Faurecia is growing fast in emerging markets. The French supplier booked 2 billion euros in new business in developing countries last year. By comparison, Faurecia reported 1 billion euros in sales in emerging markets in 2008. CEO Yann Delabriere says the new bookings will start benefiting Faurecia's bottom line in two to three years. The executive, who took over the company in February 2007, also has seen a positive change during the current industry crisis: Suppliers and automakers are working even closer together to make it through the tough times. Delabriere, 58, was interviewed by Automotive News Europe Correspondent Douglas A. Bolduc earlier this month.
Faurecia is very dependent on Europe, where the company generates nearly 75 percent of its sales. In Asia, that percentage is about 6 percent. Are you doing anything to change this?
I see our geographical mix and client mix as positives for Faurecia. I would rather have Europe first and North America second than the other way around. Also, our top five clients in order of sales are Volkswagen group, PSA/Peugeot-Citroen, Renault-Nissan, BMW and Ford. That is a strong group of companies.
That being said, we have stated many times that growing in emerging markets is a priority. In 2008, we booked more than 2 billion euros in new business in emerging markets while our revenues today are well below 1 billion euros. That means in one year we have booked the equivalent of more than two years of contracts in emerging markets. That shows we are on track for very good years in emerging markets. That is particularly true for China where we had a very good year in 2008 in booking new contracts and it continues in 2009. Also, in South America last year, we had the equivalent of almost three years of contracts booked in one year. We have a positive momentum in China and South America.
When will you see the positive results of those booked contracts in your results?
There is usually two years of development for components such as seats and instrument panels so those contracts will start generating revenues in 2011 and 2012.
What is your China footprint and who are your top customers?
In China, we are the ninth-largest component supplier based on sales according to our own estimates. We have 20 production sites and two R&D centers there. The customers are the joint ventures between Chinese and either European or American automakers. We work a lot with FAW-VW and Shanghai-VW, Shanghai-GM, Changan-Ford, Dongfeng-Nissan and Dongfeng-PSA, We are also working directly with the own brand of SAIC as well as independent Chinese automakers such as Chery.
What is the current state of the auto industry? Has the recovery started or will there be more pain for suppliers?
For suppliers, it depends on the region. In emerging markets such as South America and Asia, particularly China, things are much better following a drop at the end of last year and the beginning of this year. Unlike during past crises, emerging markets have had a stabilizing effect for us rather than a negative effect. In Europe the worst was in the first quarter because the automakers rushed to reduce their inventories at the end of last year and in the first quarter of this year. That stock-reduction period is over, which is good news for production and good news for suppliers. It looks like overall European sales will be up in June, but it is tough to say whether this is a trend because we know sales are supported by government-sponsored scrapping incentives in many markets. In North America, there is still a lot of uncertainty. We don't know what the longer-term effect on production will be at Chrysler and General Motors after they emerge from bankruptcy.
How has the crisis helped the automaker and supplier relations?
The crisis is evidence for everyone that we are all in the same boat. It has shown that automakers need suppliers that are reliable and viable to develop the products they need for their cars. I think that this means the OEMs have realized the potential risk that exists in their supplier chains and they have managed those risks more actively than in the past. For me it means that in the future OEMs will consider long-term reliability, long-term viability and long-term relationships as a more important driver in their supply strategies than in the past.
So there is a reduced emphasis on price?
No, they remain focused on price, but the long-term factors play a more important role now than before and will continue to play a more important role in the future.
What has Faurecia done during the downturn to make itself stronger for the future?
The best success story has been that we reacted very rapidly to the crisis all over the world. In the fourth quarter last year we drastically reduced our cost base and did a good job protecting our cash position and operating income. We reached our goal of cutting costs by more than 100 million euros in the fourth quarter of 2008. Thanks to the Internet and our highly flexible team, we have done a great job alerting all areas of the company of big changes and then did a great job adjusting to those changes.
How much cost will you cut this year?
At the start of the year we presented our 2009 action plan to cut costs. Globally that includes cuts of 230 million euros in direct production costs, 120 million in purchasing and 300 million in fixed costs. This plan is well underway so I have no doubt we will reach the targets.
What are your feelings on a major supplier such as Magna possibly becoming a major automaker?
I don't like to comment on the strategy of other suppliers. Magna must have seen a solid, rational reason to do this.
Would a similar deal work for Faurecia, in which PSA has a 71 percent stake?
The capital relation between PSA and Faurecia has been stable for more than 20 years. All our clients know we are run completely separate from PSA. We have diversified our customer base so that today PSA is no longer our biggest client. Our clients are very aware of our independence from PSA.
Do you often get asked what is the secret of building such strong business with other automakers, when PSA is your majority shareholder?
There is no secret. The industry is driven by the quality of your product, your innovation and your cost competitiveness. A recent success story for us came last month when we were named as a member of Ford's Aligned Business Framework (ABF), the automaker's network of key suppliers for exhaust systems and interiors. This shows that all OEMs recognize Faurecia as a well-positioned company.
How much business will this provide Faurecia?
I do not want to give a figure, but I am pretty sure it will help to develop our business with Ford in Europe, the United States, Asia and South America. Ford already is a big customer, accounting for 10 percent of our revenues. I would be happy to see this figure grow in the coming years.
Ford is your fifth-biggest customer. Will it grow to No. 3 because you are one of Ford's preferred suppliers?
There is certainly good potential for that. It would be a dream come true to have my Ford business at the same level as my business with Renault-Nissan.
After years of losses, Faurecia was profitable in North America last year. Will the success continue?
One of the major achievements of 2008 was getting back into positive territory in North America. We now have a well-established business in North America with a solid client base. We developed the business rapidly in the early part of the decade. Today the market is at a crossroads. Automakers there are rethinking their supplier base because a lot of companies there are in trouble. I am pretty sure the OEMs will want to increase their business with the most reliable and viable suppliers. North America is full of possibilities for Faurecia.
Will you continue to make money in North America?
Once you are making a profit you don't target a loss. The business has to be profitable and it will be profitable.
How many major projects for Faurecia have been cancelled since June 2008?
We have seen few projects that were cancelled. Some niche products were cancelled, but those were rare cases. We have seen few projects that have been postponed when I look at the European automakers. Except for Chrysler, I have not seen major changes in OEM projects.
How many sub-suppliers has Faurecia had to save in the last year?
Managing our global supply chain is a priority. Nevertheless, I don't consider this (troubles at sub-suppliers) as a top concern. It is an operational issue; it is not a major risk for the company. We are pretty well integrated at Faurecia. We make all the components for our seats and we have internal sources for our frames, the same is true for our interior parts. We have some day-to-day operational issues (with sub-suppliers) but no strategic issues.
Nothing has come across your desk saying you need to rescue sub-suppliers?
What are your top priorities for the rest of the year?
The first priority is to continue managing the crisis. We are still facing uncertainty in Europe and the United States so we have to really focus on strategic management of our costs and our cash situation. The second priority is to emerge stronger from the crisis. That means to consolidate more so we can reduce the break-even point for the company by 15 percent. This will protect Faurecia if the recovery is slower than expected. The third task is to be ready for when the market recovers. We need to be even closer to our customers so we can react quickly when their priorities change. I am spending about 20 percent of my time with customers, which is more substantially more than in the past (pre-crisis). The last priority is to invest more in products and innovation. There are many new rules and automakers need to adjust so now is the time to invest more in product and innovation.