Issue: Nov 2006


Increasingly, auto companies are looking at China as a low-cost production and engineering base



Automotive Industries speaks to Douglas DelGrosso, president and chief operating officer at Lear Corporation and asked how the seven-dimension approach helps the company.

by James Hilton

This year, 17 billion USD Lear Corporation has been looking to reposition its automotive interiors business. The company entered a joint venture with International Automotive Components Group, LLC or (IAC) this October whereby IAC acquired Lear’s European automotive Interior operations in exchange for one third of IAC equity. IAC, which was originally created by WL Ross & Co and Franklin Mutual Advisors, acquired Lear’s nine manufacturing facilities in Europe that manufacture 750 million USD worth of instrument panels and cockpit systems, headliners and overhead systems, door panels and interior trim for various original equipment manufacturers.

"Looking at this business longer term, we believe there is a great opportunity for profitable growth, but for that to occur this segment requires further consolidation. We are extremely pleased to have completed a transaction for our European Interior business and are continuing to seek a similar solution for our Interior business in North America,” said Bob Rossiter, Lear Chairman and Chief Executive Officer in a company press release.

Lear Corporation is one of the world's largest suppliers of automotive interior systems and components. Lear provides complete seat systems, electronic products and electrical distribution systems as well as interior trim products. The company, which is headquartered in Southfield, Michigan, has 115,000 employees at 282 locations spread out over 34 countries.

Lear initially was headquartered in Detroit when it was founded in 1917. Known as American Metal Products, it manufactured tubular, welded and stamped assemblies for the automotive and aircraft industries. The company went on to acquire over 18 companies and today, Lear exclusively serves the global automotive industry and supplies product for all five major interior systems: seating, instrument panel/cockpit systems, door & trim, overhead systems and flooring & acoustics. Lear is also one of the leading global automotive suppliers of electronics and electrical distribution products. According to the company, there is Lear content in more than 300 vehicle nameplates around the world.

Lear says that its success is based on its exclusive People-Vehicle-Interface Methodology™. By utilizing the PVI Method, Lear employs an innovation development discipline that turns market opportunities into the products that consumers want and customers need in their vehicles. PVI consists of six steps:

* Consumer research;
* Industrial design and visualization;
* Engineering;
* Technical analysis;
* Manufacturing process development; and
* Validation.


For product development, Lear relies on itshas a Core Dimensional Strategy, consisting of seven core dimensions -- demarcated as:

* Safety;
* Comfort & Convenience;
* Environmental;
* Craftsmanship;
* Commonization;
* Infotainment; and
* Flexibility.


These seven dimensions – or rather areas of consumer appeal – have a number of products under their banners.

For example, under the Safety dimension, Lear has the following products - Anti-whiplash ProTec™ PLuS, which is its second-generation self-aligning head restraint, offers increased safety and is able to pass the Federal Motor Vehicle Safety Standard (FMVSS) 202a dynamic seat test option. The product significantly reduces forces on the neck, design-adaptable for improved rearward and lateral vision and allows reduced height for improved rearward vision.

Lear’ Advanced Front Light System provides both “steerable” lighting and automatic leveling while keeping design and engineering concerns in mind. It substantially improves illumination of the road ahead and allows for fast response and smooth, synchronized movement is perceived as light moving with the driver’s vision.

The IntelliTire™ Tire Pressure Monitoring System alerts drivers when tire pressure is below proper operating limits. This enhances driving safety and tire pressure maintenance by acting as a reminder

Under the Comfort & Convenience dimension, Lear’s products include the Car2U™ Home Automation System, which communicates with garage doors and enables the user to operate home-based products and is expandable to control items such as lights, alarms, appliances, and more. The company’s Car2U™ Two-Way RKE System is a compact remote keyless entry (RKE) system that provides features including remote engine start, engine status, climate control settings, and alarm status apart the regular remote locking and opening facilities. The Lear Climate Seat provides a pre-cool function that makes initial seat contact more comfortable.

Lear’s Environmental dimension, includes its SonoTec®, which is its overall expertise in automotive acoustics, including processes, technologies, and a family of products providing optimized solutions for minimizing automotive noise, vibration, and harshness (NVH). Plus Lear’s FreeForm™ technology is an injection molding process that first shoots a color and texture onto the substrate then moves or rotates to shoot a second color or material — all in one mold cycle which allows for soft looks at the price of a hard part.

Lear also places great importance on its Craftsmanship dimension which offers the company’ spray polyurethane process, dubbed Spray PUR. Lear’s Infotainment dimension offers an array of sound systems which feature the latest technologies. The Lear Family Entertainment System (FES) is where high-end entertainment systems merge with vehicle interior design. A two-screen FES allows for USB memory interface so passengers can view their own video files on screens integrated into the head restraint and listen to audio can be enjoyed through the vehicle’s speaker system or headphones.

Other dimensions include Commonization, under which Lear offers flexible seat architecture and gateway modules that allow various BUS protocols to communicate. Flexibility is another Lear dimension and includes products such as Remote Release 2nd Row Easy Entry™ which allows second-row seats to automatically fold up allowing easier accessibility to third-row seats by pushing a button. And the Ford Freestyle 3rd row seat is a two-passenger seat that folds and stows to provide a flat load floor. The seat is available as a bench, a 50/50 bucket, or a unique self-deploying load floor concept.

Automotive Industries spoke to Douglas DelGrosso, president and chief operating officer at Lear Corporation and asked how the seven-dimension approach helps the company.

AI: How does your seven dimension strategy help in product development and marketing? How has it helped Lear maintain market leadership?

Our product development process is focused on meeting and exceeding customer expectations. The most important ingredient of an effective product development process is to understand customer expectations. Offering more features at better value drives customer satisfaction.

The interior of a vehicle is an area of importance for the automakers. Our market research tells us that consumers also are keenly focused on features that differentiate their vehicles from the others in the marketplace as well as those that provide the best overall utility or functionality. The seven dimensions we have identified are those attributes that consumers have highlighted as being most important and where Lear innovation can make a vehicle’s interior more attractive to consumers and potentially influence a purchasing decision.

Lear products within each Core Dimension are selected based on extensive consumer feedback, including research conducted by Lear as well as information gathered by leading consulting firms, such as JD Power & Associates and CSM Worldwide. By polling automotive consumers directly, we are able to identify the key dimensions of consumer interest, and more specifically, the major products within those segments that consumers identify as “must haves”.

Our Core Dimension approach to product development underscores Lear’s commitment to provide automakers with those interior features categorized in the most frequently mentioned areas of importance by automotive consumers. For example, our Lear Flexible Seat Architecture is a solution developed by Lear to utilize a common seat structure across multiple models, therefore saving OEMs money on R&D, validation and testing on multiple platforms. While this innovation is unseen by the consumer, they benefit indirectly from our ability to help the automakers hold the line on new vehicle prices while offering the best possible overall seating system.



AI: Do you think Lear will start an eighth or ninth dimension? Or is your seven dimension approach a permanent one?

The automotive marketplace is very dynamic, so that is something we will continue to monitor. The seven dimensions we have initially identified are based on current customer preferences and market conditions; however, over time it is likely that these will change. For example, if you compare the popular innovations today with ten years ago – i.e. Infotainment (Rear Seat Entertainment) and Flexibility (Smart Fold and Reconfigurable Seats) – some of these options were previously nonexistent, or at the very least, it was never imagined the demand would be as great as it is. We plan to continue to monitor consumer preferences and market trends as a key element for our future product development strategy.



AI: Please tell us a little bit about why the IAC joint venture happened and why you are looking at similar agreements in North America? How will it benefit Lear and will it help you expand your markets? If so, how?

As a result of very challenging industry conditions, including overcapacity, insufficient pricing and high raw material costs, the global Interior Products segment is depressed. Wilbur Ross is an investor that has a clear vision for a new business model for this troubled segment of the supply base. He is willing to put up capital to finance the consolidation of this market segment. We support his concept and believe that he is in a strong position to lead the restructuring effort. Accordingly, we are committing our people and assets to develop a workable solution for the Interior business. We believe that developing a more efficient supply base for Interior components with a competitive cost structure will benefit our customers and will also allow Lear to participate in improving business results as an investor in the new venture.

While this solution is unique to our Interior business, the investment in Lear by Carl Icahn will provide increased flexibility and allow Lear to continue to invest in strengthening and growing our core Seating and Electronic & Electrical businesses.



AI: What kind of strategy does Lear plan to use in developing countries like China, India and South America – will you continue to pursue JVs or do you plan to expand your markets there on your own? And why?

The developing regions are a critical part of our global growth strategy. Just to put this in context, in China, we have grown from less than 1,000 employees in 5 locations in 2001, to 4,000 employees in 13 locations today. In South and Central America, we now have 7,500 employees as opposed to about 2,700 in 2001. In India, where we had a fairly strong presence 5 years ago as a result of our relationship with Mahindra & Mahindra, we have still grown about 50% over the past years to more than 1,300 employees.

Literally every day, there are news reports on the growing economy and importance of China. Simply stated, for car companies to succeed over the next decade, they must reap the benefits of globalized development and manufacturing. This means continuously improving every business practice and continuing to evolve your global footprint to take advantage of regional growth opportunities as well as low-cost sources. As the growth in manufacturing of vehicles and components is starting to shift to China, Lear intends to be there to get our share of the growth from this region.

Lear China today is our fastest growing single market, and sales are expected to grow about 30% annually for the foreseeable future. For Lear, every option is on the table: production aimed at supplying vehicles for local buyers; production of components for exports; business alliances with JV partners if necessary, or independent Lear operations where possible. Increasingly, auto companies are looking at China as a low-cost production and engineering base. The ultimate goal is satisfying our customers and delivering value for our shareholders. We plan to continue to whatever it takes to fulfill those goals, in the emerging regions as well as our traditional markets.



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