French supplier Faurecia has edged out North American giants Lear Corp. and Johnson Controls Inc to win a $500 million-a-year (euro 507 million) General Motors seat contract.
It is in final negotiations to supply seats for GM's next-generation mid-sized cars, according to two sources close to the project.
Confirmation would speed Faurecia's expansion plans which include four or five new plants in North America, with at least two in Michigan.
The upcoming mid-sized Epsilon global car platform includes future editions of the Chevrolet Malibu, Oldsmobile Alero, Pontiac Grand Am, Saturn L series and Opel Vectra.
Analysts said the contract would give Faurecia the global reach GM expects of its suppliers. Faurecia's presence also would give GM - as well as Ford Motor Co. and DaimlerChrysler - more leverage over seat prices.
'Car companies are uncomfortable having just two choices among global seating suppliers,' said Bear Stearns analyst Eric Goldstein in New York.
GM is eliminating that by awarding business to smaller suppliers. Last year, it awarded its Delta small-car seat program to Magna International. Delta will be the platform for the Chevrolet Cavalier, Pontiac Sunfire and Opel Astra.
GM turned to Faurecia for the Epsilon, one source said, because it wanted a third supplier with a large European operation. Only a fraction of Magna's $1.2 billion seating sales last year was in Europe, making it a less likely global competitor to Johnson Controls and Lear.
By contrast, Faurecia posted sales last year of more than $4 billion, primarily in Europe. It is also a supplier of cockpit modules, instrument panels, door panels, steering wheels and columns, seating and exhaust systems.
GM strengthened its ties with Faurecia earlier this year by awarding the company a contract worth more than $100 million to supply metal seat parts for the Epsilon cars in Europe.
With GM's contracts, Faurecia is poised for explosive growth in North America. It is currently a Tier 2 supplier of seat tracks, recliner systems, frames and other components to Lear, Johnson Controls and Magna.
A larger Faurecia 'will not be content to sell mechanisms in North America,' said one source. 'It will be going after the whole seating business - and that will shake up the market.'
Such a coup by Faurecia would be bad news for Lear, the world's largest supplier of interiors. Analyst Goldstein said Lear's acquisition last year of Delphi Automotive Systems' seat business blocked Magna and Faurecia from becoming big players in seats (in North America).'
That deal gave Lear 65 percent of GM's worldwide seating, a concentration Goldstein then predicted would prompt GM to send future business to rivals.
Gregory Janicki, vice president of the automotive forecasting firm CSM Worldwide, said Faurecia's move would mean lower prices for automakers and still more competition for suppliers. Lear's profit margins are already eroding under GM's pricing pressure, according to Goldstein, while Johnson Controls is less dependent on GM for its North American seating business.
In the past GM has been one of Faurecia's smallest customers, accounting for 2.3 percent of the supplier's worldwide sales.
The business was created formally in March 1999 by the merger of Bertrand Faure and Ecia, the component subsidiary of PSA/Peugeot-Citroen.
GM appears to have little doubt about Faurecia. When GM's purchasing chiefs in Detroit sat down last month for a video conference with their European counterparts, they had three choices.
They could have passed on a decision or agreed to renegotiate; they could have taken other bidders off the table and renegotiated - a move known inside GM as the 'soft knock'; or they could have awarded Faurecia the contract with minor issues remaining - the 'hard knock'.
Faurecia got the hard knock.