Maybe it is time for auto suppliers and industry watchers to take a step back and catch their breath. Despite what has seemed like a relentless onslaught of bad news lately, Jim Orchard thinks the worst may be nearly over.
``On a global scale, this is a very robust business,'' said Orchard, president of Faurecia North America, the Troy, Mich.-based unit of auto supplier Faurecia SA, at Ward's Auto Interiors Show, held June 7 in Detroit. ``This is a business not to be afraid of, even for those who may have had a tough couple of years in Detroit.''
The biggest industry shakeups - the bankruptcies of top interior suppliers like Venture Holdings Co. LLC, Collins & Aikman Corp. and Delphi Corp., and the pending sale of publicly traded firms such as Lear Corp. - are just about over, he said.
``The consolidation of interior Tier 1s, one way or another, will be complete in 2008,'' he said.
Faurecia is a relatively new player on the North American front, but is expanding. It recently opened its seventh new plant in the past year - an interior-trim facility in Lansing, Mich.
Globally, Nanterre, France-based Faurecia has $15 billion in sales, with $1.9 billion in North America last year.
Production in North America has stagnated at about 16 million vehicles annually, with the traditional automakers based in and around Detroit losing market share to cars and trucks made by Japanese and European-based rivals.
But Orchard noted that 16 million is a very strong number, and global production overall is climbing, from an estimated 40 million vehicles in 2003 to more than 60 million expected by 2010 and 80 million before 2020.
Orchard noted he is not alone in finding business potential.
Publicly traded companies such as Faurecia, Magna International Ltd. and Johnson Controls Inc. are committed to auto interiors, he said. Private equity backers, meanwhile, are betting their money and reputation on the industry too.
``Private equity will be financing the restructuring of the interiors market in North America,'' he said.
Cadence, backed by private equity firms Harbinger Capital Partners and Yucaipa Cos., was created out of the remains of Venture and is in talks to buy parts of bankrupt Collins & Aikman, he noted.
Financier Wilbur Ross has created International Automotive Components Group and bought parts of Lear and other C&A operations. He has been followed into the industry by Ira Rennert, whose Renco Group Inc. is in talks to buy Delphi's interiors unit, and Lear has agreed to a buyout from American Real Estate Partners LP, led by Carl Icahn.
``They see the value of refinancing and rebuilding these companies and they're going to go about it,'' Orchard said. ``We should not be afraid of private equity. We should be thankful that private equity has the money and the will to step in and rebuild our interiors business. Let's stop bitching about it, OK?''
Things are a little darker for smaller firms, Orchard noted. Faurecia has spent ``millions'' of dollars to support its struggling supply base just this year, he said.
``Tier 2s are about in the place that Tier 1s were last year,'' Orchard said. ``It's going to be difficult for them, but I believe that it will sort itself out by the end of 2008 in one way or another, and then I believe we'll have a much more stable base.''
And as the industry rebuilds, Orchard also said firms need to find more ways to cooperate and survive in the long run.
Orchard, who also is vice chairman of the Original Equipment Suppliers Association, said there should be a way for companies to market dormant patents - innovations they are not using, but that could be of use to other firms. The value in licensing such technology is better than letting it sit on a shelf, he said.
Industrywide cooperation also could lessen difficulties with the overcapacity of injection molding presses, he said.
``Let's put all the Detroit excess injection molding capacity in a pool, so that I know that if I've got a need for a certain type of press, there are five open presses available. There has got to be a value between the money that you're losing on your idle press, and my need to buy a press that we can agree to.''
It would not be an easy move, Orchard said, but it is an example of how companies can help each other.