A trend has clearly taken shape among auto parts suppliers, and it’s not promising. One company after another has joined the “Chapter 11 Club,” as they attempt to balance high pension and health care costs along with rising raw material prices, among a host of other issues.
One company stands out from the pack, however, taking a different trajectory. Federal-Mogul Corporation, based in Southfield, Mich., plans to fully emerge from bankruptcy this year, but the company has admittedly faced its own share of challenges, tracing back to its 2001 bankruptcy filing.
Chairman, President and CEO José Maria Alapont, granting an exclusive interview with Aftermarket Business, forecasts a strong and prosperous future for the company. At press time, Federal-Mogul released a three-year restructuring plan, which could affect about 25 facilities and reduce its workforce approximately 10 percent by 2008.
“Emerging from Chapter 11 is a top priority,” says Alapont, who envisions a more balanced, globally-rounded Federal-Mogul, succeeding during a period in the industry when the ink has yet to dry from the bankruptcies filed by others.
How balanced?
“Federal-Mogul has a unique, some say enviable, position having a blend of 54 percent of our sales in the OE sector and 46 percent in the aftermarket sector,” he says.
“There is no single customer representing more than 7 percent of our revenue.” Diversification has often been cited as a method of survival for suppliers in today’s turbulent marketplace.
A 30-year veteran of both the OE and aftermarket segments, Alapont acknowledges other universal issues that uniformly face all manufacturers, like ever-improving technology, which enables parts to last longer, extending replacement cycles. “Our balanced portfolio of products and services helps to compensate for any up and down cycles in each industry segment,” Alapont explains. Federal-Mogul’s year-over-year annual growth, he points out, has increased by 2 percent per year.
Bankruptcy a result of asbestos claims
One of the predictably frustrating aspects of Federal-Mogul’s bankruptcy struggle, unlike its competitors, is that its Chapter 11 filing was the result of asbestos claims, not financial performance. In 2001, asbestos liability from previous acquisitions forced Federal-Mogul to seek protection under Chapter 11.
“It’s been a long drive,” admits Alapont. “Chapter 11 filing is an expensive and lengthy process requiring on-going communication with stakeholders. The focus has continued to be on the business — on customer service, quality, excellence, leading technology and innovation, and our customers have remained loyal throughout this process.”
Federal-Mogul supplies a wide variety of components and systems globally to automakers, engine manufacturers and aftermarket customers.
The price dilemma
Alapont agrees with many suppliers who claim the aftermarket’s current pricing methods should be reassessed as conditions and terms vary widely from company to company. “The truth is, today’s aftermarket pricing strategies need to reflect the economic realities of technology, materials and service,” Alapont says.
Joseph Felicelli, executive vice president of Aftermarket Products and Services for Federal-Mogul, adds, “Rather than criticize pricing practices, parts makers should focus on finding better ways to communicate the entire value proposition they provide. The nature of today’s pricing system is sending the aftermarket down the same road as the OE car dealers by creating a mythical or theoretical list price and then conditioning the entire market to believe that the only time to buy products is when there is a discount or a cheaper product version available.” That’s a model that doesn’t have many positive results.
The path ahead for Federal-Mogul
Alapont won’t say directly if there are any new Federal-Mogul product launches in store, but he does acknowledge that some of the supplier’s European brands could be introduced in the U.S. if market shares prove to be promising.
“We have leading brands in the original equipment market in Europe that could possibly be distributed worldwide,” he says, adding, “with European offerings ranging from friction to pistons, the company has no need to shop for new brands for its portfolio or to provide products and part coverage for today’s global vehicle fleet. Our goal for the aftermarket is to provide differentiated, technically superior products to the professional installer that simplify the repair, solve the problem and provide outstanding value. This means that our aftermarket products have to be of the highest quality and designed for the repair. They have to provide value-added solutions and deliver value through the distribution process to ensure our customers are successful.”
As far as the financial status of other suppliers, some of whom are mired in the early stages of bankruptcy, Alapont stresses that healthy competition is essential to the industry. “To see our competitors in bankruptcy is not good news. Chapter 11 is a very tough path.”
As Federal-Mogul’s Chapter 11 journey nears an end, Alapont is careful to keep the company’s focus on satisfying the customer’s needs. “That means Federal-Mogul will need to keep evolving and progressing through these difficult market challenges. We plan on strengthening our leadership in this very competitive industry.”
Keeping pace in the industry
AMB: As auto parts and systems become more sophisticated and last longer, can you explain how Federal-Mogul is keeping pace?
JMA: Leading technology and innovation at competitive cost are the key drivers of Federal-Mogul’s global profitable growth strategy and the differentiators between those suppliers who are here today and those who will be here tomorrow. Developing breakthrough technology is not an option for us; it’s a must.
AMB: How is Federal-Mogul addressing the continued industry reliance on value lines? Do you feel a struggle there?
JMA: Today’s customers are extremely knowledgeable; they know what they are buying. With 22 leading brands, including Champion, Fel-Pro, Moog, ANCO, National, Sealed Power and Wagner, Federal-Mogul offers one of the strongest brand portfolios in the market. Customers know what our brands stand for, they know that buying and installing a premium, branded product will not only cut down on comebacks, but will actually help to improve their business by increasing their service bay throughput. I believe that in the end, cost competitive, quality products and services will always win out over price alone.
AMB: There is great interest in hybrid engines. Is Federal-Mogul prepared to address this segment?
JMA: Where we see the greatest growth in hybrid penetration is in semi and micro hybrids that supplement, but do not replace, internal combustion engines. Federal-Mogul is ready for this. We see this as an opportunity in the market. We are prepared for this new generation of engines and will continue to invest in research and development to ensure we continue to be properly positioned as the technology evolves.
