CEOs from four of the most powerful suppliers in the world recently gathered to discuss such issues as expansion into Asia and the current corporate climate with Automotive News Europe's Peter Brown and David Sedgwick. What follows is an edited transcript of the discussion with Delphi Automotive Systems' J.T. Battenberg III, Visteon Automotiwe Systems' Craig Muhlhauser, Lear Corp.'s Kenneth Way, and Tenneco Automotive's Mark Frissora.
How is business at Delphi now that you are independent?
Battenberg: I think it has been very positive. We just had two quarters of record bookings. We booked $6 billion of new business in the first quarter and $9 billion in the second quarter. Of the $9 billion we booked, $6 billion was General Motors business and $3 billion was non-GM business. I just hope we can keep it up.
In general, corporate profits have been sensational. How are you doing?
Way: The fundamentals are good. Everybody is worried about the bubble bursting. But if you look at inflation and employment rates, everything looks pretty good. You've got to be flexible. You've got to be able to react to volume changes. That's the name of the game.
If you look at the manufacturing system over the past ten years, it's a totally different industry. People don't realize it. Look at what technology has brought. We are cutting back on inventory at every step of the process. That was part of the knock on the cyclical car business: Every time we had an economic hiccup, we had all our cash and inventory in the wrong places. That's not going to happen this time around.
Is that because of information technology?
Way: Yes. You are operating a manufacturing business with a lot fewer people, a lot fewer assets and a lot less cash on the floor.
And a lot less inventory.
Way: It's great.
How are your companies doing overseas in developing markets such as South America and Asia? Is Delphi losing money in Asia, or have those economies begun a turnaround?
Battenberg: No, we are not losing money in Asia. The market is beginning to bottom out. I wouldn't say it's rebounding. It's operating at a pretty low level, but at least the bottom has been reached in most Asian countries. We are seeing some increasing orders, but it's from a very low base.
Do you see opportunities to buy Asian suppliers at bargain prices?
Battenberg: I think there are buying opportunities. We are looking at a number of companies overseas.
General Motors, Ford Motor Co. and DaimlerChrysler Corp. have launched major drives to cut warranty repair costs. Over the past couple of years, DaimlerChrysler has put dozens of top suppliers online, so they can get repair data directly from Chrysler dealers. Now Ford and GM are experimenting with the same concept, so that suppliers can get repair data quickly to fix a problem. Is this a good idea?
Way: I think it's a good program. We started with a pilot program with one of the automakers a couple of years ago. That data was always protected before. By opening up that data to us, we can react quicker.
So you get repair data directly from dealers?
Way: Oh, yeah. We used to have these glovebox surveys, but they didn't work too well. With direct information, we work together to lower warranty costs. Everybody wins. We can get feedback and make design changes quickly instead of waiting for long-term data to come in.
Frissora: We had the exact same success with Chrysler. If we have total design responsibility, absorbing warranty costs is a non-issue, as long as we have access to the information on a real-time basis.
Does Visteon get online warranty repair data directly from dealers?
Muhlhauser: We are not directly connected to dealers. We are connected indirectly to the purchasing departments of our customers.
Does Delphi get online warranty data from dealers?
Battenberg: No, except under special circumstances. If there are specific case studies where information is needed rapidly, we can get access with the automakers. But generally speaking, no, not on a daily basis.
Among suppliers, the growth business seems to be electronics. There is also sales growth for makers of instrument panels and components. Visteon makes practically all the componentry that goes into an instrument panel. Does it make sense for Visteon and Lear to merge?
Way: I can't comment. Ten years ago, we were a stamping supplier. I don't know where the heck we are going next. Our customers are going to tell us what products to put together. They really are partners when strategic decisions are made. We sit down and talk about assets and products and where they want us to invest.
Following the Japanese overseas...
The panelists' view: At a time when Japanese automakers are moving into new markets, their suppliers are financially hard-pressed to follow them overseas. Tenneco's Frissora saw a buying opportunity, while Lear's Way saw a traditional Japanese mistrust of foreign ownership. And Delphi's Battenberg wasn't talking - Delphi's negotiations to buy a piece of Akebono Brake Industry were still under wraps at the time of this interview.
According to Bloomberg News Service, a Toyota spokesman said Delphi tried to buy a piece of the company, presumably to gain access to its keiretsu network of suppliers.
Battenberg: We have a number of partnerships with Japanese companies already. So we are continuing to look for opportunities in Asian countries, including Japan.
Do you want to expand into the Japanese market?
Battenberg: We have partnerships with three Japanese suppliers today. We would look at expanding if the opportunity were right.
Mark, what are you doing in Japan?
Frissora: We've been aggressive. We are trying to have relationships with keiretsu suppliers. They have gotten a lot more receptive to us having a larger ownership stake. We have technical agreements for strategic alliances, and now we are working at taking equity stakes in some of our partnerships. Two years ago, these partners never would have even discussed it. Now they are actually pursuing us.
Is that because Toyota and Nissan have signaled suppliers that they are willing to buy foreign parts, or is it because the suppliers are in financial distress?
Frissora: I think it's both. The keiretsu suppliers have resident engineers in the automakers' design centers in Japan. If you want to participate, you have to invest heavily to support the Japanese automakers. The easiest way is simply to take an equity stake (in a Japanese supplier). We've had nice relationships with several different suppliers. That allows us to have easy access to them and take an ownership position. In a couple of months, we may be in a position to announce a couple of deals with a couple of keiretsu suppliers.
Do you expect huge changes following the Nissan-Renault deal? Does it mark the death of the keiretsu?
Way: I think there are some changes in atmosphere, but it's a long way from a major revolutionary change, where all of a sudden you'd see global suppliers operating in Japan.
It's been an exclusive market, and it was out of our hands. I know we would like to be there. We have looked at all kinds of alternatives. We've been going there since the mid-1980s, and we haven't figured it out yet. But we keep working on it.
Can you do joint ventures or acquisitions in Japan? Do you agree that you can't set up shop in Japan by yourself?
Way: I think joint ventures for us have worked very well outside Japan. Inside Japan, you can't even do that. We have not been able to get any significant portion of anything. But I think there is more opportunity now to do a joint venture or direct investment.
Even with foreign investment in Isuzu, Suzuki, Mazda and Nissan?
Way: The doors aren't open for direct investment, but we'll keep trying.
Muhlhauser: Our biggest market position today is with Mazda. We've got our largest concentration of activity - primarily engineering support - in Hiroshima. I agree with Ken that it will be a long process. I think we'll get there. But they are very cautious about introducing American equity into the Japanese supply base. We've been most successful serving Japanese automakers outside Japan. The biggest opportunity for companies like Visteon is to establish relationships in Japan but expect to serve them - or be tested - in markets outside Japan. I think it's opening, but ever so slowly.
Following the Renault-Nissan merger, are you beating down the doors at Renault, asking for more business?
Muhlhauser: We made a major acquisition -we bought Plastic Omnium. That was a big plea that we are a serious player now. We are a major cockpit supplier to Renault.
Obviously, Nissan will be looking to change its supply base to one that is much more global.
Ten years ago, we thought the Japanese suppliers had bullet-proof relationships with the automakers and that the keiretsu networks were superior to Western suppliers. Now it seems they are not globally competitive.
Frissora: The Japanese automakers are trying to expand in Europe. They are finding out that the keiretsu supply base doesn't have the financial capability or the aggressiveness to go ahead and put plants and people in place. In a lot of cases, they don't have the know-how.
We are finding that is an opportunity. If we want to help them in a joint venture in Europe, where we have plants, they are willing to give up some of their equity and their manufacturing and engineering in Japan in exchange for that.
The keiretsus are having difficulty raising the capital to set up an infrastructure in Europe. So we look at it as an opportunity because the keiretsus are talking to us in ways they have never talked to us before.
They want to go global, but they can't do it without somebody else.
Frissora: Exactly. They are very conservative. It's a big step for a lot of keiretsu suppliers to go to another region of the world. So they are looking for partners, and they are willing to give up things they weren't willing to give up before. At least, that's what we find in our product lines of struts and shocks.
Muhlhauser: In our case, not only do they want to know about my company, they want to know about me. I've spent a week at a time in Japan, just learning about Japanese culture. They have become very wary of the American sales pitch, that we can do everything for everybody. A relationship takes years to develop.