Simoncini ldquoCustomers get nervousrdquo when uncertainty in supply sector Full View Photography

Simoncini: “Customers get nervous” when uncertainty in supply sector.

Interiors Uncertainty Could Benefit Lear, CEO Says

“Everybody’s trying to figure out where the business goes as far as Johnson Controls,” Lear’s Simoncini says.

TRAVERSE CITY, MI – The recent changes in the North American interior-supplier sector could have positive implications for Lear.

“I think whenever there’s uncertainty in an organization, and that organization happens to be your competitor, it’s good for you,” Lear CEO Matt Simoncini tells WardsAuto following his speech here Thursday at the 2015 CAR Management Briefing Seminars.

Lear’s North American Tier 1 competitor, U.S.-based Johnson Controls, this spring finalized a joint venture with China’s Yangfeng Automotive Trim Systems in which JCI will hold a minority stake, effectively exiting the auto-interiors business.

“Everybody’s trying to figure out where the business goes as far as Johnson Controls,” Simoncini says. “What management team is going to be there and how long the transaction is going to take, and really the whole theme is they’re doing this to be able to invest in the business, and that investment will require a level of financial flexibility.

“When there’s that level of uncertainty on (vehicle) programs that are sourced three years in advance of production and run for another five years-plus, customers get nervous.”

Another Lear Tier 1 North American competitor, Canada’s Magna, announced in April plans to sell its interiors operations to Spain’s Grupo Antolin.

Magna is retaining its seating business, a sector Lear still participates in after divesting the remainder of its interiors division to investor Wilbur Ross, who coupled it with the remains of Collins & Aikman to form International Automotive Components Group North America in 2007. Since then, IAC has bolted on 15 smaller acquisitions.

Simoncini believes excess capacity largely has been to blame for North American interior-supplier volatility.

“(Consolidation) was driven by a lot of excess capacity and desperation in the supply community to sell, and ultimately to sell at a variable margin, which just brought the collective profitability and the ability to sustain those components down to zero.”

Simoncini believes consolidation needs to continue, as does early collaboration in the interior space.

“That’ll be the key to getting that sub-segment sustainable,” he says.

The Lear CEO tells the crowd during the final day of MBS consolidation generally is a good thing for the supplier community, allowing synergies and better utilization of capital and engineering resources that can lead to a better product.

“Our ability with (the January acquisition of leather supplier) Eagle Ottawa allows us to understand how a seat performs and how the sewing impacts the seat cover and its interaction with the foam and seat, so I think in general consolidation is good,” he says of the Eagle Ottawa deal.

However, spin-offs tend to be problematic for the supply base.

“Spin-offs are bad,” Simoncini says. “I think it is financial engineering, and it makes the supply base riskier. That’s a bad thing ultimately for car companies.”

The Lear executive, along with purchasing officials from General Motors, FCA US and Toyota, express fears the supply base might be getting stretched too thin given the continued high rate of auto sales globally.

“When I think of suppliers running at 110% or 120% (of their capacity) I get scared,” says Bob Young, vice president-purchasing for Toyota Motor Engineering & Mfg. North America. “We still have some suppliers that I think are running at the upper limit of what they can run successfully.”

Toyota, he says, is talking with those suppliers about how it can support them through incremental tooling and investment.

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