As part of a publicly traded conglomerate, Textron Automotive Co. in Troy, Mich., faces a continual battle to keep sales and profits at high levels in a business that can be brutal to suppliers.
Textron has also grown ambitiously, most notably by purchasing German plastic fuel-tank supplier Kautex Werke Reinhold Hagen AG in 1996.
Textron Automotive CEO John Janitz was interviewed by Joseph Pryweller, a staff reporter for Plastics News, a sister publication to Automotive News. An edited transcript follows.
Do you expect the auto industry to keep pace in 1999 with current high levels of sales and production?
I think the first two quarters will be pretty solid, but I'm not sure about the last two. The Asian economy and the Pacific Rim will have an impact. But I'm generally optimistic.
Do the consistently high levels, year after year, surprise you?
When you've been in the business for 30 years, yes, it surprises you. This is the longest economic boom we've had since the Second World War. Hopefully, it continues on.
What, if anything, could change that?
Obviously, if there's a strike against a carmaker in September, that could have a major impact. I think the Asian crisis sooner or later has to get resolved. There's going to be more and more pressure put on other markets by Asians as they try to export products.
How does the Asian crisis affect work here?
In a macroeconomic sense, it affects trade exports and imbalances. In a more immediate way, look at what the (South) Koreans are doing to export vehicles. The costs become lower, they're penetrating this country and getting near-nothing prices for their vehicles. And we have overcapacity in the Asian market; we're not selling there.
How about South America?
Brazil and Argentina continue to languish now. They have new economic plans for the nth time. It's a tough situation. But on a magnitude scale, South America is clearly outweighed by the size of the Asian situation.
How has Textron performed in this economy?
We continue to grow. Based on orders we've booked and what we have, we're looking at another sizable growth year (in 1999).
A lot of growth is driven by two factors. One is the introduction of plastic fuel tanks. And we're seeing more and more systemization and modularization.
In the old days, a core instrument panel had an armature of sorts. We put some foam on it, skinned it over and ended up with what was basically a structural component.
Then we started putting gauges in it and other things. Now it's a module with a glove box door and many other parts. A $70 component becomes a $200 system, or $500 if it has a radio in it. The person at the assembly plant plugs it into the car and he's done.
Where do you go from here with that approach?
The next step is where we take the engineering and integrate the module into a system. That is where we think the real savings will be.
For instance, why do we have to mold the plastic frame for an instrument panel and then have another (supplier) who makes the gauges mold another plastic frame around that? Why can't we take the gauges and seal them in one frame?
We're now doing things for fuel tank systems and even (plastic) fan shrouds. We have a new fan shroud that includes a water bottle, overflow tank and even a high-pressure wash system on a headlight. That's one-stop shopping, with one piece blow molded and hollowed out.
Are the auto companies willing to give up more design and product control to suppliers?
They have their roles and responsibilities and look for outside suppliers to do the rest.
We can put in place engineering and styling capabilities and design renderings to help make a better product. That's where more and more suppliers bring value to car companies and stay competitive in today's market.
Does that encourage supplier consolidation?
Some of these ideas come out of very small houses. Just because you're not big doesn't mean you can't come up with creative ideas.
But more and more, you have to have some critical mass to compete in the marketplace today. I think a lot of consolidation is going on where a company is looking at technology or trying to spread fixed costs.
There is urgency for some suppliers. If a company can't bring technology and a better, more cost-efficient product, it's going to be awfully hard to compete. We're looking for products that give us the growth we need to compete.
Plastic fuel tanks are a good example. In 1985, about 50 million steel fuel tanks were running around the country. In the year 2010, about 40 million tanks will be made from plastic. That's tremendous growth from zero plastic tanks to 40 million tanks a year.
Are there any other issues that will concern a plastics part supplier?
I think opportunities will continue as car companies consolidate. That has significance for suppliers. DaimlerChrysler is talking about getting big savings from consolidating its supply base.
As a supplier, we need to make sure we're in the right position when that happens. All kinds of cost efficiencies need to be taken into account.
And we must continue globally. I'm not going to work with a (supplier) who can only make parts in Barcelona, Spain, and can't sell in the United States or Munich.
Each manufacturer must have cost efficiencies and realize volumes worldwide. We need the capacity to govern a global base of operations.
Would a carmaker rather have 50,000 suppliers making five parts when the company could have five suppliers making 50,000 parts? There's more efficiency in the latter. We just want to make sure we're on that list of five suppliers.
Does Textron Automotive plan more acquisitions this year?
My feeling is more intuitive than based on a lot of data right now. I think the acquisition field was wide open in 1996 and 1997 and started closing down in 1998.
Maybe there are fewer companies willing to pay crazy multiples. Now they're faced with the issue of making money from those multiples.
We're looking for acquisitions. But in the past, I'd say that about 70 to 75 percent of our growth came from acquisitions; I'd like that figure to be closer to 50-50, with about half coming from organic, internal growth and new products.
We don't just need sales growth. We also need profit growth and the right kind of returns.