ArvinMeritor to Boost Asian Business

ArvinMeritor Inc., the light-vehicle and truck-parts maker, is aiming to triple its business with Asian vehicle makers during the next five years and is launching a restructuring program that will look at cost cuts, revenue growth and product development. The moves come as ArvinMeritor faces a rough ride in the near term.

From AFX News Limited

DETROIT — ArvinMeritor Inc., the light-vehicle and truck-parts maker, is aiming to triple its business with Asian vehicle makers during the next five years and is launching a restructuring program that will look at cost cuts, revenue growth and product development.

The moves come as ArvinMeritor faces a rough ride in the near term.

Chairman and Chief Executive Charles "Chip" McClure and Chief Financial Officer James Donlon said a slowdown in the coming year in North American heavy truck production and production cuts by big automotive customers General Motors Corp., Ford Motor Co. and DaimlerChrysler AG will hit results in the company’s current fiscal year.

ArvinMeritor will consider acquisitions or joint ventures to achieve its sales goal with Asian auto makers, McClure said.

"Over the next 12 to 18 months … opportunities will become available," McClure said.

ArvinMeritor, based in Troy, MI, currently generates about 9 percent of its $9 billion in annual revenue from sales in Asia and sales to Asian-based vehicle makers, while 47 percent is generated in North America and 38 percent in Europe.

McClure said he wants to bring Asia, Europe and North American revenue to roughly one-third each, while expanding total revenue to about $11 billion to $12 billion over the next five years.

McClure said that in addition to expanding business with Asian vehicle makers, ArvinMeritor wants to triple its commercial vehicle replacement parts business worldwide from a base of less than $1 billion annual revenue today.

To answer industry concerns and better position the company’s products, ArvinMeritor is launching the "Performance Plus" program. The company expects the program to be "break even" in terms of costs compared with savings in fiscal 2007. The program eventually should deliver between $150 million to $350 million in improvement to operating earnings on an annual run-rate basis.

The cash costs could be $200 million to $300 million over the life of the program, but Vice President and Controller Jay Craig warned during the company’s investor conference Thursday that it’s "a very early estimate."

McClure said a team of 120 to 125 employees will work on the program for two to three years. They will examine cost savings in manufacturing, materials and overhead as well as "revenue enhancement," such as improvements in product development, research, and increasing the company’s replacement parts business.

Donlon said the company’s recent restructuring program, which he said will deliver $60 million to $65 million in annual run-rate savings, looked at improvements in each individual business lines.

Initial moves will include consolidating some corporate functions, re-engineering a key axle component, moving engineering to lower-cost countries and increasing re-manufacturing. The light vehicle and heavy truck divisions also will work more closely and try to build new products based of each other’s base.

Other actions, which still are being determined, will be outlined in regular updates to investors and the public, McClure said. Donlon said the company expects to announce 10 to 12 "fairly significant items" in the next six to nine months.

Donlon said the cash costs associated with Performance Plus likely will be funded with the company’s "ongoing cash flow."

Separately, ArvinMeritor is restructuring its emissions technologies group, which is expected to cost $50 million over four years. It will affect at least 800 positions and will involve moving work to countries with lower labor costs, such as in Eastern Europe. Donlon said the company is braced for a credit downgrade based on rating agencies’ concerns about the North American heavy truck market.

ArvinMeritor has projected fiscal year 2007 profits before restructuring costs will fall to $1.15 to $1.25 a share from $1.78 a share in fiscal 2006, which ended Sept. 30.

But Donlon said ArvinMeritor should maintain positive cash flow in a range of $75 million to $125 million. ArvinMeritor has access to about $1.2 billion in capital, through a $980 million bank facility and about $350 million in cash. The company has just $93 million in debt due before 2012, Donlon said.