Walbro Corp.'s high debt levels and slow production starts for new fuel-tank factories have stock analysts and credit-rating agencies nervous.
But the company says a corporate belt-tightening will straighten out its problems.
Walbro, based in Cass City, Mich., posted a $37 million net loss for 1997 on sales of $620 million. The firm said the loss was caused in large part by a fourth-quarter restructuring charge of $27 million.
The restructuring, launched in November, includes shedding some underperforming operations and about 400 employees — 10 percent of its work force.
Walbro has been investing in new plants and equipment to provide automakers with complete fuel systems, from the tank forward to the fuel rails. It also has extended its reach into Europe, South America and Asia. But the supplier concedes that some of the new capacity was put in place before orders came on stream.
``We got a bit ahead of the market, but we expect over the next few years we will fill that capacity,'' Chief Financial Officer Michael Shope said. ``We have a very positive outlook.''
Financing all that new capacity is a big part of Walbro's current problems, said Alexander Paris, an analyst with Barrington Research in Chicago.
``They really got themselves heavily leveraged up in getting there,'' he said in an interview with Automotive News, a Plastics News sister publication. ``They exacted a big burden on themselves.''
Start-up costs have piled up. Walbro's Ossian, Ind., fuel tank plant was built ``long before the business became available,'' Paris said.
Although the company is confident of putting the new plants to work, it also has made itself vulnerable, Paris said. ``The risk is if you get hit with an automotive downturn when you're leveraged like this,'' he said.
Walbro's major business is fuel systems, which are made up of blow molded fuel tanks, fuel pumps, fuel-level sensors and plastic fuel rails. The company also makes carburetors and ignition systems for small engines.
On March 6, Walbro suspended its quarterly common stock dividend of 10 cents per share. Three days later, Standard & Poor's revised its outlook on the firm from stable to negative. S&P cited a number of adverse factors about the company, including new-product launch delays, excess production capacity, heavy start-up expenses and a downturn in the two-wheeled vehicle market in China.
Walbro's financial leverage is ``high,'' with debt representing 75 percent of its book capitalization, Moody's Investor Service said late last year. In a review of the company, Moody's downgraded one Walbro debt issue. But the agency cited a stable outlook for the company based on ``strong management and growth opportunities, particularly in plastic fuel tanks.''
While Walbro added capacity, the market has become more competitive with efficient, technologically advanced suppliers chasing new business, said Richard Hilgert, an analyst with Fahnestock & Co. Inc. in Detroit.
``They're doing the right things to get the company back on track,'' he said. ``But in the coming months, the market is going to get more difficult for them with new competitors coming onto the scene.''
Walbro's chief competitors in the fuel-tank market are Solvay SA, Plastic Omnium Industries Inc., Visteon Automotive Systems and Kautex Textron, a unit of Textron Automotive Co. Textron's recent acquisition of Kautex ``makes it a more financially sound competitor,'' Shope said.
Ford Motor Co. also is investing in new blow molded fuel-tank capacity. The automaker plans to sink $139 million into its Milan, Mich., plant to make multilayer tanks. Multilayer tanks contain fumes better than single-layer plastic fuel tanks.
Chrysler Corp. and Ford are Walbro's biggest customers. The supplier has won new contracts that give it reason for optimism. Walbro recently was awarded new fuel-tank business on a variety of General Motors vehicle platforms, including Saturn, Chevrolet Monte Carlo and Impala, small pickups and full-sized sport utility vehicles.
Walbro said it also will supply fuel tanks for the new Mercedes-Benz C class and a complete fuel-tank system for the Dodge Durango sport utility vehicle. And the supplier also has won business for the first time with Honda Motor Co. Ltd., Toyota Motor Corp. and Ssangyong Motor Co. Ltd.
Shope said Walbro's joint venture to make fuel tanks with minority suppliers in Detroit was progressing ``full speed ahead.'' GM and Chrysler have given the joint venture, known as Vitec, about $680 million in contracts. Shope said Vitec's $50 million plant in Detroit is under construction.
