By Jason Stein, Automotive News
Geneva, Switzerland -- Magna International Inc. emerged from the industry's recent crisis in relatively good shape. Now North America's largest supplier hopes to reap the benefits of a global footprint.
Magna ceo Don Walker predicts smaller suppliers will be winnowed out during the recovery of 2011 as automakers channel more orders to major suppliers for vehicles built on global platforms.
Suppliers also will be asked to shoulder more upfront engineering and design costs.
Walker says Magna is ready. The Aurora, Ontario-based supplier hopes to grow in emerging markets and as a major supplier with a broad portfolio of parts.
Magna makes seats, roofs, electronics, powertrain parts and other components. It also operates a contract assembly plant in Graz, Austria. In 2010 the company posted sales of $24 100 million, up 39 percent from 2009. It has more than 96,000 employees in 26 countries.
Walker, 54, spoke with Automotive News Editor Jason Stein at last month's Geneva auto show, before the Japan earthquake.
Q: Characterise the overall state of the supplier community right now. How do you feel suppliers -- especially large global suppliers -- are positioned for a recovery?
A: The position of the industry varies slightly by geographic region. In North America, obviously, we had a big decline in the production, and it has come back. It's still by historical standards relatively weak, but I think it's come back a lot.
In many cases -- because some capacity was taken out and everybody's demand for production has come back up faster than people anticipated -- there's actually a little bit of pressure in the supply base to meet demand.
From a long-term trend, I think in North America and Europe, you're going to continue to see the supply base consolidate because the customers are looking for global suppliers for global vehicle platforms. They also want to try and deal with suppliers that are financially healthy. They had a painful lesson about suppliers with weaker balance sheets going under.
In the post-bankruptcy world of 2009, what are automakers looking for in their supply base?
They're looking for global suppliers, global tooling, design. They want the ability to optimise how you're going to do the tooling, optimise the logistics, how a company can handle currency swings. So that means the consolidation will continue, and I think that's just based on the fact that the industry is global and our customers are looking at it globally.
The real benefit a car company can get -- it's not just lower labour costs or lower costs -- it's really working with a global supplier that's got the understanding of where the technologies are going and who's invested in those technologies to bring products to the car companies to allow them to be more competitive and sell their product more.
How healthy are your suppliers?
The suppliers that got through the downturn are reasonably financially healthy. There are still some that the banks didn't close down because they figured the production was picking up. I still think we're going to see some failures and some consolidation, but it's more of a controlled situation than it was before. Before we had a lot of suppliers on our watch list, so we still track the health, the quality, the delivery, the engineering capability of our supply base just like the car companies do.
I think there wasn't as much consolidation or failures in Europe, so I suspect if we go into any sort of downturn, we'll probably see some more failures in the European community. Right now, it's much better than it was a year ago.
What about pricing of raw materials? Copper, resins and rubber have risen considerably. Are Magna's customers allowing you to pass on that higher cost of raw materials to them?
The raw materials that have the biggest impact to Magna are steel and resin or oil-based product. Steel has gone up a little bit higher than we anticipated. A lot of our contracts are on steel resale where we have mixed contracts.
Oil predictability and price is a little bit more difficult right now with everything going on in the world. That will translate to a certain extent into resin, and it depends on our relation, or our contract, with each customer and what they demand.
It depends on how we've written the contract with our customers. In some cases we're on an index. In some cases when we're talking about price reductions, we'll also take into account the inputs, so they've gone up.
Magna's annual sales in China now are above $600 million. Last November, you said that Magna would beat the industry's growth projection. By how much?
We are growing faster than the industry is growing there. You can see our rest-of-the-world segment has grown. I've forgotten what the number was. I'd have to look it up. I think it was 40 percent. We're going to continue to see fast growth there, but we're underrepresented.
So we have pretty aggressive growth targets in China and South America. We're going to continue to grow in Russia. We are expanding into places like India as well, but we want to make sure we are in the locations we need to be in to be competitive but also to support our key customers' global platforms. By supporting the global platforms, it's the best way to continue to support our operations and our core markets of Europe and North America.
A complete version of this story is available on autonews.com.