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PARIS -- Valeo CEO Thierry Morin has been overhauling the French supplier since he took over in 2001.

He is in the middle of selling operations with combined sales of €2 billion. Since 2003, he has opened 25 new factories, closed 47, increased product quality and started a push to buy more from low-cost countries.

But since last year, Morin has been distracted by a boardroom battle with Valeo's biggest shareholder, Pardus. The activist private equity fund wants representation on the Valeo supervisory board, but Morin and other board members have so far denied the request. In the meantime, Valeo's share price has dropped sharply, triggering rumors of takeover bids. Morin talked with Automotive News Europe Editor Arjen Bongard and Staff Reporter Lawrence J. Speer at Valeo's headquarters here last month.

Is there anything to the rumor that India's Hinduja Group was interested in buying all or part of Valeo?

There is nothing to this rumor. It is perfectly true that we have met with Hinduja, as we have met with many other potential partners. That's it.

They didn't come to you saying they want to buy a 51 percent share?

Absolutely not. Nor did we ask for such a thing. Purely from the perspective of our share price, we might look like a target. But when people look closer at us, they see us more as predator than prey.

Can you explain?

Valeo is a strong company today. We have stronger internal management systems. We have taken the lead in quality. It's clear that we are now on a very fast track when it comes to innovation. Therefore, I see us making more acquisitions than divestments.

Can you expand on your plans in Russia?

Before year-end we will have several plants with several partners in Russia. We believe that by 2015 Russia will be the No. 1 car manufacturing country in Europe, so we have got to start getting ready now. We are already supplying [Renault's] Avto-framos plant in Russia. Renault also has acquired a big stake in AvtoVAZ, which makes about 800,000 cars a year. Avtoframos made about 80,000 cars last year. I think they could potentially double those capacities within three years. If they do so, this will be an incredible market for us.

Will you have joint ventures or greenfield plants?

Both.

Are your Russian partners suppliers or automakers?

I am talking about local partners, as we have in India and China. It might sometimes be a car supplier. It might be a company that wants to get into the car business.

But it's important for us to have someone who can really dialogue with employees and deal with local administration.

With automakers clamoring for more Western suppliers, aren't you quite late in entering Russia?

I don't regret that we weren't there earlier. Truly, I think we are entering Russia at a very appropriate and important time.

Is Russia going to have its own national supplier industry?

Why not? But it's a question of process. Today I do not see many companies that will be in a good position to supply the industry. The quality of many products produced locally is not good. At the moment, the industry in Russia needs suppliers such as Valeo.

Following Renault and Nissan's decision to build a plant in Morocco, is North Africa becoming more interesting?

Valeo is already present in North Africa and has managed plants in both Morocco and Tunisia. We're interested in supporting Renault and other potential clients in the region.

Do your profit margins allow you to invest enough in r&d?

Research and development is not different from manufacturing. They both have to generate productivity every year. The productivity of

Valeo's r&d improves by 10 percent to 15 percent a year. This is the best way to research more.

We are spending €650 million on r&d. This is certainly enough to make us a leader in powertrain efficiency, active safety and comfort enhancement.

You do less business with General Motors. Where is your business with them now?

It is currently stabilizing, and hopefully will increase again.

Six years ago we were in too many money-losing businesses with GM that we obviously needed to get out of. I believe we can start a new, better relationship with GM.

What was the problem with GM?

GM wanted to have productivity, productivity, productivity, without questioning truly where the cost is.

Therefore, price negotiation can be harsh. It's sometimes more fruitful to look for cost reduction that can lead to price reduction.

In the last three or four years car manufacturers have reduced prices by applying more and more pressure on suppliers. But those lower prices create new pressures.

But hasn't GM become more realistic in its price expectations?

It's true that they have tried to sort things out in the last 18 months. But there is more to it than that.

I believe humility is what it takes. I am talking about the whole industry. This is an industry that requires so much humility and listening.

How do you characterize the automaker-supplier relationship in general?

Very often this is a power game. It is perfectly true that a car manufacturer may ask its supplier to sign contracts with terms that are unacceptable on the understanding that they won't enforce them. The second or the third time it becomes a habit, and then it becomes enforceable. I believe no one should ever sign a contract on the understanding that some part of it is not going to happen.

Have you walked away from business because you couldn't accept the terms?

Yes. We have refused some business because we are a company that has to go back to its shareholders.

PSA/Peugeot-Citroen would like to share profits and losses on warranty claims with suppliers. What do you think of that?

Warranty is a very tricky problem because the level of added value for a car manufacturer is lower than in the past. At the same time, the potential losses that a tiny part such as a bad screw can generate are absolutely massive.

There is an issue of who takes responsibility, and obviously car manufacturers are trying to say their Tier 1 suppliers should always bear the responsibility.

When they impose suppliers on us, we think they should bear the responsibility. There is always a shared responsibility when there's a recall or when a warranty is applied. But we have to study on a case-by-case basis where true responsibility lies.

What do you think about Tata Motors' acquisition of Jaguar and Land Rover?

The question is whether Jaguar and Land Rover can live outside the confines of a well-established car manufacturer. To me the answer is, yes, and maybe Jaguar will once again find some of what made it a success.

I believe the Indians could give back to Jaguar the very exclusive personality that this brand has.

They have the cash, they seem to have strong expertise in the running of companies.

I would say unleash Jaguar.

Why was Ford unable to successfully run the two brands?

Ford, like GM, is a huge company and there is a question whether they can really accommodate the personalities of the niche brands they own.

Car brands are personalities, not commodities.

How is your plan to buy more from low-cost countries coming along?

We are still on track. We want to buy 70 percent of our purchasing volume in these countries by 2010. We are now at 37 percent, so we are halfway.

Will your stop-start business be profitable once PSA starts putting the system on mainstream models?

It will be a profitable business by 2011, when we have the volumes, in particular from PSA. Today we manufacture 1,000 a month, so it doesn't make sense. But we knew that. We also have a strong interest from Chinese manufacturers. It's interesting that Chinese car manufacturers are already thinking about the environment.

When could start-stop be on a Chinese car in China?

Four years from now. In 10 years, it will be on every car in the world. It just doesn't make sense that a car pollutes when it stands still.

How are you protecting your intellectual property in China?

Valeo acts the same way in every country: We fight against counterfeiters and we take legal actions against them. To do this, speed in the best weapon.

As an example, Valeo has set up a special customs hotline. When a container arrives in the harbor, customs officers check and call us immediately to ask whether this Valeo container is actually ours. We often stop containers with counterfeit clutches, headlamps, or wipers.

Are you making progress with your camless engine?

That's a bit further down the road, but I truly believe in it. There are still no customers, but we're working with many automakers. But the issue is that it's a big change. If you look at the engine today, it works.

There are very few warranty issues with the engine block and it's difficult for manufacturers to question that. But this will certainly be the engine of the future.

How do you set r&d priorities?

We need to choose the appropriate time to develop and bring to the market a new technology. We separate our r&d investments into very advanced developments where we have a broad range of projects but we do not go very deep, and then we go deeper into selected projects for which we can put more funding. We decide on a regular basis which projects to continue and which to stop. Time to market is also very important. We brought the Park4U automatic parking system to market in April 2007 on the Volkswagen Touran. Today we have 16 commercial orders. All have come within the first 12 months of the product's life. That's quite rare.

What do you make for the Tata Nano and can you make money supplying low-cost cars?

We make the clutch for the Nano. It's made in India, it's cheaper, but it's a very very good clutch. You can make money on cheap cars. For clutches, for example, there's a wide range. If a clutch needs to be for a more comfortable car, you need to add some features, which is expensive. If you compare the clutch for the Nano with the Renault Logan, the Logan clutch is 20 percent more expensive. That's because the engine is bigger, it has more torque and you need a stronger clutch.

Can you update us on your program of divestments?

We are in line with what I have said. We have a plan to sell businesses worth €2 billion in revenues and make acquisitions for a similar amount. We are now about half-way through our divestiture plan. The question today is whether market conditions are more favorable to acquisitions, in which case we will slow down our divestitures.

How much of the rising raw material costs do you pass on to automakers?

About a quarter. Between 2003 and 2007, we would have doubled our cost of raw materials if we had been using them in similar conditions. That would have cut our operating profit by about 9 points of sales. But we have reduced the weight of our products, found other materials and worked with our suppliers which has allowed us reduce the impact by half. Clients have contributed around half of the remainder.

Are there any specific raw materials causing real problems?

Zinc and zamac [an alloy of zinc, aluminum, magnesium and copper]. A car uses a lot of zamac, for example, on door handles and many other products. Zinc is pulled by the steel market, so zamac has gone up in price more than aluminum.

How is Valeo's relationship with automakers?

Our relationship is a lot better because we give our clients more technology, better productivity and new products that most competitors do not have. You can't just ask something from the client, you have to give something too. Therefore I think that we have a better relationship.