CEO Pierre Levi: Cost to restructure Faurecia will reach $124 million annually.
The restructuring of the supplier's manufacturing base "will continue year after year," CEO Pierre Levi said at the presentation of Faurecia's first-half results here. "The shift took place two years ago, when we started renewing our products."
Faurecia cut 1,341 jobs in the first half of the year, mostly in Germany, France and Spain.
The work force reduction cost the company 62.4 million euros, or about $77.4 million at current exchange rates, in payments to laid-off workers compared with about $30 million in the first half of 2004. Faurecia employed 60,000 people worldwide last year.
Levi predicts that the cost associated with restructuring at the company "is about to double to about $124 million annually."
Besides redundancy payments, restructuring costs typically included the write off of assets such as closed plants.
Faurecia's move highlights the cost pressure auto suppliers are under, as well as the growing internationalization of its clients. For instance, PSA/Peugeot-Citroen SA is creating production capacity of more than 500,000 cars a year in eastern Europe alone.
As rising raw material costs make business conditions even tougher, the trend in shifting production outside western Europe "will probably gather speed," wrote Yann Lacroix, an economist with French credit insurer Euler Hermes Sfac in a July bulletin.
An example is Faurecia's seating business, which contributes nearly half of group revenue - $3.1 billion out of $6.9 billion in first-half sales.
Gerard Chochoy, head of Faurecia's seating operations, said the company "in a few years" wants to produce 60 percent of its seats in low-cost countries compared with 30 percent in 2005.
It also wants to purchase half of its seat components from low-cost countries, compared with 25 percent this year. "We are working very hard toward this," Chochoy said.
Faurecia sees no point in restructuring all at once. "There is no advantage to displace an existing product," Levi said. Rather, Faurecia waits for its clients to tender new business, then the supplier picks the most cost-effective location to make its components.
In 2004, Faurecia opened 12 sites worldwide, five of which were in low-cost countries. But it also invests in developed countries. Three of the new sites were in the United States, where Faurecia provides seats and exhaust systems to General Motors.
With a 10 percent share of the market, Faurecia says it is the leading seat maker in Europe. Globally, the French supplier is No. 3 in seats behind Johnson Controls Inc. and Lear Corp. In total auto sales, Faurecia ranks second in Europe behind Robert Bosch and No. 9 globally with worldwide original-equipment automotive parts sales of $13.3 billion in 2004.
Faurecia's restructuring costs contributed to a 42.2 percent drop in net profit to $42.8 million in the first half vs. the first half of 2004.