MARTOS, Spain Valeo is planning to significantly reduce its investment in new plants through a new strategy it calls 'franchise manufacturing.'
The strategy involves joining with a partner to produce Valeo products from new factories in developing countries but, unlike previous joint ventures, Valeo will not own the plant or the equipment within.
Valeo is close to reaching agreement with its first franchise partner in the Czech Republic, said Andre Navarri, Valeo chief operating officer.
'He will operate the Valeo way, with Valeo methods,' said Navarri, who will take over as CEO next month. 'Everything that will come out of the plant will be a Valeo product, with the same quality. The customer will see no difference.'
But the buildings and equipment in the plant will be owned by the partner, said Navarri.
The move comes as Valeo begins a three year program to reshape its operations in particular to shift many labor-intensive operations from western Europe to central and eastern Europe, and from the United States to Mexico, Navarri told a group of analysts and journalists during a production presentation here.
Valeo made restructuring provisions of A647 million at the end of 1999 to pay for the shift to the new industrial strategy. Valeo expects a payback from the changes and improved operating margins in less than three years.
Valeo is aiming for a major change in manufacturing efficiency, said Navarri, in part by introducing franchise manufacturing.
He added that franchise manufacturing is most likely to be considered for new projects in central and eastern Europe.
Some design work for an air-conditioning system has gone to a partner in India, added Navarri. However, Valeo is not looking to increase the overall level of outsourcing, said Navarri. The
French supplier is also investing in existing sites to enhance their profitability.
'We are investing several tens of millions of euros in Bietigheim, Germany. to set a real benchmark for manufacturing wider systems and motors,' he said.