TALK FROM THE TOP: YANN DELABRIERE

CEO Delabriere on status of Faurecia: 'We are in calmer waters now'

After years of big losses French supplier promises to break even in N. America

Douglas A. Bolduc
and Bettina Mayer and Lawrence J. Speer
Automotive News
April 29, 2008 - 12:01 am ET

NANTERRE, France -- When he took over as Faurecia CEO in February 2007 Yann Delabriere inherited a company that had just reported a 2006 net loss of 447.9 million euros.

Delabriere helped narrow that loss to 237.5 million euros last year. A big reason for the improvement has been changes Faurecia has made to its money-losing North American operations. Delabriere, who was previously chief financial officer at Faurecia's majority shareholder PSA/Peugeot-Citroen, admits that the North American unit grew too fast, but he says that costs are under control now. The CEO expects the North American unit -- which had an operating loss of 81.8 million euros in 2006 -- to break even in the second half of this year.

Delabriere, 57, talked about that as well as the role Faurecia will play in helping automakers reduce emissions when he met with Automotive News Europe News Editor Douglas A. Bolduc, Industry Reporter Bettina Mayer and Staff Reporter Lawrence J. Speer at Faurecia's headquarters here outside of Paris.

Faurecia has been accused of taking on a lot of unprofitable business in North America to build up its presence there. Is that what happened?

I am not sure if this was on purpose, but that was the situation. When I arrived in February 2006, we were losing 81.8 million euros in North America, which is a lot of money. We took drastic actions to reduce that and to make our North American business profitable as quickly as possible.

Where are you today in that process?

We have drastically reduced our losses in North America. In the second half of last year we lost 11.7 million euros in North America [down from 54.8 million euros in the second half of 2006]. My goal is to reach break even in North America by the second half of 2008. Having achieved what we did in the second half of 2007 makes me believe we will reach that goal. We will be profitable soon in North America.

How important is that market?

North America is a key strategic market for all of Faurecia's businesses. Faurecia will continue with its development in North America but on a profitable basis. To develop business with a client on an unprofitable basis does not make sense for anyone in the long term.

How did you turn things around there?

We were struggling with the start-up of too many programs and too many plants at the same time. We are in calmer waters now, so we can better manage our performance.

Second, we worked hard to improve the performance of our plants.

All our plants now achieve a level of efficiency that matches Faurecia's global standards, which was not the case 18 months ago.

Third, we have made improvements in program management in order to deliver the best performance in terms of quality, cost and delivery.

Were you a victim of an overall economic downturn in North America?

I would not say that. First, we have continued to grow rapidly in the US. Our sales volume was up 42 percent in North America in 2007. I expect to continue to grow in North America this year. Why? Because we are not in the light truck business, which is the most exposed to the recession in North America. The car business is less exposed to volume reductions. Second, we are positioned with very exciting business such as the Chevrolet Malibu, and the Cadillac CTS and the BMW X5 and X6. CTS. Our market environment is not the same as many of our competitors in the US.

How hard will you be hit by production cutbacks at Chrysler?

Obviously, we are concerned by the Chrysler volume evolution. We will manage this with our friends at Chrysler. As I mentioned, we also supply many successful vehicles. Therefore, I do not expect a reduction in our volume in North America this year.

Prior to your arrival, Faurecia was in trouble because some employees had bribed automaker purchasing executives to win contracts. What has been done to prevent that from happening again?

We have entirely reworked our code of ethics and adjusted procedures wherever it was necessary. Our new code of ethics encourages anyone who knows anything about unethical behavior to come forward.

My direct colleagues and I are responsible for ethically managing this company. We have the right processes in place. I will be very strict toward any kind of deviation from the code of ethics.

How are you coping with the rising cost of raw materials?

We are mostly concerned with two commodities: steel for exhaust systems and seats, and plastics for interior parts. Yes, we have had a new wave of price increases for those materials, but the increases have not been as dramatic as in 2004, 2005 and 2006. I don't see raw materials as a top concern for Faurecia. We have learned how to manage it and so has the entire value chain.

Are you able to reduce the importance of raw materials in your production by changing your products?

In the short term, I would say no because you cannot just change the materials in your products. In the long term, I think that we are all pushed in the same direction, which is to reduce cost and weight because of pressure on OEMs to reduce fuel consumption and CO2 emissions. All the automakers are seeking ways to reduce the weight of their cars. Is Faurecia concerned? Yes, because if we take all the parts offered today by Faurecia, such as the seats, cockpits, door panels, bumpers and exhaust systems, they represent an average of 16 percent of the weight of a car.

Would you say that the need to reduce emissions has changed the way automakers and suppliers are talking to one another?

Yes, this has completely changed. We have been discussing weight for years, but not with the same cost consciousness. It is now a way to put a price on kilos. That is what has changed.

Have you set a target for weight savings that you would like to offer automakers?

We can offer solutions that save up to 20 percent compared with our current products.

How many kilograms is that?

If we account for 16 percent of the weight of a car and the car weighs 1.2 tons, then our products represent about 190kg. If we reduce this by up to 20 percent, that means about 38kg.

Will you use more aluminum?

This is not the direction we are taking because replacing materials such as steel with aluminum can provide weight reduction but at a high cost. Our priority is to rethink the way we develop the architecture of the parts themselves.

Could you give us an example?

We are reviewing the architecture of the seat's metal structures to find ways to reduce weight. We are looking at thinner seats, which would save on materials and weight plus lead to more interior space.

When will we start to see these products from Faurecia?

In two, three, four years maximum, we will see new solutions emerging in the cars. Now is the time to start thinking about the products that will be offered to the end customers in 2011, 2012.

How are you benefiting from the trend to develop complete modules?

There is value in a modular approach. Look at door modules. Today the interior of a door module is made out of 10 different parts. We are able to integrate all those parts into a single plastic part that manages all the different functions of the door modules. Once you integrate many parts into a single part, you save on cost, you save on weight and you improve manufacturing efficiency and win on quality.

Volkswagen group believes in modules. What other companies are heading in that direction?

Mercedes will go more in that direction. BMW is interested as well.

Some automaker executives have told us that modular systems are saving them and their suppliers a lot of money. Is Faurecia being asked to share in the savings?

Obviously, we have to share if there is a benefit. If an automaker chooses a supplier because he finds value in its proposals and if there are cost opportunities -- and there are many cost opportunities with the modular approach -- the automaker gets a good part of the benefits as long as it is a product that contributes to Faurecia's profitability and recovery. There is enough to share.

How much of your sourcing is done in low-cost countries?

We are at 35 percent. I want to be above 50 percent by 2010. Part of our global recovery plan is to get an annual savings of 100 million euros on the parts that we purchase from the suppliers that we manage directly. Low-cost country sourcing will be a key part of achieving that objective. We need to accelerate in this area by selecting new suppliers in low-cost countries.

What parts of the world are you targeting for your low-cost sourcing?

Because of the size of products such as seats and exhausts we try to locate close to our customers. That means that getting parts from eastern Europe for Europe is a priority as is getting parts from Mexico for the US. We also have established a very solid base in China so we are using it more and more as a source of components.

What about India?

We are thinking of increasing our presence in India, but that is more a start-up at the moment. It is a place that we will certainly use more in the future.

Is North Africa becoming a legitimate rival to eastern Europe when it comes to low-cost sourcing?

Our business is developing so we have to tap new resources for manufacturing and production. Eastern Europe has been providing efficient and competent manufacturing and resources at an acceptable price. But we all know that there are more and more manufacturing companies locating production in eastern Europe. It is not completely saturated but nevertheless you have to think about diversifying your manufacturing base in Europe. Countries like Morocco have a global strategy for developing their economies through foreign investment. Today it provides a good base not only for pure manufacturing resources but also engineering resources.

Are you looking to grow through acquisitions?

Not at the moment because we are in the middle of our recovery plan. We must turnaround Faurecia's profitability as quickly as we can. Plus, we are among the top three globally in our core businesses so we don't need an acquisition for strategy purposes.

How much is Faurecia spending on r&d?

We are spending more than 4 percent of our revenues on r&d. That's more than 600 million euros. I want to invest more in innovation, which means we have to reduce development costs globally. If you want to increase "r" you have to reduce "d", but reducing development costs does not mean that we must reduce the number of projects we are doing for automakers. It's the opposite. We need to grow and to develop more by improving efficiency and leveraging Faurecia's global network. We have established a good base in China, but we have to add 200 more engineers for local projects and to contribute to Faurecia's global efforts. We also have more than 200 engineers in Pune, India. We will do more than 25 percent of our design and development work in emerging markets and get more than 70 percent of our tooling done in low-cost countries by 2010.

Are you worried about counterfeiting?

At the moment that's not an issue. The best way to protect your rights is to continue developing new innovations.

When it comes to terms and conditions, does the industry need a general policy?

The automakers have their own standard conditions and Faurecia has its conditions. We compare them and we try to adjust. I think it is completely exaggerated to say the relation between automakers and suppliers is completely unfair. It is not the case.

Are you a bit biased because you used to work for PSA/Peugeot-Citroen, which is Faurecia's majority shareholder? Is Faurecia's relationship with PSA different from its relationship with other automakers?

No. When it comes to the supply of components Faurecia and PSA are at arm's length from each other. There is no special treatment with regards to PSA. Yes, I spent 17 years with an automaker so I understand their constraints and can help Faurecia better fit with an automaker's strategy.

PSA has a large piece of Faurecia but Faurecia has been able to avoid the troubles that have plagued former General Motors-owned suppliers Delphi and Ford's former partsmaker Visteon. Why?

Faurecia has always had a completely different business model than Delphi and Visteon. Faurecia has been an independent company since its creation in 2001. We work with all the top players in the auto industry. Among these, PSA represented 23.1 percent of Faurecia's business in 2007 while Volkswagen group accounted for 22.8 percent.

Are you under any pressure to present your new technologies to PSA first?

Our innovations are available to all of our clients. The automaker that finances the innovation has the priority.

Robert Bosch and Denso have created a joint venture to make particulate filters. As a big player in the exhaust business do you need to produce your own filters?

We specialize in the global system and not in chemicals or ceramics. We also are not an injection systems specialist like Bosch and Denso. We will not invest in those specific technologies where we can't compete. In any case, we have enough to do. The exhaust system will change a lot because of the evolution of the emissions rules. Today, the muffler in large cars is something that takes a lot of space. If you reduce the size of the muffler, you free space in the trunk of the car.

You mentioned that reducing nitrogen oxides is something the Faurecia is working on. Is there one solution, such as using urea, which you prefer?

We are keeping our options open. We are a complete system provider so we don't want to be linked with a specific technical solution. We want to be open to offer all the possible technical solutions that will fit a global system.

Do you get any help from PSA when it comes to purchasing raw materials?

No. PSA is our majority shareholder, but Faurecia is run as a completely independent company. That means we don't bundle our purchasing with PSA.

Do you sometimes buy raw materials for your Tier II suppliers to help them save money?

Yes, we take care of some of our Tier II suppliers. For instance, when you buy stamped parts it is impossible to avoid taking care of the raw materials.

What advantage do you have over your rivals?

One of the key strengths of Faurecia is that it is not in the commodity trap. The products that we offer are strategic parts. Faurecia is ideally placed at the crossroads of two major automotive trends. The first is improving fuel economy and reducing emissions by reducing weight and improving the efficiency of the exhaust system. The second is the value for customer of the interior in terms of comfort, perceived quality, modularity and safety.

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