TRAVERSE CITY, MI – The global auto industry is looking at a period of “strong cash generation over the coming cycle,” says James Kamsickas, co-CEO of International Automotive Components and president of IAC Group North America and Asia.
While uncertainties are numerous, he says, three fundamental factors are aligned positively:
- Growth is assured in coming years, thanks mainly to emerging markets.
- OEMs and suppliers have improved their balance sheets by reducing debt and improving their borrowing power.
- Profits are rising, even though U.S. volumes are relatively low.
Kamsickas says he is a simple guy from a simple supplier, with a strong belief that the industry needs to “stick to basics, but make sure you know what they are. Maintain a conservative balance sheet and focus on invested capital.”
Smart capital investment is crucial, he says. While capacity has been restructured in North America and particularly in the vehicle interiors business, future investments must be made intelligently.
“Pick your spot; put it in the right location,” Kamsickas says. “You can’t overspend. Your business is cash generation. We need to focus on returns vs. margins and allocate investments across the growth regions.”
One changing element at IAC is that investments supporting recycled and lighter-weight materials are moving up in priority. The supplier also is making capacity investments where growth will occur.
Capacity to make interior systems was reduced during consolidation of the industry. Global suppliers for interiors numbered about three dozen in 2006, but that has fallen during the economic crisis to about a dozen.
IAC is a result of consolidation. Private venture capital from Wilbur Ross funded the purchase of interior operations from Lear and Collins & Aikman in 2007. Since then, IAC has made 14 other acquisitions to become a company of 22,000 employees at 90 locations worldwide.
The supplier manufactures everything for the vehicle interior “but seats and steering wheels,” says Kamsickas. Because the company is private, it can take a long-term view of investment that might be more difficult for a public company.
Customers’ image of IAC is important, starting with employees believing in their company, says Kamsickas.
To bring the different cultures of acquired companies quickly into the fold, IAC has two simple rules: “No egos, and no politics,” he says. They are easy to understand and believe in, and meant to result in better systems and support for customers.
Kamsickas says IAC ranks as the third-largest interior supplier, differing from others because it makes only interior components.
Uncertainties for the future include shortages of supplies, ballooning raw-material prices, currency volatility and rising research-and-development costs as the industry emphasizes weight reduction and new propulsion systems.
The price of crude oil is a factor in sales volume for auto makers. Thermoplastics made from oil and natural gas make up 8% of the mass of a modern vehicle, much of it in the interior, says Kamsickas.
What will prices be next year? Estimates from experts and banks range from $73 per barrel to $190, he says.