Defects on exhibit are many and the problems of time

Strange lesson that we offer at this time the return to grace of French, Valeo and Faurecia automotive OEMs. In this trade assumed affected to customers - manufacturers - immersed in the most serious crisis in their history, they should have been the first victims of the current crisis. Instead, they display financial and stock market performance surprising. Over 23 since the beginning of the year in Faurecia, 60 for Valeo. Why Because, paradoxically, they are entered in the crisis... weakened, but in relief. Demonstration with the Faurecia, the more problematic case.

In August 2006, Faurecia is at the bottom of the hole. CEO landed following a scandal of corruption in Germany, losses become abysmal and the atmosphere is terrible between society and its major customers. Arrived at the head of the company in February 2007, Yann Delabrière, former Financial Director of PSA, quickly understand the situation. The company has a good portfolio of products, refocused around four trades (seats, Interior, exhaust, bumpers). It provides excellent customers, with a presence in all global manufacturers, in particular in Germany, its first market. Its teams are of quality and technical reputation is recognized.

The company does therefore not suffer from a strategic problem but enormous operational difficulties. Defects on exhibit are many and the problems of time. All that hate builders, not only for their image but also because the failure of a provider in a system that works to tense stream immediately stops the chain of production. In 2005, there were 200 defects per million parts manufactured, or ten times more than the usual standard. The result is extremely tense relations with clients, which benefited to weigh on prices, and pests incremental costs for the margins become everywhere negative. As often, it is the active policy of acquisition during the years 2000, with redemptions Bertrand Faure (seats), Sommer Allibert (domestic) and in the exhaust which structured the company but sowed disorder. In less than fifteen years, the turnover of the undertaking has multiplied by more than thirty!

This situation has long concealed by the boom of the automotive industry up to 2004. On that date, the brutal increase in the price of raw materials to is conjugated to the stagnation of the market and the arrival of competition from emerging countries to extreme relationships between manufacturers and OEMs. Hence the slump of 2005 and 2006.

The opportunities of the crisis

The first decision, end of 2006, just before the arrival of the current President and CEO, has been to recruit a quality of weight pattern. Kiichiro Sato comes from Nissan, barely speaks French, but he knows to be respected. Related only to the CEO, it iterates through the 200 plants in the world with five listeners and establishes a series of key indicators, transparent and communicated to all in real time. The discipline was introduced in the management of the programs progress, in terms of deadlines, quality and monitoring of suppliers and costs, is followed on the day the day until the actual launch. Finally, the Organization, rather than be upset, was just simplified by reducing the extreme headquarters (150 people on 60,000). This classic blend of discipline, rigour, autonomy and "reporting" helped to redress the bar for quality and customer satisfaction. Last June, the firm has devoted preferred by its first customer, Volkswagen supplier.

This operational work was supposed to lead the company to profit from 2008. But in the second half of this year, the world is frozen after the party financial earthquake of Wall Street. In a company without stock, receiving orders 24 hours before delivery, this means a stoppage of production. In February 2009, the turnover had fallen by almost 40 and budgets were rewritten every month.

Soon, four decisions were made. First, do not touch the ongoing operational improvement program. The trauma of 2006 was still sufficiently fresh in the minds. Second, an economy plan was launched to lower a standstill and to adapt to a market fall by 20. Six hundred million savings have been made and the company has reduced its workforce by 20. Third action, refinancing, first through a capital increase of EUR 450 million purchased in April 2009, including the parent company PSA. Then, end of 2009, a 200 million bond issue was launched.

Finally, the firm engaged in the same time a review of strategic options. Even the option of the dismantling has studied if the capital increase. Conversely, the crisis offered new opportunities for the acquisition. In fact, all major OEMs are found thus at the same time on the same narrow wire above the abyss. Who will be the victim, which will be the Consolidator "I met all my competitors, all posed the question," says Yann Delabrière. Three companies fall in anyway, the American Emcon, specialist of the tailpipe, and Plastal Swedish, German activities in external plastics. They were filing of balance and it is with the blessing of Volkswagen the French intervened. And last week, it is a high range of Germany seats which was taken over.

The challenge of profitability

Seen, the crisis justifies maps violently in the sector and convinced builders that they should strengthen their ties with a few large suppliers capable of providing security of supply and global presence for the launch of global models. With its plants on three continents and its strong market share (World number one exhaust and interiors, number three seats), the company is one of five or six essential equipment of the planet. That away for a time the risk of new emerging competitors. And its very majority presence in three top manufacturers of high-end German gives an advantage to conquer new markets.

One of the major challenges ahead of Faurecia is therefore to rely on this new power for him also to "decouple" the fate of the traditional manufacturers and equip the new players, including Chinese and Korean. Faurecia has just signed with Chinese Geely, Volvo buyer, and provides 30 of Hyundai exhaust.

Remains a challenge, and not least. That of profitability. The fragility of Faurecia also comes the specialities are low margin and not replicable from one model to another. It is the great divide between "technological", such as Bosch and Valeo suppliers, including the patented electronic finds and standardisables because small and invisible (ABS, Stop & Start) generate high margins, and "stylists", which produce way parts the most prominent. According to UBS analysts, the operating margin would be 0.5 on the seats and interiors and 3.4 on the bumper and exhaust. However Faurecia has set a goal to achieve 5 of overall margin by 2014. This, to increase the sale value. Because if the seats adaptability with engines, air conditioning, airbags, is not English who benefits, but sharp specialists who can display up to 30 profit! The inventor is still better paid than the assembler. The challenge, in short, always will be out of the enslavement of the subcontractor to become a full-fledged industrial.

pescande lesechos.fr Philippe Escande blog on blogs.lesechos.frblogs.lesechos.fr