Automakers and suppliers should focus their technology more on improving processes and less on adding new buyer features, says Tim Leuliette, chairman, president and CEO of Metaldyne Corp.
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Leuliette delivered the message recently to thousands at the annual European automotive engineers meeting in Barcelona.
Metaldyne is a $US1.9 billion supplier of engine, driveline and chassis components, systems and modules.
Leuliette says it’s becoming harder for consumers to afford new vehicles. In developing countries, he says carmakers are planning vehicles that are “far out of their reach.” A lot of the features that can be added aren’t really needed, he says.
“Most automakers do not survive by selling technology-laden vehicles only to the wealthy,” he said. “We need to push the process technology envelope with vigour.”
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By GlobalDataLeuliette believes Toyota, Honda and Hyundai have addressed the economic value proposition well. The success of Hyundai in the 2004 JD Power initial quality survey in the United States shows the importance of using technology to refine production methods.
“They focused on the process,” he said. Heartland Private Equity group formed Metaldyne to take advantage of opportunities to outsource module and systems business in the chassis, driveline and engine areas.
The global engine driveline and chassis and metal-forming market is worth around $185 billion, according to independent research cited by Metaldyne. But 81% of that is still done in-house by OEMs.
In an interview with SupplierBusiness.com, Leuliette said outsourcing these operations cuts costs, improves relationships with unions and offers opportunities for technical developments and new creative solutions.
Leuliette says a supplier can work with less capital to achieve the same output, “because we have greater flexibility as a big supplier.
“A supplier invests roughly 60% of what an OEM does to get the same output,” he says. He points to the turnaround at the New Castle machining and forge operation outsourced by DaimlerChrysler to Metaldyne in early 2003.
“New Castle was a perfect example of a facility living in an OEM world that was non-competitive because of wages and of work rules and a focus on a single customer,” says Leuliette.
Since Metaldyne acquired the operation it has been turned around and has won a quality award from Ford. The plant has two more contract wins from Asian manufacturers yet to be announced.
Leuliette says the UAW has supported the changes at New Castle. Metaldyne has been slower to grow in Europe than in North America, partly because Europeans outsource less.
“There is just more ingrained vertical integration in some of the OEMs here,” he says. However the company expects some growth in Europe in the near term through at least one major new contract win. Leuliette did not give details.
Steel prices hurt
Leuliette says scrap prices have softened in the last month but earlier price rises have added $30 million annually to Metaldyne’s materials bill. He says Metaldyne has offset about $20 million of the cost increase through re-sourcing and other cost reduction programs, but it’s still a problem. As a forging house, Metaldyne generates little scrap on its own, he says, so it’s harder hit than stamping businesses that create scrap that they can sell to offset steel price rises.
“There is really no way to hedge a deal,” he says. “There’s not really even a spot market you can buy futures on for scrap.”
Leuliette says there is no immediate prospect of Metaldyne going to the market with an IPO.
“We’ve got access to the funds we need and we would like to wait until we incorporate a little bit more of the value proposition for Metaldyne before we go to market.”
SupplierBusiness.com
