Auto suppliers shed struggling noncore units

David Sedgwick
AUTOMOTIVE NEWS

Published: December 17, 2013 11:40 am ET
Updated: December 17, 2013 11:43 am ET

Related to this story

Topics Automotive, Mergers & Acquisitions

DETROIT — At Visteon’s headquarters in a western suburb, technicians are preparing a durability test for the audio speakers in a set of four pickup doors.

The four white door panels are installed in jigs, which will jiggle every latch and handle until something breaks. This is standard test procedure for an automotive supplier, but for the workers in Building 25 it’s a new lease on life.

This year CEO Tim Leuliette announced Visteon’s electronics unit would be one of the company’s two core operations, along with heating, ventilation and air conditioning systems. Both divisions have passed two key tests: Each is profitable, and each is global.

“These are strong businesses ... with strong global positions,” Leuliette told Automotive News. Automakers “are looking for suppliers that have a global presence and the technology to bring value.”

You can boil this strategy down to three precepts:

1. Strive to be No. 1 or No. 2 in each product category.

2. Each product must be profitable; no “loss leaders” allowed.

3. If you can’t afford the R&D, sell the operation to someone who can.

Like Visteon, many suppliers no longer want to be an automotive “department store” that stocks every major component.

Companies such as Delphi Automotive and Johnson Controls Inc., behemoths once known for vast product lines, are selling noncore divisions so they can focus on their specialties.

“It’s better to be smaller and more profitable than larger and less profitable,” said Leuliette.

This trend is mostly good news for automakers. By focusing on core products, suppliers can afford bigger investments in R&D and global production.

By contrast, vendors that market a wide variety of components often offer low prices for so-so technology. In the long run, a supplier that spreads itself thin risks financial ruin — like Visteon, after Ford Motor Co. spun it off in 2000.

At the time, Visteon was a $19 billion giant that produced seats, interior trim, batteries, HVAC systems, instrument panels, headlights and more.

Narrower focus

Saddled with high labor costs and a hodgepodge of products, Visteon filed for Chapter 11 bankruptcy protection in 2009. The company is smaller now, with revenues of $6.9 billion last year. When Visteon sells its interiors unit, it will shrink more. And that doesn’t bother Leuliette one bit.

There are other megasuppliers — such as Continental AG, Denso Corp. and Magna International Inc. — that have the deep pockets to be successful suppliers of multiple products.

But some major players are narrowing their focus. Consider the seating industry. Fifteen years ago, Lear Corp. and Johnson Controls vied to be one-stop suppliers of complete automotive interiors: seats, instrument panels, consoles, door panels, headliners and flooring.

Automakers refused to concede so much control to one supplier. So Lear subsequently dumped its unprofitable interiors unit so it could focus on seats and wire harnesses.

And now Johnson Controls is considering “strategic options” for its interiors business, and has announced plans to sell its electronics unit, which produces anti-theft devices, tire pressure monitors, instrument clusters, control modules and infotainment displays.

The electronics division is profitable — but that’s not enough, says Kim Metcalf-Kupres, JCI’s chief marketing officer. Electronics is a fast-moving segment that requires big investments in R&D, she noted.

Johnson Controls is reluctant to invest in a segment it can’t dominate.

“We believe to be successful, we have to play to win — to be a market leader,” said Metcalf-Kupres. “Our electronics business has been quite profitable, but we are a niche player.”

In September, Johnson Controls sold Homelink — a garage-door opener mounted on the rearview mirror — to Gentex, a company that specializes in rearview mirrors and gadgetry that can be integrated with them, such as rear-facing cameras.

By the second quarter of 2014 at the latest, Johnson Controls expects to unload the rest of its electronics operation, Metcalf-Kupres said.

And which supplier might bid on JCI’s remaining electronics business? None other than Delphi Automotive, once considered to be the auto industry’s definitive department store.

When General Motors spun off its parts operation in 2000, Delphi produced thousands of different products. After a wrenching four year-bankruptcy, the company shrank from 131 product lines to 33.

One of its four core operations is electronics — engine control units, infotainment, collision avoidance sensors and the like.

Now, a profitable Delphi has the cash to make “bolt-on” acquisitions, says Jeffrey Owens, chief technology officer.

According to Owens, Delphi is focusing on possible acquisitions that would complement one of Delphi’s core segments.

Delphi is not interested in fixer-uppers. “We want to avoid any acquisitions that would be a distraction” for Delphi’s management, Owens said.

Owens declined to confirm that Delphi is bidding for Johnson Controls’ electronics operation. But he didn’t try to discourage the rumors. “We have plenty of dry powder for a bolt-on acquisition,” Owens said.

A complete version of this story is available at autonews.com.


Comments

Auto suppliers shed struggling noncore units

David Sedgwick
AUTOMOTIVE NEWS

Published: December 17, 2013 11:40 am ET
Updated: December 17, 2013 11:43 am ET

Post Your Comments


Back to story


More stories

Krahn Chemie acquires Italy's Pietro Carini

April 15, 2014 11:20 am ET

Germany's Krahn Chemie GmbH has purchased a majority share in Italy-based speciality chemical company Pietro Carini SpA.    More

Image

RKW buys Hyplast, folds into RKW Agri

April 15, 2014 11:13 am ET

RKW SE, a Germany-based films and flexible packaging group, has announced it has acquired Belgium's Hyplast NV.    More

Polypipe shares rise on opening day of IPO

April 15, 2014 11:06 am ET

Polypipe Group plc saw its share prices rise during its first day of public trading on the London Stock Exchange, rising from 245 pence ($4.10) to...    More

Image

US equipment firm buys Negri Bossi

April 14, 2014 1:58 pm ET

Italian plastics equipment major Sacmi Group's offerings are getting a U.S. identity. Sacmi has sold its plastics division to Kingsbury Corp., a...    More

Mexico reports rising auto production

April 14, 2014 1:18 pm ET

MEXICO CITY — Mexico’s automotive industry assembled an unprecedented 774,731 light vehicles in the first quarter, 6.5 percent up on the 7...    More

Market Reports

Thermoformed Packaging 2014 Market Review & Outlook North America

This in-depth report provides analysis and discussions of economic and political conditions, market trends, legislative/regulatory activity impacting supply and demand, business opportunities and threats, materials pricing, manufacturing technology, as well as strategies being implemented by thermoformed packaging companies. In addition, there are reviews of 25 leading thermoformers in the packaging segment, assessing their growth initiatives and performance metrics over 10 years.

Learn more

Automotive Market Review and Outlook 2014 The Americas

This 75-page report features in-depth analysis of the automotive industry for the Americas. It includes discussions of market trends, legislative/regulatory activity impacting production and threats as well as design strategies being implemented by the major automakers. Detailed charts and data tables outline North American automotive production over the last five years.

Learn more

Plastics Building & Construction Market Review and Outlook 2014 with MS Excel chart data

This report provides in-depth analysis of the plastic building and construction market for North America, including discussions of trends, opportunities, threats and the latest developments in construction trends that impact plastics processors.

Learn more

Upcoming Plastics News Events

May 6, 2014 - May 8, 2014Plastics in Medical Devices 2014

May 12, 2014 - May 12, 2014Plastics News Brazil Pharma Summit

September 10, 2014 - September 12, 2014Plastics Caps & Closures 2014

February 3, 2015 - February 7, 2015Plastics News Executive Forum 2015

More Events