Plastech Engineered Products On the Move in Highly Competitive Automotive Plastic Supplier Industry

---

Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). Automotive plastic injection molder, Plastech Engineered Products (Dearborn, Michigan) is on the move again, this time sending shock waves through the automotive plastics industry. The company has recently acquired a competitor, LDM Technologies Incorporated (LDM) (Auburn Hills, Michigan). Both companies are privately-held.

Plastech Engineered Products (PEP), one of the largest minority-owned Original Equipment Manufacturer (OEM) suppliers in North America, was founded in 1988 by Julie Nguyen Brown, a former design engineer with Ford Motor Company (NYSE:F) (Dearborn, Michigan). Since that time, the company has set itself on a course of acquiring strategic companies which supplemented and extended its own capabilities, as can be clearly seen in its acquisition of LDM. PEP has also formed a strategic alliance with Johnson Controls, Incorporated (NYSE:JCI) (Milwaukee, Wisconsin), both as a Tier II supplier and a supplier integrator for JCI. In recent years, the company has begun building new plants nearer customers, in order to offer just-in-time delivery and to keep in closer touch with their customers. The two most recently constructed PEP plants are located in Monroe (Frenchtown), Michigan, and McCalla, Alabama.

Part of PEP's explosive growth can be attributed to OEM's and large Tier I suppliers outsourcing a lot of their non-core business, so as to focus on core competencies and take advantage of lower Tier I and Tier II supplier labor and overhead costs. OEM's are tending to rely on fewer and fewer suppliers, so they depend on companies such as PEP to take up the slack, as well as to act as tier supplier coordinators. A big boost to PEP occurred in 1991, when Johnson Controls awarded PEP a $21 million contract that JCI was forced to take from a failing supplier, in order to meet production deadlines.

Another factor working in PEP's favor (and indeed, all the plastic industry's favor) is the fact that the plastic content per vehicle has increased astronomically since 1988, with a 90+ percent increase anticipated between 1988 and 2007. Plastic parts are expected to play an even greater role in the manufacture of hybrids, as they become more viable and more widely accepted in the public arena.

According to Automotive News, In 2002, PEP ranked fifty-eighth on a list of the top 150 OEM parts suppliers to North America, with annual sales at $680 million, up from ninety-third place in 2001. For the same year, LDM Technologies ranked one-hundred-first, with sales of $390 million, down a bit from the previous year's listing at ninety-eighth place.

With anticipated combined annual sales of right at $1.12 billion (PEP, $680 million, and LDM, $440 million), the new company would find itself ranked third among North American OEM tier suppliers. Barring any surprises in the 2003 supplier line-up, the only two companies ahead of PDP/LDM would be giant Collins & Aikman (NYSE:CKC) (Troy, Michigan) in first place, with annual sales of $1.6 billion, and Visteon Corporation, a Ford spin-off (NYSE: VC) (Dearborn, Michigan) in second place, with annual sales of $1.3 billion. In fourth place, after the new PEP/LDM merger would be Lear Corporation (NYSE:LEA) (Southfield, Michigan), with annual sales of $975 million.

Traditionally, PEP's three main competitors have been Clarion Technologies, Incorporated (OTC:CLAR) (Grand Rapids, Michigan), which ranked #146 on the above-mentioned list; Siegel-Robert, Incorporated (France), which ranked #108; and Venture Industries (Fraser, Michigan), which last year filed for bankruptcy protection, ranked #71, all well below PEP.

Almost as a comeuppance to this North American acquisition, it was just recently announced that three major European companies would form an equally owned joint venture to produce front-end modules. The partners are Hella KG Hueck & Company (Germany), Behr GmbH (Germany), and Plastic Omnium (France). The new joint venture, known as HBPO, headquartered in Lippstadt, Germany, claims to be the only company in the world dedicated exclusively to the manufacture of front-end modules. PEP/LDM might beg to differ.

Hella is a leader in the lighting and electronics field, while Behr specializes in air-conditioning and engine-cooling systems, and Plastic Omnium manufactures body parts and modules, as well as impact-absorption systems. HBPO's present annual output of 1.25 million front-end modules is expected to increase to over two million by 2006. All of these companies already have well-established U.S. presences, and there is no reason one shouldn't expect heavy competition for similar U.S. companies, such as PEP/LDM, in this field in the future.

While operating in a manufacturing culture that stresses cost above all other things, PEP has managed to stay lean and mean and has kept quality high, thereby pulling in business from Ford, General Motors, DaimlerChrysler, and Toyota, as well as a number of major Tier I suppliers, most prominently Johnson Controls and Dana Corporation. While some automotive manufacturing work will continue to be sourced out to China, due to China's lower pay scale, and the seriously undervalued Chinese Yuan, among other matters, there are several factors working in PEP's (and other North American suppliers') favor, namely the ever-escalating cost of transportation, and the difficulty in controlling quality of the end product, and the quixotic machinations of the Chinese government in the industrial realm. Delphi found the cost of shuttling its engineers back and forth cost them their entire travel budget; even before actual manufacturing operations began.

In the past, mega-supplier mergers have not always worked the way the concerned parties had hoped they would. It will be interesting to see how Plastech and LDM pull off this merger. Globally, five of the world's top suppliers dominate their respective product fields due to industry consolidation. Of the five, namely, Takata, Incorporated (Japan), Freudenberg-NOK Group (Germany-Japan), Autoliv Incorporated (Sweden), DuPont (France), and Robert Bosch GmbH (Germany), it has been noted that Freudenberg-NOK and Autoliv tend to first form joint ventures, and then gradually assume control, whereas Takata and Robert Bosch tend to acquire a key supplier outright, assuming control upfront.

With joint ventures there is always the problem of agreeing upon who will be top dog, a matter that, surprisingly, is often not spelled out clearly in the initial joint venture agreement.

Plastech Engineered Products, with over fourteen manufacturing facilities and 2,500 employees, manufactures interior trim, bumper systems, door handles, and under-hood parts. LDM Technologies, with 16 manufacturing facilities and 3,200 employees, makes interior and exterior trim, instrument panels, bumper systems, and under-hood parts. LDM is noted also for its engineering expertise, which will complement Plastech's capabilities.

Check out Industrialinfo.com's new Automotive Database, including the most recent automotive manufacturing and tier supplier plant and capital project spending data and news coverage.