Chip McClure: Looking for better ways to process steel.
How will higher steel costs affectArvinMeritor this year?
Steel will be a big challenge. We all realize that we've got to find better ways to process the product and support the customer.
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.
We're 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 that's required.
We're doing things on the coordinating and consolidating of selling our scrap.
We also continue to work with our customers to find ways to pass through some of the cost increase. We're not passing through all of it. It's really on a product-by-product basis.
Is the industry cooperating?
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 we're not there yet.
What other challenges does your company face?
I don't see the price pressure going away, so we're committed to continuing to look for cost-reduction opportunities. The other challenge I think we all have is that our competition is global, so we've 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 you've 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 can't 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 elsewhere.
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 we're seeing the same type of thing in Europe.
What is happening in North America?
The domestic Big 3 continue to feel the pressure from the Asian OEMs. Days-inventory out in the field is nearing triple digits - 100 days. That's 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. The summer shutdown may be extended for a week or two, or a shift taken out for a period of time.
That's 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 we've 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.