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Valeo's growth and profitability strategy, which is deployed in 4 directions--Global Presence, Advanced Technology, Competitive Costs and Total Quality--is aimed at Customer Satisfaction.
France's Valeo is a world-leading independent supplier of components and systems to the worldwide automobile and truck industry. Valeo operates more than 104 facilities, including 95 manufacturing plants and 15 research and development centers in some 20 countries, serving the European, North and South American, and Asian markets. With nearly FFr 30 billion in annual sales in 1996--and goals to top FFr 40 billion by 2000--Valeo has invested aggressively to establish leadership positions in several components and systems groups. The company is the world-leading supplier of clutch systems, friction materials, and engine cooling systems, and the European leader in air conditioning systems, lighting systems, security systems, and electrical systems. To maintain its position and growth, Valeo invests approximately six percent of its consolidated sales in research and development per year (resulting in filings for 500 patents in 1996 alone) while continuing a policy begun in the late 1980s of strong capital expenditures designed to increase its global presence. In 1996 Valeo's capital expenditures reached FFr 2.3 billion; in 1997 the company expected to spend FFr 3.0 billion, representing some nine percent of its 1996 sales. In January 1997 Valeo's growth earned the company a listing on the Paris Bourse's CAC 40 indicator of leading French companies. Principal shareholders include France's CGIP, with 20 percent, and Caisse des Dépô× et Consignations, with seven percent, following the sale of former major shareholder, Cerus, a French holding company owned by Italy's Carlo De Benedetti, in 1996. Since 1987 Valeo has been led by CEO Noël Goutard.
Changing the Ferodo in 1980
When Valeo adopted its new name in 1980, it gave up what many manufacturers only hope for: a name that had become synonymous with an entire product category. For more than 50 years, Société Anonyme Françse du Ferodo had dominated the French brake linings market, to the extent that the phrase "change your ferodo" all but meant "reline your brakes" in many of the country's service stations. Yet, by 1980, the founding company had grouped together many of France's most celebrated names in automotive equipment and systems, including Cibié, Marchal, Paris-Rhône, and SEV, representing some 30 product lines. Changing the company's name to Valeo (Latin for "I'm very well") created a consolidated and independent force in the global automotive supply market.
Ferodo's origins dated back to England of the 1890s. It was then that Herbert Frood witnessed a heavily loaded horse and carriage having difficulties braking and the driver thrusting his shoe between the brake and wheel to bring the carriage to a halt. Frood kept the event in his memory; 20 years later, as the newly emerging automobile industry was struggling with its own braking systems, Frood introduced the first brake lining, replacing the driver's shoe with a more durable sheet of asbestos. Frood dubbed the lining "Ferodo," and the product quickly became a mainstay in the British automotive industry's brake systems.
Frood's brake linings also caught the attention of the automobile industry on the Continent. In 1910 Frood agreed to give a French entrepreneur, Eugène Buisson, the right to import and distribute the Ferodo linings in France. Soon after, Buisson received the rights to begin manufacturing the Ferodo linings in France, and the Société Anonyme Françse du Ferodo, founded in 1923, grew to become one of France's most prominent automotive equipment suppliers.
Although its initial success was based on brake linings, Ferodo soon diversified into other automotive equipment markets, adding first clutch linings and then complete clutch systems. The 1962 acquisition of Sofica added automotive heating systems, from which the company branched out into cooling systems by the mid-1960s. As with its other product lines, Ferodo soon came to dominate the French market for this product category as well. Meanwhile, as automobile makers established international and then global markets for their cars and trucks, Ferodo also began its international development, opening subsidiaries and factories close to its customers. An early subsidiary, formed in Italy in 1964 to produce clutch systems, adopted the name Valeo for the first time. The Italian Valeo went on to capture the majority of the Italian clutch market. From Italy, Ferodo moved into Spain, and then into the South American market through Brazil and Argentina. North America and the crucial U.S. market followed soon afterwards; during the 1970s the company turned east, entering the soon-to-boom Asian market. Meanwhile, Ferodo remained in the Buisson family, with André Buisson succeeding as CEO.
During the 1970s the French automotive equipment market underwent a shift. Spurred by the 1973 oil crisis and the resulting economic chaos in the automobile industry on the one hand and, on the other, the French government's eagerness to consolidate--and later nationalize--much of French industry, Ferodo began to absorb a number of other prominent automotive equipment makers. By 1980 the company had been joined by SEV (Société Anonyme pour l'Equipement Électrique des Vehicules, founded in 1912), which had pioneered automotive electrical systems; Paris-Rhône (Compagnie Industrielle de Paris et du Rhône, founded in 1915), which retained a leading position supplying military aviation and radio-electric markets; Cibié, founded in 1919, France's pioneering and leading maker of lighting systems for automobiles and trucks; Marchal, founded in 1923, which specialized in headlamps and lighting systems; and a number of other similarly prominent automotive brands, including Soma, which added transmissions and hydraulic systems for the trucking industry, as well as IMCH, ISHA, PPB, SIME, UFAGA, and Flertex.
In 1980 Ferodo took the bold move of adopting a new name under which it grouped and later replaced its panoply of brand names. The new company boasted revenues of FFr 7 billion, a payroll of 27,000, and a product line of more than 30 products capable of providing most of the critical internal components of automobiles for some 26 automakers worldwide, supported by 100 factories and other facilities in 16 countries.
A Worldwide Leader for the 1990s
The 1980s would mark the company's strongest period of growth, with revenues reaching FFr 20 billion by 1990, establishing the company as the world's premier independent automobile components and systems supplier. Valeo's globalization strategy also would be put in place by the start of the 1990s, with the company's foreign sales topping its domestic sales for the first time. Yet not all of the company's strategies would be as successful. At its formation, Valeo determined to diversify its activities into the nonautomotive industrial and manufacturing market. A number of acquisitions made in the early 1980s brought the company into the construction industry, smelting and steelworks, industrial equipment, and other activities that would eventually stretch the company too thin and drag heavily on its profits.
Weathering the recession of the early 1980s, and with annual sales rising to FFr 11 billion by the middle of the decade, Valeo faced a new crisis in 1986. At a time when French industry was reemerging from the country's brief flirtation with nationalization, Valeo, which had steadfastly remained independent, found itself involved in a struggle for control. In a period that gave rise to a new breed of corporate raiders, Valeo became a target for one of the best known of these, Carlo De Benedetti of Italy. In February 1986, De Benedetti began buying up shares of Valeo, gathering 19 percent and effectively gaining majority control of the company. Valeo, and CEO André Buisson, turned to the French government in an attempt to head off this passage of Valeo into foreign control. Buisson was almost successful: Valeo succeeded in becoming classified as strategic to France's national defense. Yet, while the company indeed was manufacturing components for a model of a new French tank, this activity formed less than one percent of its revenues. Nonetheless, the action barred Valeo's takeover by a foreign concern.
De Benedetti was only temporarily thwarted, however. In June 1986 he purchased an inactive French holding company, Airflam. Renamed Cerus, the shell company received De Benedetti's 19 percent of Valeo, giving De Benedetti a controlling stake in the auto equipment maker after all. In fact, Valeo's years under Cerus proved a period of strong growth, if only because of the appointment of Noël Goutard to replace André Buisson as Valeo's CEO.
Goutard came to Valeo after a career with many of France's, and the world's, largest names, including stints with Warner Lambert and Pfizer and leadership positions with Gévelot, Copmteurs Schlumberger, Pricel (later Chargeurs), and Thomson. Under Goutard, Valeo rapidly shed its nonautomotive activities, at the same time boosting its position in its core market with a new series of acquisitions, including Tibbe of Germany, Bongotti of Brazil, and Chausson Thermique and Neiman of France. By 1988 Valeo's revenues had climbed to FFr 16.5 billion and its profits soared, gaining 127 percent in a single year, to reach a net profit of FFr 817 million. Unsatisfied, Goutard would suggest that Valeo needed to attain a "critical mass" of FFr 25 billion in revenues--a milestone reached in 1995.
Goutard was also credited with foreseeing the coming economic crisis of the 1990s, restructuring Valeo, including shedding subsidiaries, and even entire product categories, while shutting 12 plants (representing 15 percent of the company's activity) to realign its manufacturing activities on an international scale. Cutting back its work force by some 2,000 helped the company boost its per-employee productivity from FFr 560,000 in 1988 to FFr 690,000 in 1990. The sale of a series of nonstrategic subsidiaries, which reduced Valeo's revenues by some FFr 1.2 billion, helped the company reduce its debt load, bringing its net debt/earnings ratio down from 0.70 in 1989 to 0.54 in 1990, and to 0.42 in 1991.
The leaner Valeo found itself in a somewhat luxurious position as the recession of the early 1990s turned into a prolonged European economic crisis. Aided by Valeo's moves into the booming Asian market and its successful alignment with the major Japanese auto makers, along with its continued global implantation, including a policy of opening production facilities close to its clients' plants, Valeo would see a steady progression of its net profits through the first half of the 1990s, despite the stagnant market. While its revenues stuck at around FFr 20 million through 1993 and would climb only slowly afterwards, reaching FFr 28 billion in 1996, the company's net profits would reach FFr 1 billion by 1994.
In the mid-1990s Valeo continued making key acquisitions, including adding Borg Instruments in 1995, Brazil's Univel in 1997, while shedding other operations. Valeo also had embarked on the creation of a number of joint venture partnerships, including a European project with Japan's Seiko-Seiki; the formation of and 50 percent participation in Nobel Plastiques Climatisation; partnerships with Siemens in automotive climate control systems; and 1997 joint venture agreements reached with France's Plastics Omnium, a world leader in plastics-based automotive components, and with Yuejin Motor Corporation of China, marking Valeo's fifth joint venture in that crucial market. In 1996 Valeo regained its "independence" when De Benedetti's Cerus sold off its stake in the company.
Valeo continued to invest heavily in research and development and, especially, capital expenditures. New Valeo plants started up operations in France, Spain, the United States, Canada, Mexico, China, Argentina, and Brazil. The company also moved into the former Soviet bloc, bringing production facilities to the Czech Republic and Poland. Valeo's global development strategy and its specialized focus would seem a model for a new industrial age. And the company could begin eyeing its next milestone, that of becoming a FFr 40 billion company by the year 2000.
Principal Subsidiaries: Valeo Kupplungen (Germany); Valeo España; Valeo SpA (Italy; 99.9%); Valeo Sprzegla Poland; Valeo Clutches and Transmissions (U.S.); Valeo Debriyaj (Turkey); Valeo Embragues Argentina (68%); Emelar (Argentina); Valeo Pyeong Hwa (South Korea; 50%); Valeo Embrayages (Tunesia); Valeo Materiales de Fricción (Spain); Valeo Friction Materials Inc. (U.S.); Valeo Materiales de Fricción de Mexico; Valeo Climatisation (France; 79%); Valeo Seiko Compressors (France; 50%); Nobel Plastiques Climatisation (France; 50%); Siemens Automotive Moteurs Electriques (Germany; 30%); Valeo Limasystem (Germany); Valeo Climate Control de España; Valeo Climate Control Ltd. (U.K.); Valeo Climate Control Corp. (U.S.); Valeo Thermique Moteur (France); Valeo Engine Cooling AB (Sweden); Valeo Tek Inc. (South Korea); Electrical Equipment: Valeo Vision (France); Valeo Iluminación (Spain; 99.7%); Cibie Argentina; Prismatic (Brazil; 80.4%); Hubei Valeo Autolighting (China; 51%); Valeo Equipements Electriques Moteur (France); Valeo Electrical Systems (U.K.); Valeo Elektrik (Turkey); Shanghai Valeo Automotive Electrical Systems (China; 30%); Valeo Systémes d'Essuyage (France); Paul Journée (France); Valeo Termico (Spain); Valeo Wiper Systems Ltd. (U.K.); Valeo Wiper Systems Inc. (U.S.); Valeo Sécurité Habitacle (France); Valeo Security Systems Ltd. (U.K.); Valeo Sicurezza Abitacolo (Italy); Valeo Neiman Argentina; Valeo Lock Systems Ltd. (U.K.); Valeo Borg Instruments KG (Germany); Valeo Distribution (France); Chausson Service.
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