Profitability, Consolidation Coming Soon for IAC

DEARBORN, MI – International Automotive Components Group is about to become significantly bigger with the acquisition of 16 North American plants once part of Collins & Aikman Corp.’s Soft Trim division, with approval expected within two months.

But that growth will be temporary, as consolidating manufacturing sites and the workforce in an effort to achieve profitability will be a top priority after the deal closes, says James Kamsickas, president and CEO of IAC Group North America.

IAC was formed in April from Lear Corp.’s interior systems division, which was acquired by billionaire Wilbur Ross, who is among several private-equity investors seeking opportunities in the distressed automotive sector.

Although Collins & Aikman, which has been in bankruptcy since May 2005, and Lear have struggled to achieve profitability in North America, Ross says similar operations from the two companies can be combined into a viable entity.

Getting there, however, will not be easy, Kamsickas says. Without the C&A plants in North America, IAC has 18 U.S. manufacturing sites, most of them in Ohio, Michigan and Indiana. All the facilities, except for one, have union agreements.

Factor in 16 more C&A plants in the U.S., Canada and Mexico, and the need to close plants becomes evident.

“Inevitably, there will be more consolidation,” Kamsickas tells Ward’s at a media event at its North American headquarters here. “It’s unfortunate. The toughest thing I have to do in my career is make that decision. But for the bigger picture, it will make the whole stronger in the long term.”

James Kamsickas

Until the acquisition of the C&A Soft Trim plants is complete, Kamsickas says it is too early to estimate how many plants could close. He says his sales team is working hard to fill all the plants with as much business as possible.

One of the former Lear plants already has closed (in Northville, OH), and another closure has been announced as well (in Mississauga, ON, Canada).

The product portfolio is focused heavily on interiors (door trim, overhead systems, visors, instrument panels, floor consoles, seat plastic, cargo management, flooring, acoustic damping materials and air ducts), as well as underhood reservoirs, taillights and fascias.

The supplier has significant content on a number of important new vehicles, including General Motors Corp.’s fullsize SUVs and pickups, Chrysler Group’s all-new minivans and the Toyota Tundra pickup.

IAC’s manufacturing footprint places its plants within 150 miles (241 km) of its customers’ facilities.

And although the supplier is being asked to quote many jobs on a global basis and seeking opportunities in low-cost countries, Kamsickas says he is confident many IAC products will need to be manufactured in North America for domestic customers and can be done cost-effectively, when shipping costs are considered.

“The IP (instrument panel) programs, the large carpet programs, the big overhead system programs; we will still manufacture them in North America,” he says. “That’s why we’re growing so strong in Mexico to be able to accomplish that.”

IAC also is acquiring C&A’s plant in Hermosillo, Mexico, which produces interior components for the Ford Fusion, Mercury Milan and Lincoln MKZ. A pricing dispute last year between Ford and C&A left the auto maker without parts, forcing it to temporarily halt vehicle production at its Hermosillo plant.

Kamsickas describes IAC’s union relationships as strong. He declines to specify starting pay at the U.S. plants but says the pay scale is well below that of the Big Three master agreement, which is under negotiation currently.

IAC is negotiating a number of new union contracts, as well, at the various plants. Kamsickas declines to say whether profitability for the company hinges directly on labor’s willingness to accept concessions in the new contracts.

IAC supplies door trim and overhead systems for Chrysler’s upcoming all-new minivans.

“We have a road map that drives us to profitability very soon,” he says.

Although the Lear side of the business (where Kamsickas worked for 18 years) has lost money in recent years, he says structural changes and waste reduction efforts have “put us on a very fast glidepath to being profitable.”

Globally, IAC has 24,000 employees and 56 facilities in 16 countries, including 21 manufacturing sites in Europe, four in South America and four in Asia (including a joint venture in China).

Yearly sales amount to $4.5 billion. C&A’s Soft Trim business currently represents about $615 million in revenue. After consolidation, Kamsickas says annual sales in North America will be about $3.5 billion.

WL Ross & Co. LLC and Franklin Mutual Advisers own 75% of the newly formed IAC, while Lear retains a 25% stake.

The company is privately held, so IAC has a smaller, more attentive group of investors to satisfy. Ross has said little publicly about his exit strategy with IAC, but Kamsickas says he is confident Ross views this as a “long-term investment.”

Kamsickas says there is little or no discussion about a potential initial public offering for the operations, and that the first priority is to fix the balance sheet.

“Our team is just laser-focused on today and making sure we make this successful,” he says. “We have enough to worry about in terms of fixing a company that was frankly losing a lot of money and turning that ship in the right direction.”

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