Q: Will you source more from low-cost countries? A: There are some advantages, but you cant ignore the costs of freight, duty and inventory.
The suspension, exhaust, roof and door module specialist saw sales increase 19.5 percent to $8 billion (E6.1 billion) in the fiscal year that ended September 30, 2004.
During McClures first quarter as boss, ArvinMeritor posted $2.09 billion in sales for the period ended December 31, 2004, up from $1.92 billion in the year-ago quarter.
Net income fell to $18 million from $19 million in the year-ago period as the company dealt with the effect of increased steel prices. McClure talked about how ArvinMeritor is dealing with rising steel costs and other issues during an interview with Automotive News Europes Edmund Chew.
How will higher steel costs affect ArvinMeritor in 2005?
Steel will be a big challenge. We all realize that weve got to find better ways to process the product, to support the customer from quality, cost and also from a perceived value [basis].
If you look at our product portfolio, steel is a big part of it. Availability is not an issue for us. However, cost continues to be a challenge.
Some of the things that we have been doing include finding new sources around the world. Were also working with our customers to find different grades of steel that we can incorporate into our products.
If we can engineer the product as a complete module, instead of all these bolt-ons, then you reduce the amount of steel thats required. Were doing things on the coordinating and consolidating of the selling of our scrap. We also continue to work with our customers to find ways to pass through some of [the cost increase]. Were not passing through all of it, its really on a product-by-product basis.
Is the industry cooperating on this issue?
Compared with a year ago, a great deal of progress has been made. But I think it has still got a way to go.
The first thing is for everybody in the entire chain to recognize that this is an issue. That has happened. I think the second step is to look at this as being a collaborative effort to find a way to get this resolved, and I think were not there yet.
What are the other challenges facing your company?
I dont see the price pressures going away so were committed to continuing to look for cost-reduction opportunities. The other challenge I think we all have is that our competition is global, so weve got to benchmark ourselves on a global basis.
The cost pressures and the need to drive down costs in all parts of our business are not just on the material side, not just in the processing side, but also in all the back-office costs.
Will you source more from low-cost countries?
We are committed to continuing to have a strong presence in western Europe and in North America. But what youve got to do is find the right balance between materials, processes, technologies, etc. – to look at a total cost model.
There are some advantages when you go to low-cost countries, but on the flip side you cant ignore the costs of freight, duty, the cost of inventory – the 45 days or whatever it is in the pipeline. Those are all true costs. What we look at is the total delivered cost. There are some parts that long term will still need to be in western Europe or North America to support our customers, and then there are some others where we need to look at elsewhere.
What is the outlook for Europe?
We see light-vehicle volumes roughly flat, plus or minus 1 percent – probably around the high 16 millions, maybe 17 million units. Many of the dynamics were seeing in Europe are the same dynamics that we have in North America – increased presence from the Asian OEMs, and what I would kindly refer to as choppy waters with some of our established customers.
Will pricing in Europe follow the trend seen in North America?
Yes. In America we have lived for a long time on discounts, rebates, incentives, etc., and were seeing the same type of thing in Europe.
What is happening in North America?
Similar to what were seeing in Europe. The domestic Big Three – Ford, GM and Chrysler – continue to feel the pressure from the Asian OEMs. Days-inventory out in the field is nearing triple digits – 100 days. Thats pretty significant. Total industry volume is essentially flat, but the mix within that shows an increase for the Asian OEMs, primarily Japanese and Koreans.
Have you seen schedules reduced to cut stock?
We clearly felt some of that in the first quarter. I expect more of that in the future. The summer shutdown may be extended for a week or two or a shift taken out for a period of time. Thats not unique in North America. We saw the same thing in Europe. I think that is the norm in the industry.
What is happening in Asia?
We continue to see strong growth, driven primarily by China. India continues to increase incrementally, both on the light-vehicle and commercial-vehicle side.
Recently weve seen some softness in volume sales in Asia, but in the future we believe that there will be double-digit percent increases in that region. So, if I look longer term, there is no question that Asia/Pacific will continue to be a high-growth market. China and Asia/Pacific as a whole are huge opportunities.
We anticipate our sales in Asia/Pacific in 2005 to be somewhere between $450 million to $500 million on a consolidated basis. China represents about half of that.