Coming Into Focus

Lear Corp., which began life as an automotive seating supplier and over the past decade expanded its portfolio to include complete interiors, is returning to its roots.

The Southfield, MI, supplier is midway through its plan to consolidate or close some 25 plants — about half in Europe and half in North America — and the plan should be fully executed by the end of this year, says Douglas DelGrosso, president and chief operating officer.

Central to the restructuring is Lear's intention to depart interior segments in which the supplier is uncompetitive: instrument panels and cockpits; door trim panels; headliners and overhead systems; and flooring and acoustics.

Instead, Lear is focusing on seats and electrical/electronic systems, such as remote keyless entry and wiring harnesses. Lear's biggest individual component sector is seats, which make up about 65% of worldwide sales, DelGrosso says.

At the recent Society of Automotive Engineers World Congress, DelGrosso unveils Lear's new “Core Dimension” product marketing strategy. Lear hopes to influence consumers' vehicle purchases by leveraging its research in areas such as comfort, craftsmanship and safety.

Like its competitors, Lear has been conducting its own consumer research to bolster that of auto makers. Armed with that data, Lear can tailor its products more successfully for the marketplace.

At the urging of certain auto makers, primarily General Motors Corp., Lear set out to become a full-service integrator capable of designing, sourcing and delivering a complete interior for a vehicle.

Lear grew rapidly to support the strategy by making some 17 acquisitions in the 1990s. The most significant deal came in 1999 with the purchase of UT Automotive, for $2.3 billion. UTA gave Lear much-needed electronics expertise.

Last year, however, GM announced it had given up on outsourcing complete interiors, moving many of its vehicle interior programs in-house. With GM changing direction, DelGrosso says Lear had to as well by returning to its core segments. GM is Lear's biggest customer, generating 28% of the supplier's 2005 revenues.

“Much of this total interior (strategy) was really to address what our major customers in North America were looking for,” he says. “They've decided to go back to a more traditional sourcing strategy.”

Lear's seating and electronics operations largely have been unaffected by this shakeup. As for the other product sectors, DelGrosso says Lear built up “a significant infrastructure, particularly in North America,” to support its customers. “We've had to dismantle that,” he says.

DelGrosso describes the door panel, instrument panel and headliner sectors as “distinct competitive environments” frequently subject to commodity pricing.

“On those types of products, we said maybe that's better left to people who want to focus solely on that,” he says.

Last October, Lear formed a joint venture with investor Wilbur Ross' private equity firm, W.L. Ross & Co. LLC, which likely will assume control of the assets Lear no longer wants. Lear has a 35% equity stake in the joint venture.

The venture is purchasing the European operations of bankrupt interior supplier Collins & Aikman Corp. DelGrosso says that sale likely will close this June, at which point Lear's non-core facilities in Europe could be combined with those of C&A.

Eventually, DelGrosso says the plan is to combine Lear's non-core assets in the U.S. with those of the bankrupt C&A.

“We think that combined business will perform better together than we would have independently.” The timeframe for this transaction depends largely on C&A.

“With C&A still in bankruptcy, we're not 100% positive Ross will be successful in acquiring those assets out of bankruptcy. Assuming he is, our estimate for that timing would be the balance of this year, maybe in 2007.”

Lear has 57 plants or warehouses in the U.S. and Canada. The $17 billion supplier reported a net loss of $1.4 billion in 2005, compared with a $422 million net profit in 2004.

Lear's difficulties stemmed largely from launches of new products for about 70% of its North American vehicle platforms, including GM's GMT900 fullsize pickups and SUVs. Lear is the sole seat producer and also supplies the door-trim panels.