Interior component suppliers have been consolidating for years, but when automotive seating giants Johnson Controls Inc. and Lear Seating Corp. both acquired major companies last summer, tongues started wagging: Was the long-predicted trend toward supplier-developed interiors finally happening? Were big first-tier suppliers going to buy up all the second tier so they could just drop-ship whole interior modules to the Big Three? Had automakers suddenly decided to concentrate on developing engines, bodies and chassis components, outsourcing the rest?
Then there were even more acquisitions. In late September, automotive carpet supplier Collins & Aikman Corp. announced it was buying Manchester Plastics, a producer of automotive door panels, headrests, floor console systems "as the first step of a comprehensive strategy to accelerate the growth of its automotive trim business."
Now another acquisition is rumored to be in the works at JCI. What gives?
Nothing earthshaking, most insiders say. Ford Motor Co. Chairman Alex Trotman doesn't have to worry about getting any unsolicited next-generation Taurus interiors in his "in" box yet. Chrysler Corp. Chairman Bob Eaton doesn't have to worry about being glad-handed by suppliers with new Neon interiors under their arm.
That's not to diminish the progress being made, or to downplay the big plans many interior suppliers have, but a sea-change in the way auto interiors are developed and delivered in the U.S. still seems a long way off, although third-world "emerging markets" may be a different story.
Instead, most of the consolidation push seems to be driven by the suppliers' need to globalize and quickly acquire new technology and processes, their own growth plans, and the push by many automakers to cut the number of their direct suppliers. Probably the biggest reason for seatmakers' recent orgy of acquisitions: Outsourcing of complete seat systems by OEMs has peaked and is starting to taper off, industry executives say.
That means seat suppliers in particular need bigger, more value-added modules or "chunks" of the interior (as some suppliers call them) to continue their strong growth; that's the near-term goal of much of this acquisition activity. That, plus the ability to win a greater variety of parts: good for growth and smart insurance in case a competitor wins the part you had your eye on. For example, General Motors Corp.'s Delphi Interior and Lighting Systems, which makes numerous interior components -- including seats -- won the contract for the instrument panel on the upcoming Mercedes-Benz AAV being built in Alabama. JCI won the contract for the seats and the headliner. It doesn't make instrument panels.
Getting bigger chunks clearly is the motive behind Lear's purchase of Automotive Industries, which had revenues of $512 million in 1994. "We are -- and have been -- aggressive in looking for opportunities," says Chairman Kenneth L. Way. Lear will use the purchase of AI -- and possibly other companies in the future -- to approach the market in three phases, he says. The first would be using synergies between product lines to save customers money by simplifying assembly and freight costs. That could mean such things as bundling adjacent parts, such as seats and door trim panels, and shipping them together, in sequence, to an assembly plant.
The medium-term goal is to design and supply component modules. The long-term, third phase is to sell complete interior "sets." Mr. Way says Lear could be producing these by the end of the decade, but he recognizes that myriad issues have to be settled before that happens.
Among them: Assembly plants might have to change the sequence in which they install major components, and numerous labor union issues would have to be resolved. Because of this, Mr. Way hints the first complete interior module applications would likely be in developing markets such as Asia/Pacific or Latin America.
Winning bigger chunks of interior business also clearly is the motive behind Collins & Aikman's $144 million purchase of Manchester Plastics, the sole operating unit of Larizza Industries Inc. Collins & Aikman is a big producer of carpet, floor mats, luggage compartment trim and seat fabrics. Chairman Thomas E. Hannah knows there's only so much value you can add to these types of products. "The Manchester acquisition will deepen our product line and also complement the other dimension of our automotive growth strategy, which is to develop European production capabilities for both existing and new product lines," he says.
JCI spokesman Jeffrey P. Steiner won't comment on rumors his company is negotiating another major acquisition, but he's quick to point out that JCI also has been aggressively -- albeit a bit more quietly than Lear -- expanding in the marketplace. In June 1995 it purchased a majority interest in Roth Freres SA, a major supplier of seating and interior components based in France with annual sales of $600 million. That substantially increases JCI's component-making abilities and its global footprint.
While JCI is known mainly as a seat supplier, Mr. Steiner points out that JCI supplies 100% of the door trim panels for Toyota Motor Corp.'s North American Camry, Avalon and Tacoma vehicles through a joint venture with Japan-based Araco called Trim Masters Inc. He also says JCI has major headliner programs with GM, Chrysler and Nissan Motor Mfg. Corp. U.S.A. and could be the No. 2 headliner producer in North America by 1998, second only to Davidson-Textron Corp.
In fact, JCI soon will be showing off an innovative headliner concept featuring an integrated "surround sound" speaker system. Developed with OnActive Technologies of Linthicum, MD, in which it is making an undisclosed financial investment, the new headliner promises automotive interior designers the chance to reduce complexity and weight often associated with high-end car sound systems.
JCI also is a major producer of interior trim components such as load floors, armrests, package trays and instrument panel cluster covers, Mr. Steiner says.
Despite JCI's growing component-making capabilities, Mr. Steiner is not overly enthusiastic about developing entire vehicle interiors -- unless automakers make it clear that's what they want. So far, that really hasn't happened.
Even automakers who say they want supplier-developed interiors don't really mean it, says one veteran supplier executive. "They'll say, `Yes, this is what we want.' But when the rubber hits the road, what they really want is somebody to manage the program, not just drop-ship this big-ass thing," he says.
Lon Offenbacher, director of product engineering for Delphi Interior and Lighting, also is a bit skeptical of the concept of major OEMs handing over total responsibility for design and development of complete vehicle interiors -- even though he says Delphi is the best equipped company to do it.
Unlike most other interior suppliers, Delphi's product lineup includes IPs, safety-restraint systems, steering wheels, door modules and other major interior components in addition to seats and trim.
Delphi has developed complete interiors "three or four times, with varying levels of empowerment," he says. And while he's ready to do it again, he says handing over that much responsibility still is too big a leap for most well-established automakers. However, he says "we are seeing market opportunities" with less-established OEMs in emerging markets.
Modules are where real near-term opportunities lie, Mr. Offenbacher says, running off a list of new Delphi products from seat systems "the first real interior module" to Delphi's instrument panel "cockpit module" and Super Plug door module.
Where interior system suppliers can gain further ground in the near-term, Mr. Offenbacher says, is by helping major OEMs execute their interior designs better and tieing the separate modules together more seamlessly, both from a fit and finish standpoint and by simplifying wiring and connections.
"We're focusing on styling fidelity," he says. "At the front end, we're trying to capture what the stylist wants, then document it in product specs, and have checks on that. Along the way you might have to say `I've got to change this.' We then go back and let them know."
The key to being a successful fully integrated supplier is the ability to give the customer what he wants, Mr. Offenbacher says. "We've learned that customers are going to define what level of modularity they want. We'll drop-ship you a whole interior, pre-fitted and pre-tested, but what the customer may really want is that you just put the glove-box door on the IP."
By the way, not all tier-two companies are pining away, waiting to be wooed by big first-tier suitors, in any case.
"It would probably kill us to be part of a tier one," says Todd McCallum, a spokesman for The Woodbridge Group, a major producer of seating foam. "We supply Lear, JCI and Delphi. If we were to join up with any of one of those guys, it wouldn't help us. We don't see Woodbridge being acquired by anybody."