DETROIT - Meritor Automotive Inc. is looking for a breather.
North American heavy-truck sales are peaking this year, and it's putting a strain on the industry's suppliers.
Meritor, which makes brakes, axles and other truck components, is running its factories flat out to keep up with demand. And it's paying a price: Workers are drawing heavy overtime pay, and expedited freight costs are high.
A slowdown will help rein in those premiums, said Meritor CEO Larry Yost.
'If the industry volumes on North American trucks soften, as is anticipated, we look forward to it. It will kind of give us a little bit of breathing room,' Yost said.
In the wake of booming U.S. demand for light and heavy trucks, Meritor has boosted revenues 25 percent in two years. Yost expects that growth to continue. For the fiscal year that ended Sept. 30, Meritor reported sales of $4.4 billion. Meritor plans to reach $6.6 billion in sales by 2002.
The Troy, Mich., company expects to expand in the aftermarket, too. Sales of replacement parts should rise to $1 billion in five years from today's $415 million, Yost said.
A trio of acquisitions - LucasVarity PLC's heavy-vehicle brake systems, Euclid Industries Inc.'s aftermarket business and Volvo Truck Corp.'s heavy-truck axle business - added $395 million to this year's revenue.
However, Meritor is not relying solely on acquisitions, which can be costly. Joint ventures will play a key role, too.
The company formed a joint venture with ZF Friedrichschafen to develop a clutchless manual transmission for heavy trucks. Meritor also forged an alliance with Sommer Allibert SA to make door modules complete with latches, window regulators and electronics.
Meritor's net income of $194 million was 24 percent higher than in 1998, and the company wants to boost net profits by 15 percent each year, Yost said.
STOCK TAKES A BEATING
But even with a track record of growth and a game plan in place, Wall Street is pummeling Meritor's stock. From a 52-week high of $26.50, the stock traded at about $16 last week.
'I see this company as being discounted, along with the rest of the (automotive supply) sector,' said Richard Hilgert, vice president of automotive research at Fahnestock & Co. in Detroit.
Meritor can succeed by focusing on the European aftermarket, cutting costs and forming joint ventures, Hilgert said, adding: 'The company has very handily put together business in all three of those areas in the past.'