Starcraft Corporation Business Information, Profile, and History

Company Perspectives:

Our commitment, with utmost integrity, is to continually improve quality, innovation, safety, service and value. Our focus is to exceed the expectations of our customers, associates, community and shareholders. We will remain the worldwide manufacturer of choice in custom, automotive-related products.

History of Starcraft Corporation

Starcraft Corporation, through its joint-venture ownership interest in Tecstar Inc., is a leading supplier to the original equipment manufacturer (OEM) automotive supply market. As a "second-stage manufacturer," Starcraft's Tecstar receives new trucks and sports utility vehicles (SUVs) from General Motors and then outfits them with high-end groupings of bumpers, mirrors, wheels, grills, rocker panels, and other items, before returning the vehicles to GM for sale to the public. Starcraft also supplies after-market parts and accessories to wholesale and retail customers throughout North America. Once known for its fishing boats and then for its van conversions, Starcraft has again regrouped and shed those businesses to focus on the OEM market.

Early History

The forerunner to Starcraft Corporation, the Star Tank Company, was founded in 1903 in Goshen, Indiana, a tiny town near the Michigan border. Its founder, Arthur Schrock, first began the business to manufacture metal feeding and watering tanks for livestock. In the 1920s, however, Schrock broadened his manufacturing operation to include aluminum boats, and the company was renamed Star Tank and Boat. In the mid-1960s, the company diversified yet again, entering the recreational vehicle industry with a line of fold-out campers that were sold under the trade name Starcraft. The Schrock family sold the business to a conglomerate in 1969.

In 1977, the company entered a new and rapidly growing market, when it began customizing vans through a newly formed subsidiary, Starcraft Van Conversions Corporation. To convert a vehicle, the company took incomplete van chassis, obtained directly from major automotive manufacturers, and added a variety of customer-chosen features, which might include anything from curtains, to specially built seating, to coordinating upholstery and interior decor.

The vehicle conversion industry had started in the early 1970s and had gathered steam steadily through the middle of the decade. When Starcraft joined the fray in 1977, young recreational users comprised the main market for the vehicles. Starcraft bucked that trend, however. The company targeted an older market, offering an upscale luxury product for middle and upper income buyers.

The company's sales of conversions increased steadily through the 1980s, driven by the growing demand for custom luxury vans. Moreover, the Starcraft name became well-known for high quality in design and implementation. In 1987, Star Tank and Boat's management team acquired the company in an expensive leveraged buyout that left it heavily in debt. The following year, the new management sold off the company's boat-building business, Starcraft Power Boats, to Brunswick Corporation, one of the nation's largest boat and marine engine producers. The financial picture did not improve, however, and in November 1990, Starcraft filed for Chapter 11 bankruptcy protection. The company was auctioned by the bankruptcy court and purchased by Kelly Rose, an entrepreneur from northern Indiana, and his partner Stephen Kash.

Coming up Roses in the Early 1990s

Rose was a resident of Elkhart, Indiana, a city just northwest of Goshen. In 1977, he had cofounded an electronics supply business in Elkhart that catered to the van conversion industry. By 1990, however, he had sold his interest in the electronics company and was ripe for a new challenge. As soon as Starcraft filed for bankruptcy, Rose knew he wanted it. "I wanted to buy Starcraft badly," he said in a September 1994 interview with Indiana Business Magazine. "There's no other company that enjoys as much of an elite reputation," he explained. Rose enlisted Kash, who worked in the conversion business in Elkhart, as a partner and made the purchase. Simultaneously, he sold Starcraft's recreational vehicle business to a third-party RV company, Jayco.

Rose made major changes at Starcraft, hiring new upper-level management and restructuring its production process. Sinking more than $2.5 million into capital improvements, he converted the company's manufacturing floor into team-centered production lines. A firm believer in employee empowerment, Rose also implemented a more bottom-up style of management. Striving to give his employees the tools they needed to be successful, he instituted "Starcraft U"--a series of classes on business skills, which were held in onsite classrooms.

Under Rose, Starcraft's fortunes quickly reversed. For the 49 weeks ending December 29, 1991, the company posted a $1.3 million profit on sales of $43.5 million. The numbers for 1992 were even more encouraging: a $2.9 million profit on $57.4 million in sales. In 1993, Rose took the company public in an offering that generated approximately $13 million.

Mid-1990s Diversification and Innovation

Since it had begun converting vehicles in the late 1970s, Starcraft had established a reputation for its high-end custom vans. The market for these luxury vans was particularly strong through the boom years of the 1980s, when discretionary income was high and consumer spending grew steadily. By the early 1990s, however, consumer confidence in the economy was growing shaky, and the spending spree was drawing to an end. As consumers grew more cautious in their buying habits and more sensitive to price, the market for more affordable vehicles outstripped the luxury market. To respond to the market shift, in 1994 Starcraft purchased Imperial Industries, Inc., a maker of lower-priced conversions. With the inclusion of the Imperial line, Starcraft was positioned to offer a full line of vehicles that fit a wide range of budgets. In 1995, the company built a state-of-the-art, 110,000-square foot factory in Goshen for its newly purchased subsidiary.

Starcraft caught national media attention in the mid-1990s with the introduction of the Integrated Seat Belt, a new safety feature for its custom vans. The IBS was a new belt designed to prevent seat-back failure during rear-impact collisions. In addition to the conventional lap belt and shoulder harness, the IBS incorporated a second belt that ran through the seat back. In lab and crash tests, the system held the seat back in an upright position during impact, preventing crash-test dummies from slamming backward. IBS was named one of the 100 most technologically significant new products of 1994 by R&D Magazine and was featured in 1995 on a nationally televised segment of Inside Edition.

Starcraft had sales of $81.6 million in 1994, and profits of $3.8 million, an increase of 13 percent over 1993. Unfortunately, it would be the last increase in profits for several years to come, as a trend was beginning that would prove seriously detrimental to the van-conversion industry. Sport utility vehicles were taking over the automotive market.

Market Downturns and New Opportunities in the 1990s

The movement toward sports utility vehicles (SUV) and pickup trucks had been gathering momentum for several years. Since Ford first introduced its Explorer in 1990, SUV sales had skyrocketed, growing 130 percent by 1996. By the middle of the 1990s, consumer obsession with the boxy SUVs had drawn buyers away from full-sized vans, which were the bread and butter of the conversion industry.

Not surprisingly, as sales of van conversions were faltering, sales of SUV and pickup conversions were climbing. Starcraft addressed this trend by opening a new manufacturing operation--Starcraft Southwest--to specialize in conversion pickups and sport utility vehicles. Based in McGregor, Texas, Starcraft Southwest marketed its products under the trade name Lonestar. In 1995, it began developing special conversion packages for the Ford Explorer and Ford Windstar minivan. The following year, the company was asked to develop luxury conversions for the Jeep Grand Cherokee and the Plymouth Voyager, marking the first time it had ever worked with Jeep and Plymouth. Starcraft also worked with GMC to develop a new conversion package for the Jimmy sport utility vehicle.

Already reeling from the effects of the SUV craze, the conversion industry was further hurt by a shortage of key chassis. GM's production of full-size vans decreased by 22 percent in 1995, significantly curtailing the number of van chassis available for conversion. The following year, all three major automakers cut back their production of light trucks, limiting the number of chassis available to fill orders for minivans, SUVs, and pickup trucks. This chassis shortage was worsened by an extended General Motors strike in the spring of 1996.

In October 1996, faced with declining sales and the need to trim costs, Starcraft announced its plan to consolidate its Imperial and Starcraft manufacturing operations. Imperial was moved into Starcraft's 650,000-square-foot facility in Goshen, thereby reducing overhead and allowing for integration of engineering and production.

Such cost-containment strategies could not counterbalance the effect of the market slump. Net earnings declined by 27 percent in 1995, then plummeted 96 percent in 1996. Still, Starcraft fared much better than its competitors, remaining profitable and debt-free while most conversion companies slid deep into red ink. By the end of 1996, there were approximately 100 van upfitters in the United States; just ten years earlier, there had been more than 2,000.

In early 1997, Starcraft began looking for new income sources to offset the shrinking sales of its van-conversion business. Its first such effort was the acquisition of National Mobility Corp., an Elkhart, Indiana-based manufacturer of modified vans for the disabled. Founded in 1992, National Mobility specialized in making minivans wheelchair accessible by lowering the rear floor and installing fold-out ramps. Most of the company's sales were made to taxi fleets, government agencies, and private transit companies that served healthcare organizations. Once the National Mobility acquisition was complete, Starcraft established a new retail division to handle the subsidiary's products and began selling them through a dealer network.

The market for van conversions continued to decline in 1997. In addition, the demand for SUV and pickup truck conversions had also fallen off. As a result, Starcraft decided to close its Texas operation, and the company's Goshen plant took over manufacture of the vehicles previously sold under the Lonestar name. Starcraft closed out 1997 with total sales of $99 million, a decrease of 12.5 percent over 1996. The company posted a net loss of $11.3 million for the year.

Starcraft expanded its product line again in 1998, when it began producing shuttle buses. The buses, which were marketed under the Starcraft name, ranged in length from 20 to 35 feet and contained seating for 12 to 25 passengers. Starcraft offered a range of features on the vehicles, including interior and exterior storage compartments, wheelchair lifts, and various seat types and arrangements. The primary markets served by the company's new enterprise were nursing homes, churches, and hotel resorts.

A second 1998 initiative took Starcraft into the taxicab market. In the early part of the year, the company partnered with GM's Chevrolet division to convert Venture minivans into taxis. To convert the vans, Starcraft replaced their sliding side doors with hinged ones, added temperature controls in the passenger area, and installed a plexiglass shield behind the driver's seat. The first converted Venture taxis were shipped to New York City in February for a trial period, and another batch went to Chicago for a similar trial. The endeavor proved successful, and in April of that year both the New York and Chicago Taxi Commissions approved the Starcraft Taxicab Minivan, opening the door for Starcraft to further penetrate the cab market in those two cities.

Starcraft formed a second partnership in 1998 with Troy, Michigan-based engineering firm Wheel to Wheel, Inc., which specialized in building show cars and engineering prototypes for General Motors. The joint venture, named Tecstar, Inc., was formed to win a three-year contract with Chevrolet to upfit its 1999 S10 Xtreme pickup. Under the contract, Tecstar would add ground effects, wheels, and badging to the standard S10 trucks, and Chevrolet would then market them as factory vehicles. The arrangement marked a change in the way Starcraft had historically marketed and sold its products. "This is a significant event for Starcraft, enabling us to participate directly in the OEM market for the first time and benefit from the marketing expertise and national advertising strength of Chevrolet," Rose said in a February 17, 1998 press release. "The Xtreme program," he added, "has brought Starcraft into the Tier 1 automotive business." Tecstar leased a manufacturing facility in Shreveport, Louisiana, near the GM plant that produced the S10. In the fall of 1998, Tecstar won another General Motors contract, this one to outfit two new versions of the Chevrolet Tahoe. The company leased 100,000 square feet of production space in Grand Prairie, Texas, near the Arlington, Texas GM plant that produced the Tahoe.

Starcraft's total sales for 1998 were $53.1 million, down 26.5 percent from 1997. For the second year in a row, the company posted a loss, albeit a smaller one than in 1997. The loss was primarily attributable to the continuing slowdown in the vehicle conversion market; during 1998, the company's conversion sales declined 27 percent. Conversely, Starcraft's National Mobility sales grew 39 percent.

2000 and Beyond

Recognizing the need to continue developing and nurturing new businesses and products as the conversion industry dried up, Starcraft entered the 2000s focused on cost-containment and diversification. As the demand for SUVs continued to increase in the United States, Starcraft expanded its facility in Grand Prairie, Texas, to 192,000 square feet, where Tecstar produced up-fit appearance packages for the GM Suburban and the GM Tahoe. The demand for up-fit, or customization, packages showed no sign of abating, and had even grown to become a $3.2 billion industry in which Starcraft was gaining significant ground.

Thus, Starcraft sold its conversion assets and turned its attention to conversion vehicle parts sales and building vehicle appearance packages for OEM. In October 2003, Starcraft and its partner in Tecstar, Wheel to Wheel Inc., merged, with Tecstar becoming a wholly owned subsidiary of Starcraft. CEO Kelly Rose remarked that Tecstar provided "substantially all of the revenues and net income of Starcraft Corporation. This move enables us to become a single-focus company with improved financial flexibility." Rose expected the merger to strength shareholder value. At the end of fiscal year 2003, Starcraft annual revenues rose to $192 million, an increase of 84 percent from the previous year. The company's financial picture had improved dramatically. More importantly, after posting a loss of $3 million in 2001, the company was able to report a profit in 2003 of $3 million. Industry analysts took note of the remarkable turnaround.

Having exited the van conversion business, Starcraft nevertheless formed Conversion Warranty, Inc., in 2002, to provide all van conversion customers one central source to serve their service and parts replacement needs. Starcraft and IPMCO Technologies, Inc., of California, jointly formed Powertrain Integration LLS, in July 2004. With this partnership, Starcraft planned to better meet the emissions needs of low-volume, on-highway vehicle applications, including delivery vehicles, motorhomes, buses, military, and other light and medium duty vehicle applications. IMPCO Technologies supplied advance alternative fuel systems and designed systems for clean burning gaseous fuels.

In 2004 Starcraft hit a bump in the road when third quarter profits dropped dramatically. Like all automotive parts suppliers, Starcraft was experiencing the effects of the decline in the U.S. auto industry. Moreover, Starcraft's Canadian operations, which produced equipment for the Chevrolet Silverado, saw dramatically reduced sales during this time. Management expressed disappointment with the financial performance but remained optimistic that its business would realize long-term growth.

Principal Subsidiaries: Tecstar Inc.; Starcraft Automotive Group Inc.

Principal Competitors: ASC Inc.

Chronology

• Key Dates:
• 1903: Star Tank is founded as a farm equipment manufacturer.
• 1920: Company begins manufacturing fishing boats.
• 1956: Starcraft is incorporated.
• 1964: Starcraft introduces a pop-up camper.
• 1977: Company begins doing van conversions.
• 1988: Company sells its boat division.
• 1990: Starcraft files Chapter 11.
• 1993: Starcraft reemerges as a public company specializing in van conversions.
• 1998: Tecstar, a joint venture with an engineering firm, is formed.
• 2001: Starcraft divests its van conversion business to focus on Tecstar's operations.