Lear Seating Corp. plans to keep its current plastic part supplier base intact, at least in the short term, after it buys Automotive Industries Holding Inc. of Rochester Hills, Mich. Kenneth Way, Lear Seating's chairman and chief executive officer, said Automotive Industries' broader plastics processing capabilities attracted his firm, ``but we have good suppliers now.''
Any switch of parts sourcing to Automotive Industries ``will be evolutionary and long-term,'' Way said in a telephone interview from Lear Seating's Southfield, Mich., head office. ``Automotive Industries is already running plants at a high rate.''
Way estimated Lear Seating relies on about 20 outside plastic part suppliers for its auto seating business. It has extensive urethane foam molding and thermoplastic injection molding operations but buys blow molded parts, a forte of Automotive Industries. The latter also injection molds, extrudes, thermoforms, and does rotocast molding and urethane foam molding.
The deal, a definitive merger agreement approved by both boards of directors, is contingent on the tendering of a majority of Automotive Industries shares, antitrust review and financing.
Chemical Bank agreed to finance the $33.50 per-share offerfor Automotive Industries' 18.7 million shares.
Way stressed the merger is to create a full-service interior supplier and is not a cost-cutting strategy. He said his firm has no plan to consolidate plants for at least three or four years. The merged firm will retain Auto-motive Industries' top management.
Way said Automotive Industries will be a division of Lear Seating and initially will continue to focus on auto interior trim - about 85 percent of sales - and under-the-hood components. Automotive Industries will move its engineering operation from Rochester Hills to Southfield, where Lear Seating is located.
In the longer term, Lear Seating and Automotive Industries will team up to offer full auto interior engineering and production as auto majors reduce their supplier base and push more responsibility onto Tier 1 suppliers' shoulders.
Lear Seating claims the merger will create the largest integrated interior systems Tier 1 supplier in the world. Annual sales of the two firms combined exceeded $3.6 billion last year. Lear Seating estimated the total auto and light truck interior market in North America and Europe at more than $22 billion last year.
Two contracts awarded to Magna International Inc. underline the kind of full-service support automakers increasingly will demand.
The Markham, Ontario, firm recently was awarded contracts for complete interior and exterior systems for two new sport utility vehicles, according to Graham Orr, Magna's vice president of corporate development. The contracts are worth $5,000-$6,000 per vehicle, of which Mag-na's direct value added will be $1,000-$1,500, Orr said in a telephone interview.
``We can make all the components, but we will outsource some,'' Orr said.
Magna will be program manager for the systems, one for the 1998 model year, the other for the 1999 model year. Magna's Atoma International division can handle all the interior systems work, according to Orr. Atoma accounted for about 35 percent of Magna's sales of C$3.6 billion (US$2.7 billion) for the year ended July 31, 1994.
Orr would not disclose customers for the projects, but a recent article in the Toronto Globe reported the contracts are for Ford Motor Co.'s Navigator and an unnamed GM Cadillac vehicle, each expected to sell 25,000-35,000 units per year.
Orr said the Magna projects are a test for his firm as a Tier 1 supplier but he could not predict when auto majors might routinely award complete interior contracts.
Way said when such contracts are awarded ``will be up to the customer, but it's good to be able to offer the capability.'' He said the Magna contracts are for low-volume vehicles, but Lear Seating and Automotive Industries ``will be set up for high-volume contracts.''
Lear Seating's $626.5 million merger offer was the winner in an auction for Automotive Industries, Way said.
``They looked for a buyer to help them continue to grow,'' Way told journalists during a July 17 teleconference. He did not disclose other bidders.
``This transaction represents a tremendous opportunity for both companies,'' said Auto-motive Industries President and CEO Rick Sommer in a July 17 news release.
Way hinted a deal was brewing at the July 12 press showing of the firm's technology center.
``I am firmly convinced the day is coming when no vehicle builder will make its own seats,'' Way told reporters. ``As for interiors, we'll be there when the industry is ready.''
Automotive Industries officials gave no clue a big deal was coming up when the firm announced the July 10 acquisition of interior trim producer Plastifol GmbH & Co. KG of Ebersberg, Germany. Plastifol will boost Automotive Industries' European sales to about 20 percent of its total. The rest of its sales are in North America, where it has 20 of its 25 plants.
Lear Seating estimated North America - where 45 of its 79 plants are located - will account for 71 percent of its sales in 1995. The company estimated at its tech center briefing that it held about 37 percent of the 1994 North American outsourced seat market and 27 percent of the total market. Its chief rival, Johnson Controls Inc., had 30 percent of the outsourced seat market, followed by Magna, with 11 percent in North America. Officials also said Lear Seating had 32 percent of the $2.4 billion European outsourced seat market in 1994.
In addition to creating an automotive interior powerhouse, the deal will combine two significant plastics processors. Auto-motive Industries was eighth in Plastics News' 1995 ranking of North American injection molders, with sales of $280.7 million, and seventh in Plastics News' 1994 survey of industrial blow molders, with sales of $55.7 million. The firm's blow molding plants include Fremont, Ohio; Madisonville, Ky.; and Toronto. Key injection molding plants are in Marshall, Mich.; Covington, Va.; Greencastle, Ind.; Strasburg, Va.; and Midland, Texas.
Lear Seating's main injection molding facility is in Mendon, Mich., according to Art Vartanian, vice president of advanced engineering. The operation has sales of about $100 million annually, mainly in auto parts.
Vartanian said three Lear Seating plants in Detroit, Mexico and Canada produce basic foam pads used to assemble seats. He estimated the value of plastics, including foam, is about two to three times the value of metal in its assembled seat systems. The firm made more than 5 million seat systems last year.
Holding company Onex Corp. of Toronto, the largest single Automotive Industries shareholder, with nearly 20 percent of the shares, agreed to sell its stake in the Lear Seating buyout. An Onex subsidiary bought a majority of Automotive Industries in 1990. Onex's sale of its current stake combined with previous public offerings of Automotive Industries shares will give it a 900 percent return on its original investment.