Two years ago, Lear Corp. President Bob Rossiter visited DaimlerChrysler executives in Germany to discuss a proposal to open a customer service center.
Rossiter had a reputation as a tough executive who solved problems in a hurry. But his decades at Lear did not prepare him for what happened next. After exchanging pleasantries, DaimlerChrysler's purchasing executive apologized for his poor English and switched to German for the business meeting. Rossiter's subordinates knew German, but Rossiter needed a translator. The incident reinforced his conviction that Lear needed experienced foreign executives.
'We ended up getting a nice piece of business,' Rossiter said. 'But I told my team that this was uncomfortable. I told them we were working in a local market and that we had to speak German. The problem is finding North Americans who can speak a foreign language. Americans don't travel as well as some other people.'
Welcome to the global market, Bob. As Lear Corp.'s newly named chief executive, Rossiter has vowed to boost sales from $14 billion this year to $25 billion in 2005. It will be an uphill battle. Lear has told industry analysts its revenues next year could decline as much as 3 percent. An expected slowdown in North America's auto market is chiefly to blame.
To maintain sales growth, Rossiter must continue to internationalize his company, a trend that Ken Way - his predecessor and mentor - began in the 1990s. In five years, Rossiter estimates North America will account for about 50 percent of Lear's total revenue, down from 62 percent in 1999. Most overseas growth will come in Europe, with some growth in Asia, too.
To succeed, Rossiter will carry out a strategic shift laid out by his predecessor. Lear, based in Southfield, Michigan, transformed itself from a smallish seat maker into a mega-supplier through aggressive acquisitions. But at a time when investors are leery of corporate debt, acquisitions have become increasingly risky. Instead, the company plans to expand in Europe, reduce debt, rely on internal sales growth and expand sales of electronics.
READY TO DELEGATE?
When Rossiter took over as chief executive in October, Way became non-executive chairman, responsible for nurturing customer relations. Both executives have emphasized that Lear's strategy remains the same despite the power shift at the top. But Rossiter faces a subtle challenge: Can Lear's entrepreneurial culture - which has served it so well for the past decade - guide the company's growth overseas?
One former Lear executive believes the company could run into trouble if Rossiter and Way try to run a $14 billion mega-supplier the way they had when it was much smaller.
'Way and Rossiter were involved in almost every aspect of the company,' said the former executive, who counts himself an admirer of Rossiter. 'They touched virtually everything. They've tried to develop a young group (of executives). They empower them in theory. But in the end, it always seems to come down to Ken or Bob.'
Rossiter disputes contentions that Lear's management style could hamper growth. 'The reason Lear is able to attract and retain talented young leaders is because we delegate responsibility to the division heads.'
Given Lear's origins, it's understandable that Way and Rossiter are hands-on executives. In 1988, Way and Rossiter formed a group of 30 executives who risked their own money to finance a leveraged buyout of Lear Siegler. Rossiter raised money by taking out a second mortgage on his house.
After completing the leveraged buyout, Way relied on Rossiter as his right-hand man. In fact, the two men were longtime associates. Rossiter, a native Detroiter, joined Lear Siegler in 1971. When Way moved to the company's seat operation in 1979, Rossiter followed him.
As the company grew, Way played the role of the inside executive, while Rossiter worked with customers. He had cultivated his talent for salesmanship at Northwood Institute, a small school in Michigan where he studied marketing.
Like a veteran politician, Rossiter prides himself on his memory for names. 'He will come up to a guy he met five years ago, and say, `Hey, Bill, how are you doing?' He is unbelievable with that,' the former executive said. 'He is the consummate salesman. He knows what you want and how to get it. He can carry on a conversation with anyone, anywhere. He has the gift of gab.'
Rossiter is an avowed workaholic who admits that he never truly relaxes. On Saturdays, he usually is at his desk by 9 a.m. He does enjoy golf - although he claims no skill at the sport - and enjoys the occasional vacation getaway in northern Michigan.
The former executive questions Rossiter's ability to delegate power. But Rossiter's description of his encounter with the DaimlerChrysler executive would appear to indicate otherwise. As Rossiter notes, none of Lear's top overseas executives is American. Miguel Herrera-Lasso is president of Lear's European operations; Guenther Mecklinger runs the European premium car interiors division; and Rodolfo Kroebel is president of Lear's European electronics operation. All are European. Which is just as well, for Lear is placing a heavy bet on growth in Europe.
During the Paris auto show, the company announced plans to build new factories in Belgium and Spain, along with three new technical centers. The factories will produce seats for the new Ford Mondeo and two vehicles to be built by PSA/Peugeot- Citroen SA. This year, Lear spent $70 million to open facilities in six European countries.
In the past six years, Lear has used acquisitions to fuel rapid expansion in Europe. In 1994, the company purchased Fiat's seat operation, and in 1996 it purchased Borealis Industrier, a Swedish maker of instrument panels. Revenues have grown accordingly. Last year, Lear's European revenues totaled $3.9 billion, or 31 percent of Lear's total revenue. Six years ago, Europe accounted for only 18 percent of Lear's revenue.
Lear and Johnson Controls Inc. are the two largest seat makers in Europe. But Lear reportedly has suffered one major defeat. According to a rival supplier, Fiat will award the contract to make seats for the next-generation Bravo and Brava to Johnson Controls. If so, that would be a major disappointment to Lear, given its ownership of Fiat's former seat division. Fiat did not comment, and Rossiter said he is not aware of any decision by the Italian automaker.
Despite that apparent setback, Lear appears to be making progress. In the wake of Rossiter's cost-cutting campaign, only one Lear factory remains unprofitable, he says.
Expansion overseas is one key of Lear's strategy. The second key is electronics. And if you want to know how electronics figures into Lear's strategy to double sales, visit the company's 'art gallery.'
In an office building in Dearborn, Michigan, visitors are ushered into a softly lit room. Mounted tastefully on the wall - as if it were a painting - are the guts of an electrical junction box. Next to it is an audio amplifier and - lit dramatically by track lighting - a seat switch. You won't find these in the sculpture garden at the Museum of Modern Art, but Lear's subliminal message is clear: These products are not commodities.
Lear's electronics strategy took shape in 1998 when the company purchased United Technologies Automotive, a supplier in Dearborn. With a price tag of $2.3 billion, it was a costly acquisition. But one of the company's main products - wire harnesses - gave Lear the ability to produce a vehicle's neural network. That is a big plus for any supplier who wants to design electronic components. Just as important, UT Automotive can produce cockpits, the hottest growth segment for vehicle interiors. The acquisition was a big victory, Rossiter said: 'It got us where we wanted to be.'
The problem, of course, is that Lear's competitors have the same bright idea. In 1996, Johnson Controls purchased Prince Corp., an interior components supplier with expertise in electronics. More recently, Johnson Controls formed an alliance with Yazaki Corp., a maker of wire harnesses. The advantage of the Yazaki deal is that Johnson Controls did not spend large sums to buy its partner. By contrast, Lear's debt totals 69 percent of its capital, a heavy burden compared with its peers.
In fact, Rossiter spends much of his time figuring out how to reduce that burden. The company has assured Wall Street that its debt will decline to less than 60 percent of capital by the end of 2001. Rossiter sold a small-motor operation that did not fit Lear's plans, and he will unload other businesses, too. 'We are selling assets that are not fully performing,' he said. 'Those were businesses we didn't really need.'
The company also has imposed a hiring freeze, although Rossiter says he will not lay off workers. One supplier reports that Lear has slowed payments to 60 days or more. A 45-day lag is considered normal. The slowdown appears to be a short-term measure to improve the company's year-end cash flow, says one Lear supplier. 'They are notoriously slow payers,' said the supplier, who asked not to be named. 'We are having some bitter dialogues with them now.'
Although Lear is buying back stock, investors appear cautious. The company's stock has been trading at about $23 per share, down from its 52-week high of $28.25. Nearly all automotive suppliers have suffered low stock prices; investors appear convinced an industry downturn is coming.
In fact, Rossiter notes that he expects U.S. sales next year to total 16.4 million cars and light trucks - a good year, but down from this year's 17 million-plus. In a November 14 conference call with Wall Street analysts, Rossiter said revenues next year would range from flat to as much as 3 percent down. Rossiter also claimed that cost-cutting would help the company to boost earnings 3 percent to 5 percent.
Analyst Joe Phillippi, a managing director of PaineWebber Inc., says Lear has proved adept at handling heavy debt. 'They have lived with high debt for a long time' - and prospered, Phillippi notes. This time, however, it might be more difficult. When Lear was primarily a seat maker, the company did not have a lot of money in factory equipment and tooling. Now the company is producing a variety of components that have higher profit margins than seats. That is good as long as sales hold up. But if the industry enters a serious downturn, Lear could find itself losing money as costly machinery stands idle.
As if that weren't enough, Lear must contend with a new rival in North America. French supplier Faurecia has won the contract to supply seats for General Motors' Epsilon family of cars. Epsilon will be the platform for the next-generation Chevrolet Malibu, Pontiac Grand Am, Oldsmobile Alero, Saab 9-3 and Opel Vectra.
The contract gives Faurecia a strong foothold in North America. Given the presence of strong rivals such as Magna International Inc., Johnson Controls and Faurecia, Lear can expect added downward pressure on prices.
While Lear and Johnson Controls dominate the interiors business in North America, it is unlikely Lear will pull away from its rivals. The company had an opportunity to do so last year when it tried - and failed - to buy mega-supplier Visteon Corp. Ford Motor Co. wanted to sell its parts operation rather than spin it off. But the United Auto Workers blocked the deal.
At the time, the union was negotiating a new labor contract with Ford. Although the UAW has good relations with Lear, union leaders feared that it could not protect the wages, pensions and benefits of Visteon workers.
'The negotiating team was definitely against it,' said Jerry Sullivan, president of UAW Local 600, which represents Ford workers in Dearborn. The union later negotiated guarantees for those workers when Ford spun off Visteon as an independent supplier. 'We didn't think we could get the same guarantees from Lear,' Sullivan noted.
THE HARD WAY
Can Lear nearly double its revenue in five years? It won't be easy. Quick growth through acquisitions worked in the 1990s, but it won't work as well now. Rossiter acknowledges that big acquisitions are unlikely. 'If we see a niche electronics company that could enhance our ability in telematics, we'd consider it. ... But we've already got what we need to grow the business.'
In other words, Lear will do it the hard way - by internal sales growth. The company has set up operations in Brazil and Thailand, so it is poised to profit from growth in those regions. But Lear will continue to draw the bulk of its profits in North America and Europe. And the company will continue to do much of its business with its two prime customers, Ford and GM.
The era of dizzying growth is over. Now Rossiter must manage his company - and investors' expectations - in a slow-growth future. ANI
You can e-mail editor David Sedgwick at [email protected]