General Motors is preparing to award a massive new seat contract to a French automotive parts maker, a move that would create another major player in the North American interiors market.
Faurecia has edged out Lear Corp. and Johnson Controls Inc. in negotiations to supply seats for GM's next-generation mid-sized cars in North America, according to two sources familiar with the matter.
The upcoming Epsilon global car platform includes future editions of the Chevrolet Malibu, Oldsmobile Alero, Pontiac Grand Am, Saturn L series and Opel Vectra.
The deal to produce seats for the North American cars could be worth more than $500 million per year.
Analysts said the big GM contract would give Faurecia, one of Europe's largest suppliers, the global reach GM expects of its suppliers. Faurecia's presence also would give GM - as well as Ford Motor Co. and DaimlerChrysler - more leverage over seat prices.
'The car companies are uncomfortable having just two choices in global seating suppliers,' said Bear Stearns analyst Eric Goldstein in New York.
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GM is eliminating that issue by awarding business to smaller suppliers. Last year, GM awarded its Delta small-car seat program to Magna International Inc. Delta will be the platform for the Chevrolet Cavalier, Pontiac Sunfire and Opel Astra.
GM turned to Faurecia for the Epsilon, one source said, because GM wanted a third supplier with a large European operation. Only a fraction of Magna's $1.2 billion in seating sales last year was in Europe, making it a less likely global competitor to Johnson Controls and Lear.
By contrast, Faurecia posted sales last year of more than $4 billion, primarily in Europe. It is a supplier of cockpit modules, instrument panels, door panels, steering wheels and columns, seating and exhaust systems.
GM strengthened its ties with Faurecia earlier this year by awarding the French firm a contract worth more than $100 million to supply metal seat parts for the Epsilon in Europe, according to one of the sources.
With GM's contracts, Faurecia is poised for explosive growth in North America. It is currently a Tier 2 supplier of seat tracks, recliner systems, frames and other components to Lear, Johnson Controls and Magna.
A larger Faurecia 'won't be content to sell mechanisms in North America,' said one source. 'They will be going after the whole seating business ... and that will shake up the market.'
Faurecia executives have meetings planned with officials of Ford and DaimlerChrysler in a bid to repeat the Epsilon coup, the other source said.
Jacques Le Morvan, CEO of Faurecia North America in Mississauga, Ontario, declined all comment, as did GM spokesman Dan Jankowski.
Although Lear and Johnson Controls lost out in the bidding to supply the Epsilon in North America, each got a consolation prize. The two rivals will supply seats for the future Opel Vectra, part of the Epsilon platform in Europe.
Nevertheless, Faurecia's coup cannot be good news for Lear, based in Southfield, Mich., and the world's largest supplier of interiors. Analyst Goldstein said Lear's acquisition last year of Delphi Automotive Systems' seat business 'blocked Magna and Faurecia from becoming big players in seats (in North America).'
That deal gave Lear 65 percent of GM's worldwide seating, a concentration Goldstein then predicted would prompt GM to send future business to rivals.
Gregory Janicki, vice president of the automotive forecasting firm CSM Worldwide, said Faurecia's moves mean lower prices for automakers and still more competition for suppliers.
Lear's profit margins already are eroding under GM's pricing pressure, according to Goldstein. Lear declined to comment on the Faurecia deal and its competitive implications.
Johnson Controls is less dependent on GM for its North American seating business than Lear.
Until now, GM has been one of Faurecia's smallest customers, accounting for 2.3 percent of Faurecia's worldwide sales.
Now, GM business is expected to remake the company.
Faurecia expects to build four or five new plants in North America, with at least two in Michigan. Hiring plans call for up to 1,000 new production workers and dozens of engineers and operations staffers.
Faurecia was created in March 1999 by the merger of two auto parts makers - Bertrand Faure and Ecia, a subsidiary of French automaker PSA Peugeot Citroen Group. The two parts makers have been operating together since last year.
GM appears to have little doubt about Faurecia. When GM's purchasing chiefs in Detroit sat down last month for a Friday morning video conference with their European counterparts, they had three choices on Faurecia's selection.
They could have passed on a decision or agreed to renegotiate; they could have taken other bidders off the table and renegotiated, a move known inside GM as the 'soft knock'; or they could have awarded Faurecia the contract with minor issues remaining, the 'hard knock.'
Faurecia got the hard knock.