Collins & Aikman Corp. is looking to reduce its costs and beef up its capabilities through a series of initiatives, including outsourcing up to 30 percent of its engineering work overseas, adding resin compounding and adding some in-mold decorating.
The combination is intended to strengthen the financial base of a company struggling to turn a profit, while drawing in more customers, Chief Executive Officer and Chairman David Stockman said during a May 6 conference call.
The Troy, Mich.-based auto supplier has struggled with its bottom line since its 2001 purchase of injection molding giant Textron Automotive Co. Inc.'s trim division.
For the first quarter of 2004, the company posted a record $1.06 billion in sales, but also saw a net loss of $23.3 million because of restructuring combined with start-up costs for upgraded facilities and new contracts.
That follows a loss of $57.5 million for all of 2003, on sales of $3.98 billion.
Although the company has improved its profitability, the ``slow progress'' has been ``very unsatisfactory,'' Stockman said.
Last year, the firm cut 750 white-collar jobs. Further cost cutting is available by outsourcing engineering work to India, he said.
C&A racks up more than 2 million hours of engineering and design work annually, he said.
Transferring up to 30 percent of that work to India during the next eight to 12 quarters will reduce engineering and design costs by 60-80 percent.
``We are not on the leading edge of this [offshore engineering trend], but we think we're up front and understand that this is a rising imperative,'' Stockman said.
Hiring a North American engineer costs about $120,000 annually, including salary and benefits, he said. A comparable engineer in India costs $20,000-$30,000.
``This is not a passing fad,'' he said. ``This is a core strategic initiative we believe - not only from a cost point of view - will make us far more competitive, far more capable and a far more interesting supplier from our customers' point of view.''
The company just launched pilot production at its own compounding facility in Belleville, Ontario, while also developing an in-house applique decoration business at its Port Huron, Mich., injection molding operation.
At its revamped Michigan factory, which also has two new low-pressure injection molding lines, the firm wants to begin making its own interior trim finishing pieces featuring wood grain or metallic looks. C&A is supplying the instrument panel, console and other parts of the new Chrysler 300C sedan, but another supplier makes the faux tortoise shell trim used to highlight the upscale car's overall look.
``This vertical integration will get two birds with one stone, with sharply lower costs for our customers and increased opportunities for C&A,'' Stockman said.
At its resin compounding unit, the firm plans to reduce its costs by buying cheaper resins, then fine-tuning them to its own specifications, he said. The company also will be able to introduce its own proprietary resin blends. The first batches from Belleville are going into a blend with a smaller pellet size to aid in processing cover skins for instrument panels and doors.
``We can compound to our own recipes, rather than paying the markup for specialties,'' Stockman said.
The firm has been hit by higher raw material costs during the past few months, from the steel used in structural support, fasteners and clips to the oil that goes into dashboard systems and nylon carpet.
``There has been a bit of a squeeze on our margins,'' he said. ``We are faced right now with the equivalent of a 50-year flood in our commodity prices.''