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Suppliers Argue Merits of Private Ownership

TRAVERSE CITY, MI A workshop on supplier strategy for success at the Management Briefing Seminars here implies, perhaps unintentionally, that private ownership is an advantage because it allows long-term decision-making and investment in intellectual property. "At (Robert) Bosch (GmbH), when we talk about quarters, we mean a quarter century," John Moloney, vice-president-strategic planning for the

More MBS Coverage TRAVERSE CITY, MI – A workshop on supplier strategy for success at the Management Briefing Seminars here implies, perhaps unintentionally, that private ownership is an advantage because it allows long-term decision-making and investment in intellectual property.

"At (Robert) Bosch (GmbH), when we talk about quarters, we mean a quarter century," John Moloney, vice-president-strategic planning for the Americas region, says.

John Moloney,
Bosch

Bosch, controlled by a private foundation, is insulated from the pressure of banks, brokers and the press. Publicly held companies would find it more difficult to push products such as an antilock braking system, which took 15 years to grow from its introduction in 1978, into a significant high-volume business, Moloney says.

All three suppliers making presentations on their success strategy – Yazaki North America Inc., Bosch and Cooper Standard Automotive – are privately held; Yazaki and Bosch for generations and Cooper since Dec. 23, 2004, when Cooper Tire & Rubber Co. spun it off to Goldman Sachs and The Cypress Group, a private equity investor.

Mark Short,
Ernst and Young

The trend toward private equity taking over supplier companies likely will continue, says Mark Short, a partner at Ernst and Young's global automotive center. "Somebody thinks there is value out there," he says.

Of the 19 automotive supplier transactions worth more than $100 million in the 12 months ending May 30, 15 involved buyers were from outside the automotive supply base. Short says as Tier 1 suppliers look at their portfolios to focus on businesses they do best, they probably will find private equity buyers.

Daron Gifford,
Gedas

Daron Gifford, automotive vice-president for information technology supplier Gedas, says private equity gets involved because, "they believe they can challenge the way business is done."

The exchange exasperated Bosch's Moloney. "The auto industry is only growing 1%-2% a year. I don't get it. Why do they (private equity) look at this and not other industries that are growing faster?"

Bosch, he says, will seek most of its growth from non-automotive businesses in the coming years.

Short says it is wrong to conclude publicly held suppliers are handicapped by their ownership because the financial world expects short-term results.

"They have pressure on them that unfairly impacts decisions management makes," says Short, sometimes doing things for short-term gains that hurt the long term. Privately held companies can make bad decisions too, but they are made without the pressure of public scrutiny.

Colleen Haley,
Yazaki

Both Yazaki and Bosch say another strength of their companies is a wide customer base. Bosch's biggest customer represents 12% of its revenue. Yazaki, says former U.S. purchasing director Colleen Haley, has products in half the cars made in the world and wiring harnesses in one-third of them.

Creating intellectual property is a common denominator of the three companies on the panel.

Ed Hasler,
Cooper Standard

Cooper Standard's Ed Hasler, president of global sealing systems, says his company always is working on one or two "game-changing" patented products or technologies.

"They have a life of two or three years before other people figure a way around them," he says. "We think intellectual property is a differentiator."

At his annual review, Hasler says the company CEO wants to know how much he has earned and how much cash flow he has generated, but reminds him to resist the temptation to reduce investment in order to boost annual numbers.

"You can't take the wheat and use it for bread instead of planting a crop for next year," he warns.

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