Plastic Omnium CEO: Plastics have a bright future

Laurent Favre has stepped into the CEO job at Plastic Omnium as the first nonmember of the Burelle family to hold the job and at a time the company is looking at ways to control costs in an auto industry that is not expected to see growth for the next few years.

Plastic Omnium told investors Jan. 7 that it expects "no rebound" in the global automotive market in the next three years, and the company will need to manage its cost structure to ensure profitable operations, but will post higher earnings and revenue for 2019, but a lower operating margin.

Revenue would be about 9 billion euros ($10 billion), up from 8.2 billion euros, Plastic Omnium said.

"With no expected rebound in the worldwide automotive market over the next 3 years, this will firstly require the proactive management of our cost structure and the strengthening of our balance sheet," Favre said in a news release.

Global auto production will fall by 2 percent in 2020 and remain stable in 2021-22, the company said.

Plastic Omnium will focus on reducing debt and will cap investments at 6 percent of revenue, the company said.

Short-term cash flow had been hurt by issues with a new factory in Greer, S.C., the supplier said. The difficulties at the factory led Plastic Omnium to cut its 2019 outlook to 6 percent.

Plastic Omnium supplies blow molded fuel tanks and injection molded functional exterior parts, such as grilles and front-end modules through its HBPO joint venture.

In North America, its Plastic Omnium Auto Exteriors LLC group is No. 16 in Plastics News' most recent ranking of injection molders with an estimated $425 million in sales. Its fuel tank business, Plastic Omnium Auto Inergy Division ranks No. 6 among North American blow molders in PN data, with $1.4 billion in sales.

Favre, 48, who started in his post on Jan. 1, was most recently CEO of the automotive division at Benteler, which makes structural parts. He has also held management posts at ThyssenKrupp and ZF in his 23-year automotive career. Favre spoke to Automotive News Europe Correspondent Peter Sigal about his vision for the supplier.

Q: What is your first task at Plastic Omnium?
Favre: It's about continuing the successful growth of the company. Plastic Omnium had 1.5 billion euros ($1.8 billion) in revenue in 2001, when Laurent Burelle took over the CEO position, and in 2019 we'll be at more than 9 billion euros ($10 billion), which is a fantastic story. The automotive industry is facing many major changes like never before, but I'm convinced that they are great opportunities for Plastic Omnium — because we have a very healthy balance sheet and because we are a market leader in all our businesses. We have a global footprint with more than 130 factories; we have more than 20 R&D centers around the world. Our base is a perfect fit with the automotive industry.

Q: Do you have a vision for the company in five years, or even longer term?
Farve: One of the characteristics of Plastic Omnium is that we are long-term driven, mainly because we have a very stable and solid shareholder structure. I believe that the future of mobility is clean and connected, and that's where we want to play a major role. We think we're still able to gain market share, but the next step will be to increase content per car. That means integrating functions and working with customers in more and more complex assemblies.

Q: What's an example of integrated components?
Farve: Today Plastic Omnium is producing products; tomorrow we want to produce functions. That means integrating radar, lidar or lighting, for example, into our exterior systems. We are doing that in our cooperation with Hella for bumpers and with Brose for doors. That's really the transformation we are working on, from a product supplier to a function supplier.

Q: Plastic Omnium has three main units — Clean Energy, Intelligent Exteriors and Modules. How do you see them developing?
Farve: In exteriors, in addition to integrating functions, we're focusing on lightweighting and aerodynamics, which helps customers improve their CO2 emissions and increase range for electric cars. In clean energy, we have solutions for hybrid technology, such as fuel tanks for plug-in hybrids that are very complex. We've also been investing in hydrogen fuel cell technology. In front-end modules, we're the leader with our HBPO joint venture (with Hella), and we're developing new modules to increase the content per car, for example to add cockpits or DC-to-DC converters for hybrid cars.

Q: What is different about your tanks for plug-in hybrids?
Farve: You need to think about deformation when the car is running on pure electric power, so the tanks have internal reinforcements. It's also about acoustics, because you need to prevent the slosh noise from the gasoline. All the additional technologies we bring into this PHEV tank creates higher content for Plastic Omnium.

Q: How do you see your fuel cell order book developing?
Farve: We take a longer view of the market for fuel cells. We have invested about 200 million euros ($222.6 million) in hydrogen technologies since 2016, we have R&D centers in Europe and China, and we have many strategic partnerships and a dedicated business unit for new energies. We are coming from tanks, where we're the market leader for combustion engines. We already have an order from a German manufacturer to develop a 350-bar tank and we are the first player to have a 700-bar certified pressurized tank. Tanks are only the first steps, because we see a market for 2 million vehicles by 2030. So our long-term target is to be able to supply the complete system.

We think that hydrogen will be one of the major clean mobility solutions. It will probably be combined with batteries, in a kind of hybrid system. Wider use will start with buses and trucks, then with fleets, but it will be mainstream in the long term.

Q: Other companies are working to deliver a complete fuel cell system, too. What are Plastic Omnium's advantages?
Farve: First of all, it's good to see others entering the market. It demonstrates that we are on the right path and that the technology has a future. Where we can differentiate is that we've started ahead of many others; we already have the tank technology, an important step in terms of safety. We have also partnerships and have invested recently in AP Ventures, a venture capital fund dedicated to hydrogen.

Q: Plastic Omnium has a big China business. Have you had to adjust to the slowing market there?
Farve: We continue to grow in China, and in 2019 it was the country where we outperformed the market the most. In the first nine months of 2019, the market was down 13 percent, but we grew by 4 percent. We don't see a recovery in 2020 but our growth will still be solid. We have 26 factories in China and we've launched a R&D center in Wuhan, focusing on hydrogen; we are covering all the main clusters; and we have a balanced portfolio between global and domestic automakers.

Q: How do you see the European market?
Farve: The European market is facing two main challenges: First, it's saturated, so volume growth opportunities are limited. Second, because of CO2 targets and local pollution regulations, all the engine options are available but consumers are a bit lost in this complexity. For those reasons we think the market will decline in 2020. We're adapting our cost structure but we'll continue to grow by increasing content per vehicle thanks to our innovations.

Q: Will you be affected by Brexit?
Farve: We have factories in the United Kingdom and Jaguar Land Rover is one of our major customers, but we produce in the U.K. for their U.K. factories and in Slovakia for the factory there, so we're not dependent on what's happening with Brexit. One of our strengths is that we produce where the customers are, so we can balance risks that way.

Q: The idea of sustainability is becoming more important. As a company that uses plastics, are you working on those issues?
Farve: We produce systems with functions integrated. So actually, plastics is only 9 percent of our total purchase. On the other hand, delivering plastic components like bumpers and tailgates is a huge contribution for automakers to lower emissions. These parts are lighter than equivalent steel parts. We have also been decisive in the area of corporate and social responsibility, and part of it is reducing CO2 emissions not only in how we produce but also in our complete supply chain.

Q: Are you researching biomass plastics and other renewable alternatives?
Farve: Yes, but a big part of what we do produce we can recycle, almost 90 percent, including scrap. It's a balance we need to find, because we need to make sure a renewable material has the same kind of properties in terms of resistance and elasticity as traditional plastics. We also have to consider processes and costs.

Q: Regarding lightweighting, is there any way you can quantify some of the gains?
Favre: If you take a bumper or tailgate made of steel, you will save 30 percent using plastic. Think of a simple equation: When you're able to reduce the weight of the car 10 kilograms you can save one gram of CO2. We think we can extend that from the bumper to the tailgate and then to the door to the roof. It's also a question of aerodynamics and design, because you can form plastic into shapes that you can't do with metal.

Q: In the future, if we have autonomous vehicles and many fewer accidents, we might not need so much steel in a vehicle?
Favre: Plastics is the only material that is 100 percent transparent to radar waves. The autonomous car, full of radar, lidar and sensors, will be made of plastic parts with connectivity integrated. That indicates that plastic has a bright future.