Marelli returns from restructuring with a new game plan

LAS VEGAS — Japanese parts supplier Marelli is looking to boost collaboration with automakers and tech companies while regionalizing its manufacturing strategy as it emerges from last year's court-led financial restructuring.

"We're working really hard after the rehabilitation to put the customer at the center of everything we do," Marelli CEO David Slump said in an interview with Automotive News during CES this month.

Slump said the supplier of lighting, electronics and interior systems is in a much stronger position following last year's restructuring, which the company entered as it found itself with about $8.3 billion in debt and struggling to pay back lenders. Last year's restructuring helped Marelli, a key supplier to Stellantis and Nissan, slash at least $3.4 billion in debt, according to a Bloomberg report.

Marelli's finances are difficult to verify because the company is owned by the New York private investment house KKR & Co. But Slump said the supplier has been profitable since September.

That's a major improvement for a company that has struggled to find its financial footing in recent years. According to Japanese newspaper Nikkei, Marelli booked four straight years of losses from 2018 through 2021.

To sustain the positive momentum, Marelli wants to take a more collaborative approach to product design. By working as "co-creators" with automakers and tech companies, Slump hopes Marelli will be able to establish a significant foothold in emerging business areas in advanced driver assistance and infotainment features.

"If you go back in time, most OEMs would tell Tier 1 suppliers what they needed, they would write a spec, we would quote and they would do it," said Slump, who took over as CEO in January 2022 after 13 years with Harman International. "But if you look at the frontier areas of the past 10 years, like infotainment or ADAS, it's not done that way.

"We don't want to sit and develop products and waste cash without involving our customers," he said.

Developing a cohesive identity for Marelli has proved to be difficult.

Marelli was created by combining two major suppliers — one Italian and one Japanese. KKR had agreed to buy Japan's Calsonic Kansei from Nissan Motor Corp. in 2016. It then had Calsonic Kansei purchase Magneti Marelli from Fiat Chrysler Automobiles in 2018.

Financial struggles plagued the new supplier in the years that followed as it got buried under a mountain of debt, resulting in last year's court-led rehabilitation in Japan. While the restructuring has led to improved financial performance and a profit, Slump said the company is about "halfway through" its transformation.

"We're focused on making Marelli fit for the future. We started that journey recently, and we'll continue it on," he said.

That involves gearing up for the accelerating EV sales worldwide in the coming years. Marelli, which has significant business tied up in traditional powertrains and exhaust systems, is taking a regional approach to electrification, Slump said.

The company sees market demands and government policy driving the quick adoption of EVs in Europe and China, with much slower adoption in the United States, Brazil and India, where it has operations. The company plans to hire about 1,000 engineers in India to beef up its technical operations there.

Marelli intends to build components for internal combustion engine vehicles in those markets as automakers look to regionalize their supply chains. In Europe and China, however, it will retool plants to produce EV components for those markets, Slump said.

"You could say bringing together the former Kansei and Marelli is hard because it's a big footprint of 140 plants," he said. "Or you could say, 'Wow, we have 140 plants to localize closer.' "

"So we're doing a lot more in Brazil and India with customers, where we believe the long tail of ICE powertrain will continue, while we shift to electrification in, say, Europe."

Marelli is making these changes as the industry braces for rocky economic conditions in 2023.

"The first half of the year is going to be hard," Slump said. "China is going to be volatile in reopening. Europe is volatile.

"My question is the second half. With pent-up demand and a potential soft landing in the U.S., the second half could pick up, particularly in North America, or it'll feel tough all year. We're preparing for both."

Marelli ranks No. 20 on the Automotive News list of the world's largest suppliers, with worldwide parts sales to automakers of $12.04 billion in 2021.