These are tough times for French auto parts supplier Valeo. While there have been many rumors about what the company will do to return to profitability, one thing is clear. Valeo's largest shareholder says it will help the supplier through the crisis.
Changes are well under way. In March, Valeo's board of directors removed Andre Navarri after 10 months as chairman and replaced him with Thierry Morin, previously chief operating officer. The changes do not stop there. At Valeo's annual meeting this month, shareholders will be asked to approve a new two-tier management structure. Morin will lead the management committee, and Noel Goutard is head of the supervisory board.
Goutard is seen as the man who, in 1987, saved Valeo from a bad diversification strategy and made it into a success. He did it by cutting costs, selling non-core assets and making acquisitions. During the decade that he ran Valeo, Goutard built up the second-largest European automotive supplier and made it into a serious global competitor in many sectors. He retired in May 2000 after 13 years as chairman.
FIRST QUARTER LOSSES
The management changes have the blessing of Valeo's leading shareholder, Compagnie Generale d'Industrie et de Participations. And they come at a crucial time for the world's 10th largest auto supplier.
In April, Valeo disclosed losses of $159 million in the first quarter of 2001 compared with a profit of $73 million in the same quarter a year earlier. Describing the situation as the worst in 15 years, Valeo says the loss reflects $145 million in provisions, the bulk going to the restructuring of Valeo's plant in Rochester, New York. The plant - part of a $1.7 billion purchase in 1998 of the electrical systems business of the former ITT Automotive Inc. - employs 3,500 and has suffered from bitter labor relations.
To turn the company around, Valeo says it will concentrate on its strengths and sell 'peripheral activities,' which are about 10 percent of sales. Among core businesses, Valeo identified its four transmission and thermal systems branches as well as its electrical and electronics businesses.
Valeo has 167 plants, 41 research and development centers and 10 distribution centers. The company employs 75,000 people in 24 countries. Sales last year were $8.6 billion.
In a rare interview, Arnaud Fayet, director and member of the executive committee at CGIP, denies speculation that the company seeks to sell its 20 percent stake in Valeo. Fayet says the holding company is committed to helping the supplier through its crisis.
'We see ourselves as financiers-industrialists,' he says. 'We are not a risk-capital firm with a short-term horizon of, say, three to five years. This means we stand by the companies we've invested in when they get through turbulences.'
CGIP acquired its stake in Valeo in 1996 from investor Carlo De Benedetti and has 28 percent of its voting rights. 'CGIP's aim was to give Valeo the means to expand,' Fayet says. 'It has been a success. Valeo grew in size and profitability - even though it was not always reflected in the share price.'
Would he consider selling Valeo piece by piece? 'I don't see that happening,' he says. 'It won't be broken up in the Magneti Marelli manner. We are not an investment bank. But the company's perimeter is going to be modified - and that may even involve acquisitions.' Any acquisitions would not come at the expense of CGIP increasing its stake in Valeo, he says.
`I AM HEALTHY'
Fayet also dismisses rumors that Valeo - which, in Latin, means, 'I am healthy' - would sell its electrical motors division. 'I can't imagine why we would sell it,' he says. 'It would seem quite central to me.'
But Fayet does admit that Valeo's purchase of ITT Automotive came at a bad time. ITT's American plants were starved of investment at the time of the purchase.
'We invested in a company that had a lot of fixed costs, that was capital intensive, but which was spot on in terms of Valeo's development strategy,' Fayet says. 'Then, halfway through the restructuring, sales by the three main clients, GM, Chrysler and Ford tumble. And it's clear that handling Rochester is tougher than we anticipated.'
Valeo has felt the effects of the U.S. auto industry slowdown. CGIP expects car production to fall to an annual pace of 15 million vehicles by year end. 'Consumer confidence will ebb,' Fayet says, 'and that's going to show.'
So how long will the slowdown last? Fayet's prediction: 'We're going to stay at the bottom of the cycle for perhaps two or three years. That's why Valeo had to react fast and adapt its production base. Andre Navarri had mapped out a strategy over a period of five years. He was preparing for the long term when there was a fire in the kitchen.'
E-mail writer Sylviane de Saint-Seine at [email protected]