21557 Telegraph Road
Southfield, Michigan 48034-4248
Telephone: (248) 447-1500
Fax: (248) 447-1722
Web site: http://www.lear.com
Incorporated: 1917 as American Metal Products Company
Sales: $16.96 billion (2004)
Stock Exchanges: New York
Ticker Symbol: LEA
NAIC: 336360 Motor Vehicle Seating and Interior Trim Manufacturing; 336322 Other Motor Vehicle Electrical and Electronic Equipment Manufacturing
Lear Corporation is the world's leading supplier of automotive interior systems. The company ranks first worldwide in seat systems, second in flooring and acoustic systems and door panels, third in headliners and electrical and electronic distribution systems, and seventh in instrument panels. Of the company's more than 270 facilities located in 34 countries, 165 are involved in production/manufacturing, 52 in administration/technical support, and 45 in assembly. Lear also maintains six advanced technology centers and three distribution centers. Increasingly global in operation, Lear generates about 44 percent of its sales in North America, a significant change from the mid-1990s when North America accounted for more than two-thirds of revenues. Although Lear relies on two clients, car-making giants General Motors Corporation and Ford Motor Company (and their respective affiliates), for about 56 percent of its sales, the company's interior systems can be found on more than 300 vehicle nameplates worldwide. Following a management-led leveraged buyout in 1988, Lear's sales grew from less than $200 million to more than $12.4 billion by 1999, as the company broadened its geographic reach and expanded its product line to encompass the full gamut of the automobile interior. Seventeen major acquisitions completed between 1994 and 1999 were instrumental in Lear's rise to its globally dominant position.
Although Lear and its predecessors have always made auto seat components, the company did not make a finished car seat until the mid-1980s. In the near seven-decade interim, it produced everything from plumbing fixtures to office furniture. The business was founded in 1917 by Frederick Matthai as American Metal Products Company (AMP), a manufacturer of tubular, welded, and stamped steel seat frames. Its close proximity to Detroit helped it forge close ties with major auto manufacturers General Motors and Ford. AMP incorporated in 1928, added Chrysler Corporation and International Harvester Company as customers by the early 1930s, and had broken the $1 million sales mark by 1939. Wartime contracts for production of military airplane assemblies and parts and axle housings for military trucks swelled its annual sales to $11 million by 1944.
AMP's revenues declined sharply in the immediate aftermath of World War II, to $7.7 million in 1945, but postwar demand for automobiles combined with a series of acquisitions to usher in a decade of mounting sales and profits. In 1954 AMP acquired Tube Reducing Corp., a New Jersey manufacturer of specialty hydraulic and aircraft parts. A Canadian producer of metal automotive springs was purchased that same year. In 1955 AMP diversified into plumbing and porcelain bath and kitchen fixtures with the acquisition of AllianceWare, Inc., and a producer of office furniture and storage units was also added to the corporate roster during this period. Revenues nearly quadrupled to $30.7 million by 1950, then doubled to $63.5 million over the next five years. Net income kept the pace fairly well, jumping eightfold from $346,000 in 1945 to $3 million in 1950, then increasing to $4.3 million by mid-decade. AMP went public at the dawn of this period of dramatic growth in 1946 with a $2.25 million stock offering.
This era of prosperity reached its summit in 1957, when sales and profits peaked at $72.5 million and $4.7 million, respectively. Revenues slid by 36 percent the following year to $46.4 million and net income plunged to $1.6 million. Although AMP's revenues began to recover, rising to $64 million in 1963, its profit level hovered between $1.5 million and $2 million.
By the time it was acquired by and merged into the Lear Siegler conglomerate in 1966, AMP had amassed an array of businesses with products and competencies that would later be combined in the production of a finished automotive seat. General Spring Products and, later, the No-Sag Spring Company, supplied the springs. The Burroughs Division and Middletown Manufacturing Co., Inc. (acquired in 1965) were already making durable metal office furniture, and AMP itself had long made seat components for cars. While AMP was under Lear Siegler's wing, the parent company acquired Central Foam Corporation, making it a sister division. But nearly two decades would pass before Lear combined these disparate functions to manufacture a complete auto seat.
Lear Siegler was a widely diversified producer of aerospace electronics, climate control devices, and plastics. In fact, AMP (renamed the Automotive Group) was one of more than three dozen acquisitions made by Lear Siegler from 1955 to 1970. With the support of this large parent company, the Automotive Group built its first outsourced passenger car seat in 1984 and set up its first just-in-time plant near a General Motors facility soon thereafter. By 1983, the Automotive Group's annual sales had reached $160 million.
The late 1980s ushered in challenges and opportunities that would transform the Automotive Group from a bit player in automotive components to one of the industry's top stars. In spite of antitakeover measures, Lear Siegler was acquired in 1986 by the Forstmann Little & Co. investment firm in a $2.1 billion leveraged buyout. Determining that the parts were worth more than the whole, Forstmann Little soon began spinning off Lear Siegler's disparate business segments.
Kenneth L. Way, then corporate vice-president of the Automotive Group, led a leveraged buyout of the division in 1988. Way, who had joined the company in 1966, was able to convince Kidder, Peabody to finance the $500 million deal (more than $400 million of it borrowed) that launched Lear Siegler Seating Corporation, headquartered in Southfield, Michigan. He became the company's chairman and CEO in 1988.
Once it had gained its independence, Lear Seating grew rapidly by embracing several important industry trends: outsourcing, just-in-time, and globalization, among others. Outsourcing, or contracting parts of the manufacturing process to independent businesses, took the auto industry by storm in the late 1980s. Carmakers found that they could save money and often obtain a better product by putting discrete components up for competitive bid. In the seat segment, for example, Lear and Johnson Controls, Inc. competed for the top market share. Knowing this, a given carmaker could negotiate for better prices, improved features, and higher levels of efficiency than it could gain by keeping production in-house.
Led by Way, Lear strove for excellence on all of these fronts. The company had begun to adopt just-in-time (JIT) manufacturing, which emphasized inventory reduction through efficient and timely production and delivery, in the early 1980s. By 1988, 12 of Lear's American plants were operating on a JIT basis. By locating its production facilities near its clients, Lear cut both storage and shipping costs. In the early 1990s, it added "sequencing" to the JIT equation by integrating its computers with those of its customers. A 1995 Forbes article told how Lear's Romulus, Michigan, plant was linked to Chrysler's "Dodge City" factory. "When a pickup starts down 'Dodge City's' line, an electronic message calling for the particular seats for that truck is flashed to Romulus, which can produce the seats and deliver them to Chrysler in 90 minutes." Lear was so enamored with the just-in-time process that in 1993 it made "JIT" a part of some divisions' names, as in "Opel/Eurostar JIT."
Lear also began to apply its specialized expertise to the design of auto seats. As a result, the company had a number of industry "firsts" to its credit, including the patented Sure-Bond process, which adhered seat covers directly to the foam padding inside. This process cut down on labor and waste and broadened the range of design options. During the early 1990s, Lear's innovations included the development of the first child-restraint seat, integration of the seat belt into the seat (instead of the traditional door mounting), and development of a seat with a side-impact airbag. Lear also employed sophisticated computer-aided design and manufacturing systems, used in-depth consumer comfort surveys, and conducted numerous safety and durability tests. These efforts resulted not only in growing sales but also in awards for excellence from customers, including General Motors, Ford, Chrysler, Saab Automobile AB, and Mazda Motor Corporation.
Within just a few years of its management buyout, Lear Seating's sales had multiplied nearly eight times, from around $150 million to $1.24 billion in 1990. That same year, in order to distance itself from its former conglomerate parent, the company changed its name to Lear Seating Corporation.
There's a simple reason why the corporate phrase of Lear is "advance relentlessly." The automotive industry has and will become increasingly competitive as current markets change and others emerge around the world. Lear Corporation is set to stay ahead of those needs by leading the fastest-growing segment in the automotive industry.
Lear undertook a concerted acquisition strategy in the early 1990s, focusing strongly but not exclusively on the international market. The ongoing outsourcing trend allowed Lear to purchase the seat and interior component divisions of several major original equipment manufacturers, diversifying geographically in the process. In 1991 the company acquired Saab's Swedish and Finnish interior operations. AB Volvo's interior business came next, in 1992. In 1993 Lear bought Ford Motor's North American seatmaking operations (Favesa, S.A. de C.V., headquartered in Mexico) for $173.4 million in cash, thereby becoming Ford's seatmaker of choice. Fiat Auto S.p.A.'s seat operations (SEPI S.p.A.) were added in December 1994, and in 1995 Lear formed a joint venture with Spain's Inespo (a foam manufacturer) to supply seats to Volkswagen AG in Brazil. By the mid-1990s, Lear had plants in North and South America, Europe, Thailand, Indonesia, and Australia. At that time, more than one-fourth of Lear's sales were generated outside North America.
Fueled in large part by these acquisitions, Lear's sales and earnings multiplied dramatically in the early 1990s. Sales increased at a 34.9 percent average annual clip, from $1.4 billion in 1991 to $4.7 billion by 1995. Earnings grew from a $22.2 million deficit to a $91.6 million profit during the same period.
Lear went public in 1994 with an offering of 14 percent of its equity. The $103 million raised was applied to Lear's long-term debt, reducing it by about 25 percent. It apparently freed up just enough credit to allow the company to make the biggest acquisition yet in its history. In August 1995 Lear purchased Automotive Industries Holding, Inc. for $881.3 million and made it the AI Division. According to the company's 1995 annual report, AI added more than $300 million in sales and doubled Lear's potential market to about $22 billion. The acquisition boosted Lear's product line to what it called "full interior systems," including door panels, headliners, and instrument panels, but not airbags and electronics. Because its capabilities now went well beyond merely "seating," the company dropped that word from its name in 1996, becoming simply Lear Corporation. The firm now ranked as the third largest independent (i.e., not owned by an automaker) auto supplier in North America and the tenth largest in the world.
Between 1996 and 1999 Lear completed 13 major acquisitions that helped the company achieve its goal of becoming a complete automotive interior supplier. These deals also vastly expanded the firm's global capabilities, making it much less dependent on its traditional customers, the major North American automakers. The acquisitions helped fuel the company's explosive growth as revenues surged from $6.25 million in 1996 to $12.43 billion in 1999—a near doubling over just four years.
Lear acquired Carlisle, Pennsylvania-based Masland Corporation for $473.8 million in July 1996. Masland was a leading producer of automotive floor systems, including carpeting and floor mats, acoustical products, and luggage compartment trim. In December 1996, in a $91.1 million deal, Lear filled another void in its capabilities by acquiring Borealis Industrier, A.B., a Swedish maker of instrument panels for the European automobile and truck industry, particularly Volvo, Saab, and Scania. With annual sales of $230 million, Borealis also produced door panels, climate systems, and exterior trim.
During 1997 Lear launched plans to consolidate its companywide technical staff at a new technical center to be located near its Southfield headquarters. As part of its drive to court more European business, Lear moved the office of Robert Rossiter, the company president, to Germany, placing him nearer to decision makers on that continent. Two more acquisitions completed that year aided the European expansion. In June Lear bought Dunlop Cox, based in Nottingham, England, a producer of manual and electrically powered seating mechanisms. One month later, Keiper Car Seating GmbH & Co. KG was acquired for DM 400 million (about $252.5 million). The German firm was a leading supplier of automotive vehicle seat systems on a JIT basis for Daimler-Benz AG, Audi AG, Volkswagen, and Porsche AG, and it had ten seating assembly plants in Germany, Hungary, Italy, Brazil, and South Africa. Lear now controlled 23 percent of the European auto seating market. Back home, Lear also acquired the Seat Sub-Systems Unit of ITT Automotive, a division of ITT Industries, in August. The unit was a North American supplier of power seat adjusters and power recliners.
The acquisitions continued in 1998. In May Lear acquired two Italian firms: Gruppo Pianfei S.r.L., producer of door panels, headliners, and plastic interior components at six facilities located throughout Italy; and Strapazzini Resine S.r.L., maker of instrument panels, door panels, sunshades, consoles, and pillar trim at two Italian facilities. The most significant deal that year, however, came in September, when the company paid General Motors $246.6 million for the seating business of Delphi Automotive Systems. The purchase strengthened Lear's relationship with GM and included 16 plants located in ten countries. As the acquisition spree continued, the need to consolidate the growing array of facilities grew as well. Late in 1998, Lear launched a major restructuring involving the closure of 18 plants worldwide and the elimination of 2,800 jobs, representing about 4 percent of its workforce. To implement the program, aimed at lower costs and improving profit margins, Lear took pretax charges of $133 million, cutting 1998 net income to $115.5 million, almost half the $207.2 million total for the preceding year.
In its largest deal ever, Lear spent $2.3 billion in May 1999 for United Technologies Automotive, Inc., the automotive parts business of United Technologies Corporation. With this acquisition, Lear was able to fill in the last piece missing from its product portfolio. UT Automotive provided Lear with the capability to provide the electrical and electronics infrastructure of a car's interior, an increasingly important, and costly, part of a vehicle, including the components and wiring hidden behind the instrument panel and inside doors. Lear could now offer its customers fully integrated automotive interior systems. Headquartered in Dearborn, Michigan, UT Automotive had 1998 annual sales of approximately $3 billion, 44,000 employees, and 90 facilities in 18 countries. The company's electric motors business had nothing to do with vehicle interiors, so Lear quickly divested it, selling it to Johnson Electric Holdings Limited for $310 million in June 1999.
While digesting its latest acquisition, Lear placed a hold on further deals and began to seek out more partnerships and joint ventures, particularly in the electronics area and especially as it made a major push into Asia. The company enjoyed its best year yet in 2000, posting profits of $274.7 million on revenues of $14.07 billion. In October of that year, Rossiter was named CEO, succeeding Way, who remained chairman.
As its acquisitions began to pay off in the early 2000s, Lear used much of its free cash flow to pay down the heavy debt it had incurred during the spending spree. By the end of 2002 it was able to pare its debt to $2.27 billion, a 40 percent reduction from the peak level in September 1999. In 2001, however, Lear was forced to begin grappling with production cuts by major auto makers, and its sales fell. In an effort to generate savings of as much as $50 million per year, Lear launched another major restructuring that year. This one involved 6,500 jobs cuts, or about 6 percent of the workforce, the closure of 21 plants, and $110.2 million in restructuring charges. Net income for the year totaled just $26.3 million.
At the beginning of 2003 Way gave up his position as Lear chairman, handing the title to Rossiter, who also remained CEO. Early that year, Lear won a contract from GM, valued at $825 million annually, giving it full responsibility for the design, engineering, sourcing, manufacturing, and delivery of the entire interiors for the Buick Lucerne (formerly the LeSabre) and Cadillac DTS (formerly the DeVille) full-size sedans beginning with the 2006 model year. This was the first time that GM had vested an interior supplier with this level of responsibility, and it represented the culmination of Lear's desire to supply fully integrated interior systems.
By 2004, despite the continuing struggles of automakers, Lear was able to post record results: net income of $422.2 million on net sales of $16.96 billion. Strong cash flows enabled the company to further cut its debt load to $1.87 billion, to pay the first cash dividend in company history, and to repurchase nearly two million shares of its common stock. The key target area for future growth continued to be Asia, where Lear formed several new partnerships, bringing the total number of joint ventures in the region to 19—including 12 in fast-growing China. In July 2004 Lear augmented its electrical components capabilities by acquiring GHW Grote & Hartmann GmbH for $160 million. Based in Wuppertal, Germany, with 2003 revenues of approximately $275 million, Grote & Hartmann specialized in terminals, connectors, and junction boxes, mainly for the automotive industry.
Amid sharp production cutbacks at the major automakers, significant declines in sales of large sport utility vehicles, and high raw material costs, Lear announced in April 2005 that its earnings for the year would be lower than expected and that it planned to cut its U.S. workforce and some U.S. plants in order to shift production overseas to lower-cost countries. The company also said that it planned to make additional acquisitions. Longer term, the company anticipated that new business, mainly in Asia, would boost earnings in 2006 and 2007. Thus, a key going forward for Lear was its more diversified customer base: Whereas in the mid-1990s two-thirds of revenues had been generated in North America, the company through its overseas expansion had reduced this figure to 44 percent by 2004.
Alfombras San Luis S.A. (Argentina); Asia Pacific Components Co., Ltd. (Thailand; 90.4%); Consorcio Industrial Mexicanos de Autopartes, S.A. de C.V. (Mexico); El Trim (Pty.) Ltd. (South Africa); GHW Engineering GmbH (Germany); Hanyil Co., Ltd. (Korea; 99.8%); Honduras Electrical Distribution Systems S. de R.L. de C.V. (60%); Industrias Lear de Argentina SrL; John Cotton Plastics Ltd. (U.K.); Lear Automotive Corporation Singapore Pte. Ltd.; Lear Automotive France, SAS; Lear Automotive Interiors (Pty.) Ltd. (South Africa); Lear Automotive Morocco SAS; Lear Canada; Lear Car Seating do Brasil Industria e Comercio de Interiores Automotivos Ltda. (Brazil); Lear Corporation Asientos, S.L. (Spain); Lear Corporation Austria GmbH & Co. KG; Lear Corporation Belgium CVA; Lear Corporation Beteiligungs GmbH (Germany); Lear Corporation Canada, Ltd.; Lear Corporation Changchun Automotive Interior Systems Co., Ltd. (China); Lear Corporation Czech s.r.o. (Czech Republic); Lear Corporation Drahtfedern GmbH (Germany); Lear Corporation Electrical and Electronics; Lear Corporation France SAS; Lear Corporation GmbH & Co. KG (Germany); Lear Corporation Holding GmbH (Germany); Lear Corporation Holdings Spain S.L.; Lear Corporation Honduras, S. de R.L.; Lear Corporation Hungary Automotive Manufacturing Kft.; Lear Corporation Interior Components (Pty.) Ltd. (South Africa); Lear Corporation Italia S.p.A. (Italy); Lear Corporation Japan K.K.; Lear Corporation Mexico, S.A. de C.V.; Lear Corporation North West (Pty.) Ltd. (South Africa); Lear Corporation (Nottingham) Ltd. (U.K.); Lear Corporation Poland Sp. z o.o.; Lear Corporation Portugal - Componentes Para Automoveis, S.A.; Lear Corporation Romania S.r.L.; Lear Corporation Seating Czech s.r.o. (Czech Republic); Lear Corporation Seating France SAS (France); Lear Corporation Silao S.A. de C.V. (Mexico); Lear Corporation Slovakia s.r.o. (Slovak Republic); Lear Corporation Spain S.L.; Lear Corporation (SSD) Ltd. (U.K.); Lear Corporation Sweden AB; Lear Corporation UK Holdings Ltd.; Lear Corporation UK Interior Systems Ltd.; Lear Corporation UK ISM Ltd.; Lear Corporation (UK) Ltd.; Lear Corporation Verwaltungs GmbH (Germany); Lear de Venezuela C.A.; Lear do Brasil Industria e Comercio de Interiores Automotivos Ltda. (Brazil); Lear Electrical (Poland) Sp. z o.o.; Lear Electrical Systems de Mexico, S. de R.L. de C.V.; Lear European Holding S.L. (Spain); Lear Gebaude-management GmbH & Co. KG (Germany); Lear Holdings (Hungary) Kft.; Lear Holdings, S.r.l. de C.V. (Mexico); Lear Korea Yuhan Hoesa; Lear (Luxembourg) S.a.r.l.; Lear Mexican Trim Operations S. de R.L. de C.V. (Mexico); Lear Netherlands (Holdings) B.V.; Lear Offranville SARL (France); Lear Operations Corporation; Lear Otomotiv Sanayi ve Ticaret Ltd. Sirketi (Turkey); Lear Rosslyn (Pty.) Ltd. (South Africa); Lear Seating Private Ltd. (India); Lear Seating (Thailand) Corp. Ltd. (97.9%); Lear Sewing (Pty.) Ltd. (South Africa); Lear Teknik Oto Yan Sanayi Ltd. Sirket (Turkey; 67%); OOO Lear (Russia); Rael Handelsgmbh (Austria); Shenyang Lear Automotive Seating and Interior Systems Co., Ltd. (China; 60%); Societe Offransvillaise de Technologie SAS (France); Wuhan Lear-DPCA Auto Electric Co., Ltd. (China; 75%).
Johnson Controls, Inc.; Faurecia SA; Intier Automotive Inc.; Collins & Aikman Corporation; Rieter Holding Ltd.; Visteon Corporation; Delphi Corporation; Yazaki Corporation; Sumitomo Corporation; Alcoa Fujikura Ltd.; Valeo.
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—April Dougal Gasbarre
—update: David E. Salamie