Aident's board recruited DelGrosso after he turned around another troubled supplier, Chassix. That company makes metal powertrain, chassis and subframe parts.
On paper, Adient is lagging behind its two key North American competitors, Lear and Magna International. Lear and Magna enjoy operating profit margins above 11%; Adient's is more than 5%. Both Lear and Magna have delivered impressive growth by investing away from seating. But DelGrosso maintains that Adient will stay the course as a seating supplier.
That strategy may play out well for Adient, says Colin Giles, a research analyst focused on supply chain and technology for IHS Markit.
'Investing in the right products and technologies is crucial, particularly as the technological adoption and development trend in the auto industry is accelerating rapidly,' Giles said. 'While it is important to keep an eye on the future, companies must not lose focus on the present.'
DelGrosso said that means getting the size of Adient's seat structures and mechanisms division right. The goal is to pare that division's $3 bn revenue by $400m. This will be done by letting bad contracts expire. Adient will also stop supplying parts to competitors.
'We're reducing revenue on selling across the broader range,' DelGrosso said. 'We were selling not only to customers but to competitors, and it created challenges and diminished our returns.'
Much of DelGrosso's strategy is allowing questionable operations to expire. He said many of the company's problems come from earlier acquisitions and diversification, he said.
'A lot of that activity moved us away from the formula of Adient,' DelGrosso said. Former executives wanted to expand into new products — for example, through an aerospace joint venture with Boeing.
'That diluted a lot of resources, took us away from our core business,' he said. 'We diluted ourselves to a point where we weren't executing on launches and were not commercially focused.'
On 18 October 2019, Adient reduced its stake in the joint venture with Boeing from 50.01% to just 19.9%.
DelGrosso also inherited a company burdened with debt, and its reduction is another focus of his turnaround effort. Adient took on $3.5 bn debt at its birth to fund a $3 bn dividend payout to JCI. This left Adient with a debt load roughly twice EBITDA.
Adient also faced $1.5 bn in impairment charges related to the spinoff.
When it was part of JCI, the business strategy to grow market share led to it buying two German seating suppliers — Keiper, and its specialty seat business Recaro, as well as C. Rob. Hammerstein Group. Digesting those acquisitions became a problem for its seat structures and metals and mechanisms division. The company spent years integrating the two acquisitions while bleeding cash.
Balance sheet blues
As a result, Adient ended its first full year of existence in 2016 with a $1.5 bn loss. JCI separated financial reporting of Adient ahead of its October 2016 spinoff.
DelGrosso pulled Chassix out of heavy debt during his time there. That company had been fused together by investment interests in 2013. But the resulting debt proved insurmountable, a missed bond payment led to and Chassix filling for Chapter 11 bankruptcy in March 2015.AT the time debt was $556.7m and assets were $34.3m. It reorganized and emerged in July 2013.
DelGrosso arrived at Chassix at the end of 2015 and led the company on a $50m expansion in Europe and a $30m acquisition of the automotive casting business of Austrian conglomerate Benteler International.
Now at Adient, DelGrosso is again attempting to master the debt. In May 2019, Adient refinanced $750 m of debt and pushed the debts maturity out until 2024.
Wall Street has viewed both DelGrosso and his first year positively, and the company's stock is up more than 23% so far this year.
In an analyst note last month, David Whiston, autos stock analyst for Morningstar said that Adient is making progress.
'With the right team in place to fix Adient's woes, more time to reduce debt and option value from markets away from cars — such as business-class airplane seats and perhaps higher-dollar automotive seating content from autonomous vehicles — we think Adient is a compelling opportunity for investors willing to ride out the volatility of a turnaround story,' Whitson said. 'The stock isn't for everyone, though, because the turnaround is likely to take a long time.'
DelGrosso sees similarities between the situation at Adient and the crisis that the smaller Chassix lived through.
'Both are the result of poor execution and an aggressive growth strategy,' he said. 'We had a few tough launches, but only a minority of plants in the US and Europe were troubled. I saw this as an opportunity to reflect on how we were operating the businesses. I decided to push accountability and responsibility back to the regions. Leaders in those regions now have the autonomy to operate efficiently.'
The company was too centrally focused, he said, and bloated with centralized upper management.
DelGrosso is facing up to the missteps and believes Adient can return to a breakeven level.
'In a stable environment, that's not theoretical; that's a reasonable target,' he said. 'This is a really good company. We're rebuilding its credibility. We're executing things as fast as we can without creating more problems. We're a very capable company, and I think that's becoming apparent.'