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TI targets Asia-Pacific following spinoff

Region accounts for just 6% of sales

As CEO of TI Automotive, Bill Laule is pleased that his company is not public at the moment.

"The only reason you become a public company is to raise equity," he said. "Once it is no longer an economically attractive way to raise equity, then why be a public company?"

Laule has lost faith in the stock market, just as it has lost faith in the automotive industry.

Laule believes investors have overreacted to conditions in the automotive industry, as they have flocked to more high-tech industries.

"The automotive industry is being hurt by the attitude that it's part of the old economy with low growth rates," he said. "There are good years and bad years, of course.

"But the world will still produce 50 million to 60 million cars a year because there's an appetite for them. The auto industry plays a major role in all the global economies."

'Japan is the key'

An area of future growth for TI Automotive is the Asia-Pacific region, which accounts for only 6 percent of sales. The company has established manufacturing facilities in Japan, Korea and China.

Said Laule: "Japan is the key for us. We have been successful in winning a program to supply our fuel system for the Honda CR-V, with tanks, connections, pumps and modules manufactured and assembled in Japan."

Laule is upbeat.

"The automotive industry is cyclical," he said, "and the money will come back in. In the meantime, rationalization will iron out inefficiencies, and that will leave us with a more stable, focused industry."

TI Automotive is a British supplier that specializes in fluid-carrying systems and brake fluid systems. Laule said flotation for the company will not be an option for three or four years, when he predicts old-economy stocks will begin to recover.

TI Automotive completed its divestiture from corporate parent Smiths Group last month, fulfilling a Smiths strategic plan to shed its auto components units.

Engineering conglomerate Smiths Industries had merged with TI Group last year but maintained that it did not want the auto fuel business. When the companies could not find a buyer, they decided to spin it off into TI Automotive.

Smiths Group still holds 19.9 percent of the shares in TI Automotive, while former TI Group shareholders retain the bulk of the ownership, with 55.1 percent. Executives for the supplier own the remaining 25 percent. Stock in the new company is privately held.

TI Group created a complete auto fuel supply company when it purchased Walbro in 1999 and joined it with its fluid-carrying systems within TI's Bundy Group. The company makes about 14 percent of the automotive fuel systems produced worldwide. It had an estimated $2.5 billion in total sales last year.

Laule said the spinoff lets TI Automotive develop without competing with other TI divisions for capital.

"Now we can get on with the business we know well, and we will float once economies and markets stabilize and the value of our company can be recognized," he said.

TI Automotive's strategy is to grow organically through product development, rather than to grow through acquisition.

Laule said there are plans to divest non-core operations such as refrigeration and engine management systems for outdoor power equipment, so that TI Automotive can concentrate on its core business. These plans will be finalized at a board meeting in October.

Laule does not rule out acquisitions. "The drive to consolidate will increase over the next few years, and this will include Tier 1 and Tier 2 suppliers," he said. "There is a fair amount of consolidation that can take place in the fuel storage and delivery segment."

Fragmented segment

That is a large segment, but it is fragmented with some companies making pumps, some fuel lines, and others modules, Laule said.

"But we are the only company with the ability to design, test and manufacture complete fuel systems," he said.

As a complete systems provider, TI Automotive hopes to benefit as carmakers outsource more technology, design and engineering needs.

"Many carmakers have found that vertical integration is not the key to success," Laule said.

"They are moving more and more to outsourcing, and have been forced to accept fewer but larger global suppliers."

Laule estimates that TI Automotive's fuel systems business will be worth about $700 million this year. The company specializes in plastic fuel tanks and is benefiting from their increasing popularity.

The value of fuel systems is also increasing because their design and production have become more complex to meet tighter emission requirements.

TI Automotive's brake fluid systems division will have sales of about $400 million this year, Laule said.

"I'm not worried about the threat of the shift to electronic braking systems," he said.

"It could be 10 years until brake- by-wire is totally viable."

You can reach Ian Morton at autonews@crain.com

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