Lear Corp. and Donnelly Corp., two of the world's largest injection molders, have banded together to create a new company that will make complete interior overhead systems for vehicles.
The 50-50 joint venture will operate under the name Lear-Donnelly Overhead Systems LLC as an independent entity serving automakers as well as other Tier 1 suppliers. Besides integrated systems, the new company will make overhead parts for noncompeting suppliers.
Both publicly traded companies are investing $25 million to start the company, which will operate from three existing injection molding plants and one under construction. Annual sales for the first year of operation are expected to approach $100 million, said spokesman Randy Boileau of Holland, Mich.-based Donnelly. The venture will employ about 600.
The agreement, signed Sept. 3, will pit the companies against Johnson Controls Inc. of Milwaukee, a leading supplier of overhead systems. JCI and its Prince Automotive subsidiary in Holland make about 2.5 million integrated overhead systems annually, according to JCI spokesman Jeff Steiner.
Several other suppliers, including United Technologies Automotive of Dearborn, Mich., and Textron Automotive Co. of Troy, Mich., also make integrated overhead systems on a smaller-volume basis.
The potential overhead system market amounts to about $5 billion worldwide, according to Lear estimates.
The jointly owned company will fuel growth in modular systems, which automakers have requested from key suppliers. The systems require minimal assembly by automakers on a vehicle's chassis.
The venture is one of the first—and certainly the largest—among North American auto suppliers that is geared almost exclusively to systems, said consultant Donna Parolini of International Business Development Corp. in Troy, Mich.
``This is a very good indicator of future growth in that area,'' Parolini said. ``It's a brilliant idea, but not many American companies will let go of their egos long enough to work with someone else.''
An overhead system includes a thermoplastic headliner and substrate; an overhead console that can feature injection molded assist handles, air outlets and grab handles; plastic sun visors; courtesy map lights; and electronic systems, such as a temperature reading device or compass.
Currently, Southfield, Mich.-based Lear makes all overhead system components except for lighting systems, electronic components and accompanying wire harnesses, said Lear spokesman Tony DeLorenzo.
Donnelly makes both interior lighting and overhead trim components at its plants included in the joint venture, Boileau said. Electronic components will come from other Donnelly plants.
The global agreement includes Lear plants in Marlette, Mich., and Prestice in the Czech Republic and a Donnelly facility in Holland.
Another Donnelly plant near Dublin, Ireland, also will be part of the venture when it is completed in mid-1998, Boileau said. That plant is being built to accommodate a recent $200 million contract from an undisclosed European automaker for interior lighting and trim components.
Details on square footage and injection molding equipment for the plants were not disclosed.
In overhead systems, Donnelly does a major chunk of its work for Ford Motor Co., while Lear's main customers include Chrysler Corp., Ford, Honda Motor Co. Ltd. and Toyota Motor Corp., according to industry sources.
Lear has only about 3 percent of the headliner market, which is expected to grow, said David Andrea, equity analyst with Detroit-based Roney & Co. Meanwhile, Donnelly's trim and lighting systems business was a high-growth area for the company, Andrea said.
``If you consider the global orientation of Lear and the number of programs they are bidding on, this opens more doors for Donnelly,'' Andrea said. ``On the flip side, Donnelly will now only share half the profits at those plants.''
As part of the agreement, the companies will share technology, collaborate on design and development, and market overhead system components to automakers.
The agreement is contingent upon regulatory approval, but the suppliers are setting up a management team, Boileau said.
``Production is in place and we're ready to move ahead,'' he said. ``We clearly see that, in the next several years, Tier 1 automotive suppliers will continue to consolidate and be controlled by a handful of multimillion-dollar companies. This is our opportunity to remain a Tier 1 supplier by doing a joint venture with another strong partner.''
From Lear's standpoint, the agreement will help the large supplier compete globally in overhead systems, DeLorenzo said.
Lear was second and Donnelly seventh among North American injection molders during 1996, according to Plastics News' sales-based ranking. Lear recorded $615 million in 1996 North American injection molding sales, while Donnelly had $391.3 million as of its June 30, 1996, fiscal year-end.
Overall, Lear recorded 1996 sales of $6.2 billion at more than 150 facilities, while Donnelly reaped $700 million in 1996 sales at 28 facilities.
