UTA Gets a Major Piece of GM's Delta Program Instrument panel contract isworth at least $400 million

So much for the theory that Lear Corp., Johnson Controls Inc. and Magna International Inc. are locking up the North American interiors market.

United Technologies Automotive has scored a major strategic coup by winning a General Motors Corp. contract to supply fully assembled instrument panels for the new Delta small-car platform program beginning in 2001.

Analysts estimate the deal is worth between $400 million and $500 million and resuscitates UTA's interior systems business.

The Delta car program will encompass nearly all compact and subcompact cars in GM's global portfolio. That includes the next generation Chevrolet Cavalier, Pontiac Sunfire and Opel's Astra. Together, the potential volume could be about 1.2 million vehicles a year.

Magna International will supply seats for the Delta-based vehicles assembled in North America, not including Saturn.

But the instrument panel contract puts UTA back on the radar screen as a major interior player and is a major victory for Richard Sloan, whom UTA President C. Scott Greer brought back from Europe in January to fix the company's automotive interior operations.

It also is significant because GM's own Delphi Automotive Systems traditionally has been a strong competitor of pre-assembled instrument panels. With Delphi planning to make its initial public stock offering early next year and run itself independently of its parent, sourcing such a high-volume contract with UTA underscores just how serious GM is about cutting its ties with Delphi.

Neither Mr. Sloan, Mr. Greer nor any other UTA executives would comment for this article. GM purchasing people are not pleased, it seems, when suppliers celebrate too visibly over a major new contract.

Mr. Greer, who was brought in from Echlin Inc. about 18 months ago to bring a sharper and more profitable focus to UTA's $3-billion-year automotive business, said during an interview with WAW last spring that pre-packaged instrument panels would be the key module in the interior systems' comeback strategy.

Anyone who has walked through the trim and final area of any automotive plant can attest that workers who put together these complex assemblies have one of the physically hardest jobs in the industry. Stringing yards and yards of wiring through narrow openings and wedges, these people often contort themselves into human pretzels in order to put every wire in its proper place.

UTA always has been a respected low-cost producer of wiring harnesses, but wiring is becoming more a commodity part. Amid the industry's evolution toward bigger modular components, it becomes a competitive advantage if a supplier can deliver the entire instrument panel in a pre-wired form so assembly plant workers can plug it into the passenger compartment.

Mr. Sloan has moved aggressively to cut manufacturing costs. By year's end the company's least competitive interior trim plant in Bay City, MI, will be closed, affecting about 300 employees. UTA has produced consoles and glove boxes in Bay City. For now the company can meet its current interior trim orders from plants in Alma, MI; Bourbon, IN; and Dayton, TN.

The Delta work would seem to solidify UTA as a long-term player. The program likely will last five years or longer.

Meanwhile, as one of five business groups under the United Technologies Corp. umbrella, UTA will continue to be compared with its sister divisions Otis (elevators), Carrier (air conditioning and climate control systems), Pratt & Whitney (jet engines) and Flight Systems (Sikorsky helicopters).

Historically, the automotive parts businesses have yielded slimmer profit margins than the other groups, but Mr. Greer's report card this year is rather impressive. Through the first six months of 1998 UTA's operating profit improved by 47% to $94 million, even though sales fell by 2%.

More important, however, is the operating profit margin, which was 6.3% for the first half, up from 4.2% a year earlier and equal to the margin of UTC's Carrier. However, Otis, Flight Systems and Pratt & Whitney are in the 9% to 14% range.

Recent history shows that large diversified companies such as ITT Industries, AlliedSignal and Cooper Industries won't hesitate to shed their automotive businesses if the profits aren't sufficient.

Some observers will suggest that a huge contract like this one for GM's highest-volume car platform will simply make UTA more attractive to potential suitors.

Maybe. But if Mssrs. Greer and Sloan can sustain this momentum, their bosses back in Hartford, CT, may decide the car business isn't so bad after all.