Q&A: Steering Tips from an Auto-Parts Pro
At 63, BorgWarner Inc. Chairman and CEO John F. Fiedler has spent 40 years in the automobile industry, but he still acts like a 16-year-old who has just been given dad's keys. "I love cars," he says with a grin.
Fiedler has good reason to smile. Just when it looked as if the auto-parts maker was headed into a ditch along with the rest of the factory sector, BorgWarner finished 2001 with barely a dent. The company earned $66 million on $2.35 billion in sales last year. And 2002 is looking good. The company earned $31.5 million in the first quarter, before a one-time write-down of $269 million for goodwill.
Fiedler's secret? A hiring freeze in 2000 and an aversion to debt helped. But BorgWarner (BWA ) has also made good bets. In the U.S., its top sellers include four-wheel-drive components for the still-hot SUV market. And in Europe, sales of high-margin advanced transmissions have buoyed earnings. Fiedler, who took over at Chicago-based BorgWarner in 1995, after more than 30 years at Goodyear Tire & Rubber Co. (GT ), recently met with correspondent Michael Arndt.
Q: Car sales held up remarkably well through this recession. And while BorgWarner's profits fell, you still made money. What's the trick?
A: This is my ninth downturn, and we finally got this one right. If you go back to the mid-1980s, people were using 12% of their monthly disposable income to make a car payment. In 1999, that figure was 7%. In past downturns, the first thing people did was postpone car purchases. This time we surveyed people, and they said: "No, I'm not going to cut back on a car."
We also have a lot more real-time information. We could react faster. A lot of people think the auto industry got passed by the dot-coms and e-businesses. We didn't. We put in a lot of information systems. I can pull up on my computer right now Ford's inventories at all their plants, because we have live data coming to us. We have less than a week's inventory of anything in our company.
Q: Does it seem to you that last year's incentives cannibalized this year's car sales?
A: What's amazing is that consumers really didn't take advantage of much of it. Maybe only a third actually took those 0% financing offers. So barring another September 11 and a total loss of confidence by consumers, the first half of this year is going to be great. After that? We're not expecting much change.
Q: For long-term growth, are you banking on Asia and Latin America?
A: If your time frame is the rest of this decade, no, because the income isn't there yet. If your time frame is longer--several decades--those are the growth markets. But in the next decade, Europe will be our fastest-growing market.
Q: What about moving your factories to such low-cost emerging markets?
A: What's happening in the world is counterintuitive. The yen is getting weaker and weaker, and yet the Japanese are putting more and more plants in the U.S. What people have learned is if you don't make it in the market, you're not likely to sell it there for any length of time.
Q: I thought the trend was toward a "world car."
A: People around the world don't want a world car. Here's a real-life example. One of our best operations in the U.S. is one that makes gear boxes for SUVs. That technology doesn't do you any good in Europe--they don't use that product. Yet Europeans will pay about $800 more for a very fuel-efficient engine. At their price of gasoline, they can pay that $800 off in about a year.
Q: Auto makers are notorious for squeezing suppliers. How can you take that year after year?
A: Our average yearly price reduction isn't the 3% to 5% you read about. It's more like 1%, and we offset that with honest-to-God cost savings. If we can't do it, we get out of the business.
Q: You drive a different car every year. What was your all-time favorite model?
A: My favorite was a '55 Chevy Bel-Air coupe. I always remembered it as a great car. I've gone back and driven one recently, and it's not really a great car. My memories of it are much better than the car.