Hellbent for Leather

After more than three years of transition and a newly minted headquarters closer to key customers in suburban Detroit, GST AutoLeather Inc. says it's now positioned to challenge the industry as the premier supplier of handcrafted leather.

“We've done a lot of heavy lifting in the last few years,” says GST CEO Dennis Hiller during a tour of the company's new innovation center in Livonia, MI. “(But) we need to be here, where it is convenient for our customers. We were not going to make it if we stayed in Maryland.”

In addition to the innovation center, a light-manufacturing site that supports the company's sales activities, GST also has moved its headquarters from Hagerstown, MD, to nearby Southfield, MI.

More profound was its decision in 2004 to shutter operations in the U.S. and move production to Mexico. GST also maintains a rapidly growing presence in China for Asia/Pacific customers and plans to ramp up sales in Europe this year.

Hiller admits eliminating the company's U.S. operations was a tough decision, but says a labor-intensive business such as leather-making cannot support wages that approach $30 an hour.

“We had to come out of the U.S.; we couldn't have competed much longer,” he tells Ward's.

During a demonstration similar to that carried out every day at its larger production sites, GST employees handle whole cowhides by hand during each step of the process, from tanning to cutting.

The company now operates tanning, re-tanning and finishing and cutting operations in Leon, Saltillo, and Nuevo Laredo, Mexico; and Shanghai and Zhongshan, China.

It also performs tanning and re-tanning at facilities in the Dominican Republic and Argentina. Altogether, GST now employs more than 2,700 workers worldwide.

Hiller says since launching production at Nuevo Laredo, which the supplier considers the heart and soul of its operations, capacity there has increased 2.5 times without further capital outlay.

That's against a backdrop of U.S. production cuts by auto makers and leather substitutes creeping into items such as seatbacks. Looking ahead, Hiller predicts flat growth for automotive leather as a whole, while expecting market-share gains for his company.

Factory-installed leather in cars rose to 32.8% in 2006 from 26.4% in 2005 but stayed flat among trucks, Ward's data shows.

However, Hiller thinks his company's low-cost operations, reputation for high quality and sharp attention to service will prove the difference. GST currently ranks as the auto industry's No.2 leather supplier behind Auburn Hills, MI-based Eagle Ottawa LLC.

“We are in a high-volume craftsmanship business, where beauty is in the eye of the beholder,” Hiller says. “So the skill sets of the people cutting leather by die or by hand is the difference between our being a successful company and an unsuccessful company.”

As proof of that skill set, Hiller notes 14 of the top vehicles in J.D. Power and Associates' surveys in 2006 used GST products.

Its product also appears in key programs, such as vehicles built on General Motors Corp.'s Global Midsize Crossover Architecture (Lambda), which includes the Saturn Outlook, Buick Enclave and GMC Acadia.

Program wins for '08 include the Cadillac Escalade and Chevrolet Malibu, Honda Accord and Acura MDX.

Stephen Jeske, senior vice president-sales, marketing and product development, says because all auto leather companies use the same suppliers, distinctive quality is attained by using proprietary chemical combinations to achieve certain grain and softness.

Hiller says GST hopes to gain new business by pushing auto makers to add leather to additional interior components, such as door panels, shift knobs and instrument-panel covers.

Whatever gains GST makes, they won't come easy, as auto makers continue to demand price cuts from suppliers.

Hiller says he has given up on trying to control pricing, preferring to focus on quality and service, noting GST guarantees the shipment of a replacement product within 24 hours should a customer consider its present piece inferior.

And for a company that handles 15,000 cowhides per day and usually discards about 35% of the product, GST leverages its worldwide footprint to find the right hides at the right price, Hiller says.

While GST, as well as other leather suppliers, continues to face the prospect of seat makers bringing their leather production in house, Hiller is confident that won't occur.

“It's been proven over time that you let experts do what experts do,” he says.