As part of a restructuring program initiated this spring – see PIE 14, 2005 – tier 1 automotive supplier Lear (Southfield, Michigan / USA; www.lear.com) is seeking “new strategic options” for its ailing auto interiors business. Initially, the division will be carved out as a stand-alone operation and report directly to CFO Dave Wajsgras. The company points to overcapacities on the market, high raw material costs and unsatisfactory selling prices, which have led to “unacceptable results.” EBIT margins have slipped continuously from 5.5% in 2002, ending up in the negative column for the first half of 2005, despite a rise in the segment´s annual sales from USD 2.55 bn to around USD 3 bn.

The problems stem primarily from the North American market, which accounted for 70% of sales in 2004, while the other 30% came from Europe. More than 80% of the Lear division´s orders are from the “big three” US automakers: GM, Ford and DaimlerChrysler. Door and trim systems accounted for 44% of last year´s sales, flooring and acoustics for 21%, instrument panels/cockpits for 17% and overhead systems for 16%. However, a major shift in emphasis is currently taking place. Some 60% of current orders are for instrument panels/cockpits, and 90% of current and planned orders are from North America.

To stem the profit drain, drastic action seems to be needed. Of the 44 manufacturing facilities in North America, Mexico and Europe, more than 20 plants, accounting for around 7,500 of the company´s 19,000 jobs, are being subjected to a review. The estimated USD 250m cost of closing them down could be recouped in about three years, Lear believes. Some analysts nevertheless doubt this will be sufficient. In the meantime, Wajsgras has begun a search for financial or strategic partners willing to fund the consolidation.

• e-Service:Lear presentation “Business Update and Product Strategy” from 15 September 2005 as PDF document (3.472 KB)