BorgWarner in Right Place to Compete

BorgWarner Inc., the new auto supplier on the block in Auburn Hills, Mich., has a competitive edge that hasn't gone unnoticed on Wall Street. While some automotive-related stocks have seen double-digit declines in the past year, BorgWarner has seen double-digit gains. And, even with the difficulties faced by auto stocks, BorgWarner has continued to get favorable marks from Wall Street analysts.

From Detroit Free Press

AUBURN HILLS, MI — BorgWarner Inc., the new auto supplier on the block in Auburn Hills, Mich., has a competitive edge that hasn’t gone unnoticed on Wall Street.

While some automotive-related stocks have seen double-digit declines in the past year, BorgWarner has seen double-digit gains. And, even with the difficulties faced by auto stocks, BorgWarner has continued to get favorable marks from Wall Street analysts.

The reason? BorgWarner makes parts for some of the fastest-growing areas of the auto industry. It is into four-wheel drive, diesel engines, turbochargers and advanced technology for transmissions. “We try to provide value by giving our customers leading product technology at a fair price,” said Timothy Manganello, chairman and CEO of BorgWarner.

Manganello said the company is offering the right products, as automakers increasingly look for ways to increase fuel economy, reduce emissions and improve vehicle stability and performance.

“At the end of the day, I think what separates the market is the product.”

New offices

The auto supplier — which had $4 billion in worldwide sales in 2004 — joins the “Free Press 50” after moving its headquarters from Chicago to leased offices at the southwest corner of Hamlin and Adams roads in Auburn Hills. The company had temporary offices in Troy, Mich., for corporate staff in 2004 while the headquarters was being built. BorgWarner moved to the Auburn Hills building in early March. The new headquarters has 70 corporate employees, including business development, investor relations, human resources and information technology.

BorgWarner has leased 41,000 square feet.

“Our philosophy is not to have a big headquarters. We want to put our manpower out where they make money,” Manganello said.

Manganello, a Detroit native and University of Michigan graduate, said the move to Michigan makes sense because the automotive industry travels through three points: Michigan, Germany and Japan.

The new headquarters also puts BorgWarner close to its Powertrain Technical Center, which has 475 employees near the Palace of Auburn Hills. The company has about 1,100 employees in Michigan.

International growth

BorgWarner’s growth story is fueled by efforts to build business with Asian and European manufacturers.

Last November, BorgWarner announced plans to acquire majority ownership in Beru AG, the German maker of diesel-engine starting systems. The acquisition increased the company’s debt burden. Yet Daniel DiSenso, credit analyst for Standard & Poor’s, noted that the company continues to have good prospects for growth.

“They’re in areas that are important to automakers,” DiSenso said.

Turbochargers, for example, offer ways to improve fuel economy and lower emissions.

And a new technology for transmissions is expected to go over well in Europe, where there’s projected growth for automated transmissions.

“In Europe, we’re seeing tremendous growth in turbochargers and diesel engines,” Manganello said.

One new technology: A DualTronic wet clutch and control system. In Europe, the fuel-efficient transmission technology is available on Volkswagen and Audi vehicles.

DualTronic technology enables a manual transmission to perform like an automatic transmission, yet deliver significantly improved vehicle fuel economy. The technology debuted on the VW Golf R32 DSG and the Audi TT 3.2 in 2003 and is available on six other VW and Audi vehicles.

BorgWarner expects the demand for this technology to grow to 20 percent of the European passenger car market by 2015.

BorgWarner says the technology could prove attractive in China and other recently developing automotive markets around the world. And the technology has limited potential for North American markets, too.

BorgWarner’s projected revenue for 2005 breaks down to 45 percent from the Americas, 38 percent from Europe and 17 percent from Asia.

By customer, about 16 percent of the sales are to Ford Motor Co., 11 percent to DaimlerChrysler AG, 10 percent to General Motors Corp., 10 percent to Volkswagen AG and the rest to other automakers.

Another part of the growth story: BorgWarner says it expects $1.4 billion of net new business between 2005 and 2007.

An example: BorgWarner will provide its electronically controlled all-wheel-drive system to the 2006 Honda Ridgeline, the midsize pickup.

The system electronically senses when the vehicle’s front wheels slip and instantaneously transfers power to the rear wheels.

Robin Adams, CFO and chief administrative officer, said the system redirects power to provide more stability, so wheels aren’t slipping and sliding.

“Almost every one of our products is involved in some current trend in the industry that’s growing a lot faster than the auto industry itself,” Adams said.

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