DETROIT — At Visteon’s headquarters in a western suburb, technicians are preparing a durability test for the audio speakers in a set of four pickup doors.
The four white door panels are installed in jigs, which will jiggle every latch and handle until something breaks. This is standard test procedure for an automotive supplier, but for the workers in Building 25 it’s a new lease on life.
This year CEO Tim Leuliette announced Visteon’s electronics unit would be one of the company’s two core operations, along with heating, ventilation and air conditioning systems. Both divisions have passed two key tests: Each is profitable, and each is global.
“These are strong businesses ... with strong global positions,” Leuliette told Automotive News. Automakers “are looking for suppliers that have a global presence and the technology to bring value.”
You can boil this strategy down to three precepts:
1. Strive to be No. 1 or No. 2 in each product category.
2. Each product must be profitable; no “loss leaders” allowed.
3. If you can’t afford the r&d, sell the operation to someone who can.
Like Visteon, many suppliers no longer want to be an automotive “department store” that stocks every major component.
Companies such as Delphi Automotive and Johnson Controls Inc., behemoths once known for vast product lines, are selling noncore divisions so they can focus on their specialties.
“It’s better to be smaller and more profitable than larger and less profitable,” said Leuliette.
This trend is mostly good news for automakers. By focusing on core products, suppliers can afford bigger investments in r&d and global production.
By contrast, vendors that market a wide variety of components often offer low prices for so-so technology. In the long run, a supplier that spreads itself thin risks financial ruin — like Visteon, after Ford Motor Co. spun it off in 2000.
At the time, Visteonwas a $19 billion giant that produced seats, interior trim, batteries, HVAC systems, instrument panels, headlights and more.
Saddled with high labor costs and a hodgepodge of products, Visteon filed for Chapter 11 bankruptcy protection in 2009. The company is smaller now, with revenues of $6.9 billion last year. When Visteon sells its interiors unit, it will shrink more. And that doesn’t bother Leuliette one bit.
There are other megasuppliers — such as Continental AG, Denso Corp. and Magna International Inc. — that have the deep pockets to be successful suppliers of multiple products.
But some major players are narrowing their focus. Consider the seating industry. Fifteen years ago, Lear Corp. and Johnson Controls vied to be one-stop suppliers of complete automotive interiors: seats, instrument panels, consoles, door panels, headliners and flooring.
Automakers refused to concede so much control to one supplier. So Lear subsequently dumped its unprofitable interiors unit so it could focus on seats and wire harnesses.
And now Johnson Controls is considering “strategic options” for its interiors business, and has announced plans to sell its electronics unit, which produces anti-theft devices, tire pressure monitors, instrument clusters, control modules and infotainment displays.