CORBETTA, Italy - Fiat SpA's auto components division Magneti Marelli is radically refocusing its business to help grow annual sales to $5.5 billion by 2002 - up from $4.2 billion this year.
It has already invested euro 578.7 million ($616 million) to enter three new business sectors - suspension modules, cockpit modules and aftermarket car servicing. Magneti Marelli has also sold 80 percent of its rotating machines division to Japan's Denso and merged its lighting activities with Robert Bosch GmbH.
The moves are part of a plan to increase its return on investment to about 18 percent of sales, up from 5 percent in 1998.
Making that 13 percent jump in four years is no easy task, particularly with the growing pressure from carmakers to cut prices. 'It is not easy, but we have to achieve it,' said Domenico Bordone, Magneti Marelli president and chief executive officer. 'Our best competitors show returns on invested capital from 13 percent to 18 percent of sales. We have to join the top group using a combination of many factors.'
Bordone said this will require not only refocusing the core business and the group's global strategy, but entering new sectors and, if necessary, getting out from others where Magneti Marelli is not among the leaders. The supplier is also looking to outsource non-core business.
Bordone said Magneti Marelli also needs to improve its performance in the aftermarket sector, where there is more chance of a high return. It's also an area that generates resources Magneti Marelli can invest in its core business. 'With the combination of our traditional aftermarket sectors, lubricants and spare parts, to new activities, the MIDAS quick-service organization and the VIASAT satellite system, we plan to take the aftermarket and service sector to a quarter of our sales from the 12 percent it represented in 1998.'
Magneti Marelli has high expectations from chassis systems, which is expected to generate $600 million in sales this year, and will be more profitable than the divested rotating machines business. Bordone said: 'With 4 million units a year, our volume in rotating machines was about a quarter of our biggest competitors. Chassis systems is a new division which we expect to see growing to 30 percent of total sales by 2000.'
Magneti Marelli started the chassis division by buying COFAP in Brazil in October 1997 and adding two plants purchased in Italy from Fiat Auto chassis systems in March. By next year, Magneti Marelli will complete its acquisition of other Fiat Auto chassis plants in Italy, Brazil, Poland and Turkey. With these purchases, it will become Fiat Auto's global supplier of chassis systems. 'That is just the first step because the challenge is to sell complete chassis modules to other makers,' said Bordone.
Chassis systems could potentially become Magneti Marelli's biggest sector, overtaking powertrain systems, which had 1998 sales of $1.4 billion, and interior and body systems, which last year accounted for sales of $800 million, he said.
The flagship of Magneti Marelli's powertrain division is the Selespeed electronic management for manual gearboxes.
Developed for Ferrari in Formula One racing, it then went into limited production first with the Ferrari F355 F1 and into higher volume production this year in the Alfa Romeo 156.
Bordone said the company hoped to sell 1 million Selespeed systems a year in the early 2000s as it is developed for traditional automatic transmissions in small passenger cars and commercial vehicles. 'Sele-speed has two great advantages compared to a traditional automatic gearbox: It costs less and burns less fuel,' he said.
Magneti Marelli is also working on electric braking, but Bordone said the system is still some distance away from production. 'Brakes are a fundamental car safety item and it will take a long time before the industry abandons the reliable hydraulic system. More generally, we are working on complete dynamic vehicle control, coordinating the engine, gearbox, suspension and brakes.'
Electronic valve control is among the most promising new technologies Magneti Marelli is working on, Bordone said.