. Gasket for five years after the sale, but left in 1976. Then one of the world's largest international conglomerates, Grace tried to impose modern corporate controls that had successfully been operated on a more seat-of-the-pants basis. Hrudka stayed on as the subsidiary's leader until 1976, then resigned. When his non-compete contract expired in 1981, he and some other Mr. Gasket expatriates considered starting up a competing venture. To Hrudka's surprise, Grace offered to sell most of the faltering Mr. Gasket back to its founder. The price, a bargain at $4 million, sealed the deal, and Hrudka took the company private again in 1981.

During the 1980s, Hrudka directed an acquisition spree that more than tripled Mr. Gasket's product line from 4,500 to 14,000 items. Hrudka's primary goal was to accumulate a comprehensive line of brand names well-known to performance enthusiasts. Trends that seemed to endorse this strategy included the growth of the number of performance motorists and broader channels of distribution, including auto supply chains and general merchandisers.

Before the end of 1981, Hrudka had established a subsidiary in Mexico. He funded the 1980s-era investment program that followed with a 1983 offering of 40 percent of Mr. Gasket's stock, maintaining the remaining 60 percent as his personal stake. Key acquisitions during this period included the 1984 purchase of Cal Custom and Hollywood Accessories from Allen Group Inc. for $25 million. Two years later, Mr. Gasket bought Hurst Performance, the venerable manufacturer of shifters, for $3.3 million. Other acquisitions added Cyclone, Thrush Performance, Eagle brand exhaust products; Seal-Tite, Hawk, and Interpart accessories; Rough-Country and Super Tube off-road and four-wheel-drive accessories; and Pro-Trac, Cragar, Weldwheels, and Tru Spoke tires and wheels. The company moved its growing operations to Brooklyn, Ohio, in 1985.

But the company's rapid series of acquisitions slowed dramatically that year, when Mr. Gasket experienced the first quarterly shortfalls in its history. While annual sales had grown from about $74 million in 1984 to $119.3 million by 1987, net income shrunk from $7.7 million to $2.7 million over the same period. At first, the firm blamed its stumble on a group of unprofitable products that came with the Allen Group purchase, but late in 1988, Executive Vice President Howard B. Gardner admitted to the Plain Dealer's Donald Sabath that "our problems began because we grew too fast."

Then, in 1988, Mr. Gasket experienced a $14.7 million annual loss. The company blamed the dip into the red on write-offs for excess inventory and product discontinuations (it would write off a total of $20.8 million from 1988 through 1991), but other analysts saw larger forces at work. Arthur G. Davis, an analyst with Prescott, Ball & Turben, Inc., noted that "the [auto] enthusiast today requires a computer chip to increase the horsepower of their cars. It's all high-tech and electronics today, and you can't work under a hood in the do-it-yourself market." Another commentator observed that "Detroit is adding its own accessories on new performance cars at the factory," thereby reducing the need for aftermarket parts. McDonald & Co. Securities analyst Harry W. Millis pointed out a fundamental weakness of the market, that the company's core customers, young males, "may be the first individuals to be laid off in a slow-down." Wall Street's anxiety raised another red flag; Mr. Gasket's stock slid from its 1985 peak of $18 down to $2.25 by 1988 and $1.63 by March 1991.

Things went from bad to worse in the ensuing years, as fire struck a Mexican warehouse in 1990 and rival Rally Manufacturing Inc. won a $10 million patent infringement suit against Mr. Gasket in 1991. The verdict ordered Mr. Gasket to remit $298,000 worth of Mr. Gasket profits on the products in question, $5.7 million for Rally's (estimated) lost profits and $4 million in punitive damages. The court decision coincided with the revelation that Mr. Gasket recorded its third consecutive annual loss in 1990.

In April 1991, when Mr. Gasket's lead lenders indicated that they would not extend the company's credit in order to pay the court award, the firm filed to reorganize under protection of Chapter 11 of the U.S. Bankruptcy Code. Sales continued to decline in 1991 and Mr. Gasket's losses deepened to $23 million that year. The company divested its Crager Wheel division (in 1992) and Mexican production facility (in 1993) to two separate investment groups for a total of about $13 million, applying the proceeds to debt reduction and reorganization.

The bankruptcy stretched out over two years, as two successive reorganization plans fell through. In December 1992, Mr. Gasket announced that it was selling its largest and most profitable operation, the Performance Group, to St. Louis' Harbour Group Industries Inc. for $45 million. But when Harbour cut off the talks early the following year, Mr. Gasket organized a limited partnership called Performance Parts Co. L.P. to purchase the assets for about $30 million. Mr. Gasket hoped to retain a 30 percent interest in the "new" company. Just a week later another party, Echlin Inc., made a sweeter bid, offering to pay $35 million cash and assume $1.5 million in debt in exchange for the right to assume control of Performance Parts. Echlin, of Branford, Connecticut, was a 70-year-old global manufacturer and distributor of aftermarket parts with annual sales of $1.8 billion. Echlin had proven immune to the difficulties that had plagued Mr. Gasket; despite the recession, it had recorded double-digit annual sales increases, while the rest of the industry eked out about seven percent annual growth.

The $20 million (sales) worth of businesses that remained&mdash′imarily exhaust parts interests&mdash--erged from bankruptcy in May 1993, were renamed Performance Industries, Inc. and moved to Tempe, Arizona, where Hrudka had lived for several years. (This segment of the company was later sold to Racine, Wisconsin-based Walker Manufacturing.) The businesses purchased by Echlin retained the valuable Mr. Gasket name and suburban Cleveland headquarters. Echlin merged its ACCEL and DFI performance brands with Mr. Gasket's remaining products, and installed Bob Romanelli as president of the subsidiary.

Under the management of its new parent, Mr. Gasket's sales increased from about $40 million in 1993 to about $73 million by 1995. John "Jack" McGrath assumed Mr. Gasket's presidency in October 1995. McGrath brought two decades of experience in the automotive aftermarket, having been hired away from Allied Signal's Automotive Aftermarket division. McGrath revealed his two-part plan for Mr. Gasket in a February 1996 SEMA (Specialty Equipment Market Association) News interview. He said he hoped to increase the company's penetration of the high-tech end of the market through the creation of a Custom Racing Products Group, while building on the firm's core accessory market. Improvements in marketing and distribution were keys to the program's success. McGrath boosted retail and mail-order distribution, and increased Mr. Gasket's dozen or so brands' television exposure via sponsorships of segments and spot tv ads on "Motor Trend," "Shadetree Mechanic," "Road Test Magazine," and "Inside Drag Racing." The company even started cruising the "information superhighway" with a presence on the "Motorville Online" Web site.

With the theme "Now more than ever, our name means excitement," Mr. Gasket moved into the late 1990s hoping to parlay its strong brand recognition among performance enthusiasts into consistently profitable growth.

Principal Divisions: Ultra-Seal; Mr. Gasket; Hays; Lakewood; Daytona; Hamburger's Oil Pans; Hurst; TruckWare; Rodware; ACCEL.