Eagle Ottawa Hopeful For Stability

Jerry Sumpter, President and CEO of leather-supplier Eagle Ottawa LLC, thinks the struggling new-vehicle market has hit bottom. At least he hopes so. It's been really, really tough, Sumpter says of the last 12 months. We're hopeful we've hit the bottom. And that's important, to find the bottom and stabilize. As a direct supplier to Tier 1 parts makers, such as Lear Corp. and Johnson Controls Inc.,

James M. Amend, Senior Editor

July 1, 2009

6 Min Read
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Jerry Sumpter, President and CEO of leather-supplier Eagle Ottawa LLC, thinks the struggling new-vehicle market has hit bottom. At least he hopes so.

“It's been really, really tough,” Sumpter says of the last 12 months. “We're hopeful we've hit the bottom. And that's important, to find the bottom and stabilize.”

As a direct supplier to Tier 1 parts makers, such as Lear Corp. and Johnson Controls Inc., Eagle Ottawa feels the effect of anemic vehicle sales as acutely as anyone. Compared with last year at this time, the supplier's business is down 50%, Sumpter says.

General Motors Corp., which filed for bankruptcy last month and extended its traditional summer shutdown by seven weeks to cull bloated inventories, ranks as one of Eagle Ottawa's top three customers.

“That hurts,” Sumpter says. “Right when we thought we were stabilizing, something like that happens.

“But overall it looks like it has stabilized and, if it can do that, we can plan our business around these types of (sales) levels, and I think we'll be OK,” he says during an interview on the sidelines of the recent Ward's Auto Interiors Conference, where Eagle Ottawa leather appeared on three “Interior of the Year” award winners — the Acura TL, Cadillac CTS-V and Dodge Ram.

Sumpter says Auburn Hills, MI-based Eagle Ottawa has adjusted its business alongside the industry downturn by rationalizing capacity, cutting costs and preparing for a rebound in new-vehicle sales. The 140-year-old company has been lucky, identifying the downturn early and formulating an appropriate game plan.

“When this first started happening, we sat down and asked what would be our guiding principles in this process, because we knew we would be going through a significant downsizing in our business,” he recalls.

First, the supplier decided to keep its current management team intact, a handful of executives who have worked together for more than a decade. A business unit of the Milwaukee-based industrial investment group Everett Smith Group Ltd., Eagle Ottawa also put a ring around its core competencies: purchasing, technical expertise and sales.

“Hides are a very unique item to purchase,” Sumpter says. “We purchase globally, we have people that are experienced in it — and there's not a lot of people who are experienced in it, so we had to maintain our purchasing competency.”

But tanning, finishing and cutting leather is an equally niche skill, so the supplier retained its technical experts, who are working on next-generation products and processes, as well as managing their manufacturing operations. Sales and design staff also were sealed off from cuts, he says.

“So those (three areas) we have not touched and been very careful in reducing administrative costs and plant capacities, but not touching those core types of competencies,” Sumpter says.

The global supplier did sharply reduce its capacity in countries such as Brazil and Argentina, but maintained a core finishing capacity in Mexico. Its businesses in Europe and Asia/Pacific are performing relatively better than North America, Sumpter says, due in part to scrappage programs initiated by the governments but also because of a number of new-car launches with Eagle Ottawa content.

“We can operate at these levels and generate positive cash flow at these levels,” he says, noting Eagle Ottawa's fiscal conservatism has given it the flexibility many debt-laden suppliers lack right now. “We can sustain, and we're hoping there is not a shoe to drop somewhere.”

The executive does not consider a GM bankruptcy that shoe. Speaking prior to the auto maker's Chapter 11 filing, Sumpter admits he is anxious about GM's near-term future but says the auto maker's transparency concerning its financial condition has eased many of his fears.

Sumpter points to a late-May 30-minute briefing for suppliers by GM President and CEO Fritz Henderson that was part of a weekly meeting GM's former purchasing chief Bo Andersson had been conducting.

“They've made a tremendous effort, and (it) helps to have as much of an understanding as you can as to where they are and hear them speak specifically about it,” he says. “It helps in planning for production, but keeps us in the loop as much as we possibly can be, so we can anticipate the types of things that may happen.

“We're hopeful for a good outcome for GM,” he adds.

Sumpter says Eagle Ottawa has not been subjected to new demands from its customers in light of the industry's financial woes.

“I don't think (customer) expectations have really changed,” he says. “They're cognizant of what's going on. They don't want to lose suppliers, so they're being very careful and monitoring the financial stability of the supply base more than they have before. There is a little more discussion of financial matters, but other than that (they expect) the same level of quality and service and design support.”

Customers are paying their bills in a timely manner, too.

“We've had absolutely no issues. Nothing significant,” Sumpter says. “There are one-off types of things that we deal with, but not out of the normal course of business. We haven't had any major issues at this point and we're hopeful that will continue.”

On the product front, Sumpter looks forward to delivering customers lighter-weight leather to help meet stricter fuel-economy regulations announced in May by President Obama. It also has a new recycled product, an anti-soiling leather and a new high-grade product called Opus.

“Lightweight leather has been on the burner for awhile now, but it's gotten a lot of traction in the last few months and probably will get more in the near future,” Sumpter says, estimating a new product under development at Eagle Ottawa could shave up to 2 lbs. (0.9 kg) off a vehicle's weight.

The company's recycled product, called “e-Leather,” takes scraps from the leather-making process and turns them into a new, although lower-grade, product. But it also costs customers less and saves on Eagle Ottawa's waste. It's 70% recycled content and 10% lighter.

“(E-leather) can replace other components of a vehicle because it's lighter-weight, and it's not as expensive as leather,” Sumpter says. “In some cases, it could even replace leather.”

Eagle Ottawa's new anti-soiling product addresses a longtime industry concern and could make colored leathers such as ivory, white and beige more popular.

Laser etching and printing, a pair of key capabilities at Eagle Ottawa, also continue to gain popularity as both auto makers and consumers seek greater differentiation in their vehicles, Sumpter says.

And while he looks forward to higher-quality interior materials bleeding down into the lower end of the market, as well as traditionally entry-level auto makers pushing up market with luxury offerings, Sumpter says leather grades such as Opus will be the answer for established brands.

“It is a very high quality, fairly naked leather without a lot of finish on it, and it is a beautiful piece of leather to feel, to touch,” he says. “The aesthetics of it are great. It is a natural leather product and an upper-end leather for when you want to distinguish certain luxury vehicles from the new entrants.”

Sumpter says leather's role at both ends of the industry spectrum holds great promise, however the market may change over the coming months and years.

“It's going to be important to continue to drive the fundamentals of the business and to continue to make a cost-effective product,” he says. “And with what we've done with the company, I think we'll be ready for both ends. We have to be.”

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