José Maria Alapont has been president, CEO and a director of Federal-Mogul since March 2005 and serving as chairman of the board of directors from 2005 to 2007. He has more than 35 years of global experience in both vehicle manufacturers and suppliers with business and operations responsibilities in the Americas, Asia Pacific, Europe, Middle East and Africa regions.
j-a: Are you able to comment on reports that the company is evaluating strategic alternatives?
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JMA: We continue to evaluate strategic alternatives to enhance shareholder value for Federal-Mogul, but we cannot comment further.
j-a: How would you categorise the state of the North American components market as well as key overseas countries where Federal-Mogul is located?
JMA: Global automotive production is forecast to reach 105m vehicles by 2015 -30m more than 2010 – and is leading to unprecedented growth in the aftermarket worldwide bringing the world car parc to more than 1.2bn vehicles. As a result, Federal-Mogul’s key overseas markets are also growing: our aftermarket sales in both Europe and China are up 10% compared to the last year and our global aftermarket business grew by 4% overall.
The demand for technologies and innovations from global vehicle manufacturers has greatly strengthened in the last 18 months. Our share of the OE market has continued to improve in all market segments – light and commercial.
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By GlobalDataFederal-Mogul has been investing in global growth to support expanding markets with the facilities, equipment and talent to strengthen our leading market position. Our global presence and the fact we have innovation to improve fuel economy, reduce emissions and enhance vehicle safety to help customers meet regulatory standards and demands for product differentiation positions Federal-Mogul very well.
j-a: What are some of the improvements you have made and what remains your key market?
JMA: North America remains the world’s largest single market for aftermarket parts and services. Federal-Mogul is a market leader in providing components and service products for virtually all makes. Last year we made some enhancements, introducing a premium, mid-range and private label portfolio model. Federal-Mogul remains committed to support its premium brand portfolio with names such as ANCO, Champion, Fel-Pro, Ferodo, Goetze, Moog, Payen, Wagner and many others.
We continue to experience strong demand for premium label products. Our multi-level strategy has resulted in increased year-over-year aftermarket sales in the last two quarters.
j-a: You recently tripled Q1 profit, to what do you attribute that success and can it be sustained?
Federal-Mogul has realised strong sales increases due to the overall market recovery combined with market share wins for new business contracts. Our profitability is increased because we have been able to deliver increased sales while effectively managing our cost base.
With higher sales and cost controls, we are realising solid profitability. The first quarter of 2011 was our eighth consecutive quarter of profitable performance.
Our strategy for sustainable global profitable growth, which we have been executing for the past five years, is paying off. Federal-Mogul’s development of leading technology and innovation enables our customers to differentiate their products and to achieve improvements in fuel economy, reduced emissions and vehicle safety.
j-a: To what extent was F-M affected by the recent Japanese earthquake, are there lessons for the supply chain that F-M can elaborate on? How has F-M changed, if at all, its supply operation as a result?
JMA: The earthquake and tsunami is a terrible tragedy and the people of Japan and our customers there have our sympathy and support. We have extensive relationships around the world with the Japanese OEMs but we have only two facilities in Japan – one manufacturing facility along with a sales and engineering office – and neither was directly affected by the tragic events.
Federal-Mogul fortunately did not experience loss of life or any significant loss of resources or assets, although demand for products manufactured at our site in Shonan was impacted due to the disruptions experienced by our customers.
The unforeseen events that occurred heightened the awareness of many companies to stay close to their suppliers and to their customers to be able to quickly respond in a crisis situation. We have been assisting certain customers that experienced supplier disruptions. We regularly monitor our suppliers and we have sourced other suppliers to meet production requirements when necessary.
Japanese OEMs have made great progress in normalising their operations and we stand ready to help further if needed.
j-a: You have gone through extensive restructuring at F-M – has that process ended or does it still have some way to go? To what extent are cost reductions and headcount still an issue?
JMA: To generate sustainable global profitable growth, companies need to anticipate market requirements and be proactive in structuring the business to current and projected demand. When I joined Federal-Mogul in 2005, we began making the hard decisions to restructure our operations, to bring our global capacity in line with regional market volume requirements throughout the world and to invest in our global footprint to maximise our manufacturing capabilities in growing BRIC and other best-cost markets.
While we have ceased operations at several sites in North America and Europe during the past few years, we have concurrently opened 15 new facilities in locations such as China, India, Russia and Brazil. As a result, our percentage of best-cost manufacturing has grown from 10% in 2004 to more than 30% in 2010. We also have reduced selling, general and administration costs from 16% to 10% of sales during the last five years to further improve our operational performance. The fundamental restructuring has been done, however, the most profitable companies must always keep developing with the global markets.
During the past few years, we have grown our global market share and our business and we have efficiently hired employees to staff that growth, ensuring we have the right people with the right expertise where we need them, while remaining cost competitive.
We presently have around 45,000 employees and our business is well-diversified, with about 60% of revenue derived from sales to global vehicle manufacturers and 40% from the global aftermarket – and no single customer accounts for more than 5% of our sales. We also are globally diverse, with about 40% of our sales in North America, 40% in Europe and 20% in the rest of the world.
j-a: How would you categorise industrial relations both in the US and at key overseas plants? To what extent is management involved with unions on a day-to-day basis? Are labour bodies flexing their muscles now that F-M is turning in such an improved performance?
JMA: “We work very hard at maintaining productive relationships with employees and, at the locations where they represent workers, with our union partners. As we work together, management shares pertinent industry data with unions and employees so we can achieve and maintain a leadership position versus our competitors. This means we must have a cost position capable to attract investment in new business opportunities and this requirement to ensure world-class global competitiveness drives every site to stay focused on the right priorities to support customer needs as a way to help protect our future.
j-a: How far will consolidation in the US and overseas continue in the auto supply business?
JMA: The worst of the financial crisis is behind us now and although bankruptcies have slowed among automotive suppliers, those companies over-reliant on a single market will continue to experience the greatest challenge. As sales volumes continue to increase in the growth markets, leading suppliers like Federal-Mogul that are active in China, India, Brazil and Russia should experience greater financial strength.
I think we will still see some consolidation among smaller suppliers. Considering the overall increase in vehicle production in mature and developing markets from 75m in 2010 to 105m in 2015, consolidation will remain a part of the global market development.
j-a: How acquisitive is Federal-Mogul now? Are there other parts suppliers Federal-Mogul is eyeing?
JMA: Federal-Mogul is evaluating potential acquisitions to increase our portfolio diversification and to increase our technology in alternative energies and electrification by acquiring new innovations or technologies that can be developed across our global product lines.
j-a: Are you satisfied with the spread of risk within Federal-Mogul? How many OEMs/vehicle platforms do you supply?
JMA: Diversification across markets, regions and products has been a keystone to Federal-Mogul’s success. We work with every major vehicle and engine manufacturer across the globe and our technologies are present on more than 700 power-trains and 300 vehicle platforms worldwide. We have 70% of our business in light vehicles, 20% in commercial vehicles and 10% in the aerospace, rail, alternative energy, power generation and industrial sectors.
j-a: To what extent does the aftermarket business form part of Federal-Mogul’s operations?
JMA: We have four business units: powertrain energy, powertrain sealing and bearings, vehicle safety and protection and global aftermarket. Federal-Mogul’s aftermarket is one strategic business within the organisation and is a key contributor to our success. Through global market insight, supply chain expertise and world-wide brand and product line management, aftermarket customers worldwide benefit from the company’s OE technology and manufacturing expertise.
Our global aftermarket business unit markets products manufactured across our entire OE product portfolio, by selling maintenance and repair solutions in five categories including engine, sealing, braking, steering and service; and focusing on fuel economy, emissions reduction and vehicle safety.
We sell both individual repair components and service kits to customers in the independent automotive, heavy-duty, commercial and industrial replacement markets in more than 150 countries. We have 24 distribution centres in 18 countries.
Our revenue in 2010 attributable to our aftermarket business was US$2.3bn or about 37% of total sales.
The growth in the global vehicle parc, which is due in part to the growing BRIC economies as well as the fact vehicles have a longer lifespan, is leading to unprecedented growth in the aftermarket worldwide. Forecasts from leading market analysis firms predict the size of the global car parc to be more than 1.2bn in the next five years.
j-a: How would you categorise F-M’s liquidity with an eye to future acquisitions?
JMA: Federal-Mogul is well-positioned to pursue appropriate acquisitions and further growth. We have been profitable for eight consecutive quarters, our revenue is diversified on a customer, market and product basis; and we have strong liquidity, with US$1.5bn available, which includes US$1bn in cash and a US$0.5bn undrawn revolver [a financial facility in place for F-M, but against which it currently has no lending] to pursue our development objectives based on our strategy for sustainable global profitable growth.
