Power to grow

By expanding its distribution, adding dealers and offering new products, Waukesha-based Generac Power Systems Inc. was able to grow its sales during the first nine months of 2009.

The company had about $434 million in sales between January and the end of September, 2009, compared with $401.6 million in sales for the same period in 2008, according to filings with the U.S. Securities and Exchange Commission (SEC).

Generac, a manufacturer of residential and commercial backup generators, has about 1,400 employees between three facilities in Waukesha and Walworth counties.
The company is expected to raise as much as $300 million through an initial public offering during the first quarter of 2010.
Generac is owned by CCMP Capital Advisors LP, a New York-based private equity firm.
Generac and other U.S.-based manufacturers can expect to see continued improvement in 2010, according to Aaron Jagdfeld, president and chief executive officer of the company.
“With a weak dollar, export volume should increase – it makes our cost more attractive,” he said. “In the short run, that points to recovery for U.S. manufacturing demand.”
Almost all of Generac’s sales are in North America, and a significant portion of the company’s recent sales have been to residential customers. Historically, almost all residential sales have been made through dealers’ showrooms or home improvement chains such as Home Depot and Lowe’s.
However, there was a significant shift toward online buying last year, Jadgfeld said, with some customers purchasing $3,000 home backup power generators over the Internet. While online sales present a significant opportunity for consumer products, they also present their own challenges.
“Now we have to be better at demonstrating and marketing our products online,” he said. “There is a whole different way of imaging and displaying online. How do we replicate the process and experience (of interacting with a product in a store) online?”
Most of Generac’s hopes for 2010 are tied to residential sales, as demand for its large commercial generators is expected to remain flat. The company sells its larger units to retail stores, manufacturers, corporate offices and data centers, hospitals, government buildings, financial centers and other facilities that cannot be without electricity.
“Government and health care will outperform. We’re concerned about all of the other sectors,” Jagdfeld said. “We don’t see a major rebound in non-residential construction until late 2010 or early 2011. We hope that the consumer is there this year.”
Manufacturers have to cope with short-term realities that could threaten their businesses, Jagdfeld said.
“With the consumer, there is the prospect of weak demand,” Jagdfeld said. “So much of our economy is tied to the consumer, and when you add the psyche of unemployment and lower home values, until that improves. we do worry about U.S. consumer demand.”
Changes to national energy policy, environmental protection and a rising federal deficit also could damage the American manufacturing sector, Jagdfeld said.
“In the long term, a weak dollar can’t prop up exporting,” he said. “That’s not a good long-term policy for growth. And the deficit puts a lot of pressure on the dollar, long-term.”
Many U.S. manufacturers, including a significant number of Milwaukee-based firms, have outsourced portions of their manufacturing and assembly to lower-cost countries such as China, Vietnam and Mexico. Manufacturers, particularly those dealing with highly engineered products, need to carefully consider the amount of work they send offshore, Jagdfeld said.
“Companies have things that are core to their business, things they do better than anyone else,” he said. “For us, it’s our engines and alternators. We have to make sure that we’re not sending too much (offshore), so that we don’t lose control. Instead, we try to automate as much as we can.”
U.S.-based manufacturers need to continue to invest in research and development to maintain their edge over foreign competition, while using foreign outsourcing where it makes sense, Jagdfeld said.
Part of the innovation process needs to involve “voice of the customer” feedback, where companies create processes to gather information from customers, which can lead to new features, options and even new products, he said.
“The culture of innovation is something that manufacturers have had to embrace,” Jagdfeld said. “You can take your tried and true products, and while we may not do all of the manufacturing ourselves any more, the ideas have to come from here.”

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