Lear Corp.'s proposed purchase of United Technologies Automotive could be perceived as a deal made in heaven.
The sale, announced March 17 for $2.3 billion, takes Southfield, Mich.-based Lear to a high roost among automotive suppliers. The company becomes the first supplier with the products to back up its claims that cockpit modules — assembling an entire interior package under one roof — truly are the future.
One thing is certain, the company has put its money where its mouth is. Lear fills in some product voids that have kept it from making complete interiors. It adds Dearborn, Mich.-based UTA's molded instrument panels and headliners and its equally critical electrical systems.
But to call Lear's purchase bold or gutsy does not really capture its essence. To call it a fateful leap forward, fraught with uncertainties but potentially insightful, could be more to the point.
Since its acquisition of molder Automotive Industries Inc. in 1995, Lear, a former seating company, has rocketed to the top among plastic injection molders. The speed of its rise shows remarkable aplomb, even in an age where auto suppliers either pursue others or perish.
Plastics holds the key at Lear. The company, and other outsized interiors suppliers, believe that the ability to mold complete interiors from thermoplastics saves innumerable time and cost.
It could be door modules or instrument panels or overhead systems or even the whole interior shooting match, molded by Lear and sent in one piece to a carmaker to drop into a vehicle's frame.
That's the part that shows vision. With the sale, no other interior supplier can boast the same product depth in-house, at least in North America. Bitter rival Johnson Controls Inc. is close but does not yet have the same instrument-panel resources on this continent.
But with the sale comes uncertainty. Of late, Lear has been streamlining its operations, closing some plants and laying off staff, to become both leaner and to avoid duplication of effort.
Now, it takes on UTA, a company with $2.9 billion in sales and efficiency issues of its own. Will Lear have to redouble its restructuring efforts? The company also gains staggering debt, with a 70 percent debt-to-capital ratio.
And then there's the issue of size. Carmakers have yet to buy entirely into suppliers' ideas of making whole interiors. Lear's customers are taking a show-me approach on cost savings that Lear and others say will occur.
Right now, many carmakers would prefer to shop programs to several suppliers. That way, through bidding, carmakers believe they can reap competitive cost savings.
Still, the ranks of large interior suppliers are dwindling. Other companies, including JCI and Magna Interior Systems, might feel the need to respond to Lear's challenge.
That will continue to make the interiors field the land of a few giants. Or, in the words of partner Craig Fitzgerald of accounting firm Plante & Moran LLP in Southfield, Mich.:
``It is a last-man-standing strategy. The suppliers beat the heck out of each other, and whoever is in the ring at the end of the fight wins.''
Lear might collect a few bloody noses along the way. But it has just bulked up for a title fight.