Faurecia: We'll break even in N.A.

After years of losses, CEO says, "We are in calmer waters now'

Faurecia CEO Yann Delabriere: "My goal is to reach breakeven" in 2008. Photo credit: LUC PERENOM
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, or $696.8 million at current exchange rates.

Delabriere helped narrow that loss to $369.5 million last year. A big reason for the improvement has been changes Faurecia has made to its money-losing North American operations. Delabriere, who previously was CFO at Faurecia's majority shareholder, PSA/Peugeot-Citroen, admits the North American unit grew too fast but says costs are under control now.

Delabriere, 57, met with Automotive News Europe News Editor Douglas A. Bolduc and reporters Bettina Mayer and Lawrence J. Speer at Faurecia's headquarters near 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, we were losing $127.3 million 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 $18.2 million in North America (down from $85.3 million in the second half of 2006). My goal is to reach breakeven 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 startup 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.

Before 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.

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.

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 much weight 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 419 pounds. If we reduce this by up to 20 percent, that means about 84 pounds.

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 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 $155.6 million on the parts that we purchase from the suppliers that we manage directly.

Are you looking to grow through acquisitions?

Not at the moment because we are in the middle of our recovery plan. We must turn around 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 $933.9 million. 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.

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 customers of the interior in terms of comfort, perceived quality, modularity and safety.

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 United States. 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, the Cadillac CTS and the BMW X5 and X6. Our market environment is not the same as many of our competitors'.

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.

You can reach Douglas A. Bolduc at dbolduc@crain.com

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