Troy, Mich., May 10 /PRNewswire/ -- The following is a transcript of
remarks delivered by Chip McClure, chairman, CEO and president of
ArvinMeritor, Inc., to the Marketing & Sales Executives of Detroit (MSED)
meeting on May 9, 2007, at ArvinMeritor's World Headquarters in Troy,
As marketing and sales executives, you face tremendous challenges every
In the automotive sector, facing-off with a cadre of OEM purchasing agents
can be a daunting process. I admire you for being able to do that time
and time again.
Our industry is going through tremendous changes - the way you manage your
job is very different today than it was just a few years ago:
-- You're facing relentless cost pressures.
-- Increased competition and razor-thin margins is accelerating.
-- Production volumes and material costs continue to fluctuate -
exacerbating all your long- and short-term strategic plans.
-- Your customers want even more value for less money.
As we just start to figure out how to manage our businesses through all of
this change, we now are seeing even bigger challenges ahead of us.
It kind of makes you wonder why we're in the automotive business, doesn't
it? It's because this industry touches everyone - it's fast-paced,
exciting and we wouldn't have it any other way.
As marketing and sales executives, you know that even though this is a
tough industry, it's possible to be successful in this business. To
succeed, we travel two parallel tracks that have diametrically opposed
agendas - cut costs and grow revenues.
And while we can't cut our way to prosperity, we CAN reduce or eliminate
unnecessary, redundant and non-value added expenses. By doing that, we're
able to re-channel funds into those areas that we have the greatest
potential for revenue growth. Areas like:
-- Research and development
-- Operation efficiencies
-- And quality initiatives
It's a tall order ... cutting costs while growing revenues.
To get there we need to abandon products, services and processes that are
either obsolete or non-value added. We must have the courage to challenge
the status quo. This requires creativity.
I don't believe there has ever been a time in our industry when we've been
more willing to consider every option ... more willing to do whatever it
takes to help us become more competitive and more profitable.
We can accept no less than a total transformation of our business.
And it isn't limited to the auto industry. Competition is intense and no
company or industry is immune today.
Companies like Coca-Cola which produces Coke ... an American iconic
brand ... are transforming their business as well. Last year, Coca-
Cola's marketing, strategy and innovation team rejuvenated Coke's tired
brand image, especially since consumers were moving to new product
segments including bottled water, specialty coffees and teas and energy
Coke had to overhaul its entire marketing program. They did it by:
-- Anticipating the customer ... thinking more creatively about consumer
needs, like catering to healthier lifestyles.
-- Reevaluating their product launch and marketing strategy to include
creating new brands, but also by reinventing tired brands which are
less costly than launching new ones. For example, Tab was reinvented
as an energy drink.
-- Engaging its partners early in the decision process to garner their
input and buy-in from the start.
-- And by executing new product launches quickly to gauge customer
feedback on which new products resonate with consumers.*
These are all lessons learned that can be applied to any industry.
At its core, we have to transform the way we think about strategy. It can
no longer simply be focused on a multi-year plan to create or protect
We no longer have the luxury of planning out five to ten years.
At the speed in which our industry is changing we have to be flexible and
be prepared to react to market changes and customer needs quickly.
Military strategic planning teaches you to think beyond what the enemy
might do, and analyze what the enemy is capable of doing. The same thing
is true about the market. Don't look at what it might do - look at what
it can do.
We need to supplement our plans with a focus on continuous transformation
... forging capabilities that will help us succeed no matter what the
market might do in the years to come.
The idea of performing while transforming centers on three critical areas:
innovation, emerging markets and capital.
These are the areas that impact our financial viability going forward.
We all know that INNOVATION is the key to success. In today's market,
it's innovate or parish. We're all in a race for the next breakthrough -
that piece of ground breaking technology that's going to put a premium on
We'll have to continually find ways to deliver new innovations and
differentiate our products from our competitors. We need the "gotta have"
or "next generation" market game changers to beat the competition. We
have to focus on ingenuity that creates value.
Sometimes it doesn't need to be the next new mouse trap that will
differentiate you from your competitors. It could be an existing product
that is re-engineered to be smaller, better and cheaper. It could be
reinventing a product that will outperform anything else in the market.
I'd like to suggest that we think about innovation a little differently.
A transformation if you will, in the way we approach innovation across
First, we're all aware of the difference in procurement strategies between
Japanese and North American automakers. We're all striving for the
opportunity to win or grow business with the Asian OEMs. And while I
agree the Japanese are great customers, I also believe the domestic OEMs
are gaining a greater appreciation for supplier innovation.
Increased outsourcing, the pressure on raw materials, the impact of China
manufacturing, the price of oil, and ocean freight are all causing North
American OEMs to take a much closer look at supplier innovation ... they
are beginning to embrace a more collaborative approach.
The supply base is consolidating ... yet more and more design,
engineering and manufacturing is being done outside of the OEMs four
walls. The need for open communication and collaboration is undeniable.
OEMS are beginning to realize that collaboration will result in cost
savings. They need our innovation, and we need technological breakthroughs
to achieve our margins. Second, we must transform our thinking about
innovation from a single-minded focus on efficiency - which can only yield
diminishing returns - to a broader focus on innovation that can generate
Product innovations do not need to be breakthroughs or disruptive
Some of our best returns come from incremental improvements to what has
already been done. This industry is not a sprint, it's a marathon - we
need to make smart investments in incremental innovations that will
provide long-term capital gains.
We have to face another new reality -- more intense competition coming
from new emerging players than we've ever experienced before. It won't
just be the Americans, Europeans and Japanese fighting for a piece of the
already crowded market place, it will also be new players from China,
India and Korea. And they're going to enter faster, cheaper and sometimes
That means we have to prepare, plan, move fast and stay ahead.
Therefore, we also need to look at other ways to innovate. This includes
driving process improvements. Some of the greatest success stories in U.S.
business history hinge on process innovation - Dell, Wal-Mart, and, of
Process innovation is another way to achieve long-term success.
At all times we need to be in the process of transformation - so that
we're able to attain a new strategic position. We need to constantly say
- where is the value? Value creation is what will set us apart from
This means not only understanding what is likely to create value today,
but what is going to create value tomorrow and where our value options
"Competitive advantage" is so transitory it's almost meaningless. The
accelerating pace of technology transfer, the velocity of communications,
and the speed of global capital flows require companies to do much more
than defend a static position.
Companies today must continuously evolve from strategic position to
strategic position. We have to create our own options for our future
At ArvinMeritor, we have our sights set on:
We've identified where we can create value and are literally transforming
ourselves to get there.
Emerging Markets is the next crucial area for our future success. We're
capitalizing on tremendous growth opportunities in emerging regions with
aggressive profitable expansion plans.
We're accelerating our efforts to align with leading OEMs and joint
venture partners in those regions who will provide us with the best
opportunities. If we're going to be successful in this industry we have to
face the realities of what's changing and change with it.
In China alone - where the GDP grew more than 11 percent last year - we
expect car and heavy truck sales to exceed the rest of the world in the
We believe that by 2010, light vehicle sales could rise to 10 million.
In 2007, we anticipate China to sell about 300,000 heavy-duty trucks. That
means that China will sell about 100,000 more trucks than we will sell in
North America which has traditionally been our biggest market.
We're seeing the same kind of growth in India.
This year, India is on track to sell about 200,000 heavy trucks. That will
make India the fourth largest heavy truck market in the world. As you can
see, these are market realities we cannot ignore.
At ArvinMeritor, we're facing this new reality and we're:
-- Aggressively transforming the strategies that expand our global
-- Expanding sourcing from Leading Cost Competitive Countries.
As part of our global growth strategy, we plan to triple our sales in Asia
and with the Asian OEMs within the next three to five years.
That's more than $1 billion of added sales in Asia Pacific, and it's more
than $1 billion in sourcing from existing and new suppliers in that
And it's not only in China and India, we're also moving quickly into
Korea, Australia, Thailand, and other key growth areas where we can get
high-quality components at a very affordable price.
Our goal is to have a healthy mix of local OEMs in the Asia Pacific region
that we can grow with as they move forward on a global basis. We're
pleased with the progress we're making. We already have a nice mix of
business between our heavy-duty truck group and our light vehicle group -
with customers such as Hino, Hyundai, Kia, Chery, Daewoo Motors, First
Auto Works and Tata Motors.
We're also aggressively implementing several other strategies to address
the emerging market reality, including:
-- Recently announcing a new President of Asia Pacific, Rakesh Sachdev,
who will be based in Shanghai.
-- Rakesh is a strong leader who will be dedicated to driving our growth
initiatives in that region as well as focusing on delivering higher
margin product lines.
-- Building a new headquarters and technical center in China.
-- Doubling the size of our technical center located in Bangalore, India.
We've been in China and India since the 1980s, and have been keenly
focused on doubling our presence there. We now have 12 facilities in China
and 10 in India. These global strategies will make ArvinMeritor one of
the most geographically diverse suppliers in the industry.
And last, CAPITAL is a crucial element to our successful transformation.
We cannot attack these kinds of global opportunities without a strong
balance sheet. And given the state of our industry and its constant
fluctuation, it's never been more important for OEMs and suppliers to
focus on their financial strength.
A major change and a new reality in our industry is that OEMs and
suppliers want proof of how financially strong a company is that before
they do business with them.
I can't tell you how many of our financial experts are being asked to meet
with OEMs to help them better understand of our balance sheet. They want
to be confident that we'll be in business to support them going forward.
We, in turn, want the same guarantee from our customers. This makes your
job harder! You not only have to bring in new business, but you now have
to make sure it's with the right customers and at the right margins.
The auto industry is just the latest stalwart U.S. manufacturing sector in
the past two decades to begin a tumultuous rebirth.
Some industries that have undergone similar trials have come out stronger,
like steel or the railroads. Others, such as textiles, have not and have
moved mostly overseas.
If we're to weather this tenacious economic slog, we have to transform. We
may all be in the same rough seas; we're just not all on the same boat. If
your boat's going down, transformation is your lifeline.
At ArvinMeritor we've been relentless on our focus to strengthen our
balance sheet. And we've made a lot of progress.
We've significantly lowered our debt and implemented very aggressive
financial initiatives which have made us a much more financially sound
company. We're being very proactive in making tough decisions and
implementing actions that will support our efforts in staying ahead of the
new financial realities we're facing in our industry.
We're now in the first phases of executing a much more aggressive program
to fundamentally change the profitability of the business.
Our new program, called Performance Plus, includes both operational and
commercial elements to create long-term shareholder value.
This is not just a cost-cutting program. It's intended to make us much
more focused on instilling a culture of performance excellence with
ArvinMeritor. It's global in scope, targeting evenly distributed revenues
and earnings of one-third in each region.
This effort will take no less than a cultural transformation to focus the
entire organization on profitability and growth targets for which they
will be measured and held accountable. Everyone in our company knows that
through the efforts of the Performance Plus program we will "leave no
stone left unturned."
Currently, we have more than 100 ArvinMeritor employees dedicated full-
time to this program. It's a two to three year commitment by these very
focused team members. But, as I said earlier, the Performance Plus
initiatives will become part of our company's culture.
We're projecting that by 2009, our Performance Plus initiative will not
only achieve profit improvements of $150 million from its restructuring
and cost reduction actions alone, but we anticipate the growth initiatives
will contribute even more.
The program has three operational excellence elements focused on cost
reduction - in material purchases, manufacturing cost and overhead
Performance Plus is an initiative that will ensure that we better utilize
our asset base, better optimize our manufacturing footprint and continue
to look at ways to improve cost across the board.
And on the growth side, the program has three commercial excellence
elements - improving the effectiveness of our engineering, research and
development expenditures; refocusing our product strategy, and growing our
We're making outstanding progress on our revenue initiatives. We have
currently identified $1 billion of new sales opportunities of which $600
million are already approved and entering the implementation phase.
In connection with our Performance Plus initiative we're implementing a
new restructuring program. We recently announced that we will consolidate
or close 13 global manufacturing facilities. Once this restructuring
program is completed it will improve our company's earnings by $130 to
$140 million annually.
And, we'll significantly improve our financial performance with the new
consumer-driven healthcare program we implemented last year, as well as
the change to our U.S. pension plan we announced a few weeks ago.
Another capital improvement we're focusing on is strengthening our talent
base. We're in the process of building a very strong management
bandwidth. We want strong people who have ideas and can execute. Having
the right people in the right jobs will be the key to our growth and
success going forward.
Now, let's talk about how you as marketing and sales executives can help
us succeed with regards to capital.
You not only have to build strong relationships with customers and be
creative in marketing your company's products, you have to be expert
negotiators. You have to know when to say "no" to pricing pressures and be
willing to walk away if the terms and conditions of a contract are not in
your company's favor.
You have to rethink your sales objectives. It's not new business and high
volumes you should be striving for ... it should be business with the
right customers at the right profit levels.
Just as our customers keep redefining themselves ... we do too.
Connecting with customers is important ... but our corporate reputation
goes well beyond marketing great products.
At ArvinMeritor, we're striving for continuous improvement in every area
that makes our company a great place to work - innovation, people
management, use of assets, quality of our management team and products,
financial soundness, long-term investment and social responsibility.
On this last point - our social responsibility to give back to the
communities in which we do business - says volumes about who we are.
Companies everywhere are catching on.
"American Idol", one of the most popular, highly rated shows on
television, did an entire two-hour episode called "Idol Gives Back" to
help those in need. Ford is the corporate sponsor of the show and their
involvement spoke volumes about their commitment to social responsibility.
Opportunities like these boost brand image as well as corporate image.
In closing, I believe our business can be boiled down to those three
critical elements ... innovation, globalization and capital.
This industry lives and dies on innovation. If we're going to compete we
need to broaden our scope of engineering, research and design. It requires
efficiency. It requires investment. It requires transformation of
This industry is now boundary-less, and it's true that the world is flat.
If we're going to compete, we need to be boundary-less as well. It
requires agility. It requires speed. It requires transformation to think
fast and act faster.
This industry is also in tough financial straits. If we're going to take
advantage of opportunities, we've got to have the balance sheet to support
it. That requires we throw everything on the table for reconsideration.
Sometimes starting with a white sheet of paper. Transformation.
Many times we look at this constant push for change and think, enough
already. It can be tiring. But it's important to remember that all of
the pressure and competitive challenges have forced some amazing
For instance change has forced us to become more productive.
While the number of vehicles assembled in the U.S. has increased from just
over 14 million units in 2000 to over 17 million units today, the total
labor headcount in the industry has fallen by 17 percent in the same time
Change has forced us to become more innovative.
The supplier industry now accounts for 40 percent of total automotive R&D
investment, leading breakthroughs in vehicle safety, emissions and
alternative fuel. We continue to take on a greater role in the design,
testing, and engineering of new vehicle parts and systems.
Change has forced us to globalize, to consider new markets and new
customers. We're supporting a record number of vehicle manufacturers and
vehicle models being sold and operated outside the U.S.
This is all proof that we are indeed - to the benefit of our shareholders,
employees, industry and global economy - to perform while we transform.
It truly is survival of the fittest - and only those companies that
transform - will survive and indeed, thrive in today's shrinking global
Thank you and now I'd like to hear from you with your questions.
* Source: BusinessWeek
ArvinMeritor, Inc. is a premier global supplier of a broad range of
integrated systems, modules and components to the motor vehicle industry. The
company serves light vehicle, commercial truck, trailer and specialty original
equipment manufacturers and certain aftermarkets from more than 110
manufacturing facilities globally. Headquartered in Troy, Mich., ArvinMeritor
employs approximately 27,500 people in 26 countries. ArvinMeritor common
stock is traded on the New York Stock Exchange under the ticker symbol ARM.
For more information, visit the company's Web site at:
This press release contains statements relating to future results of the
company (including certain projections and business trends) that are "forward-
looking statements" as defined in the Private Securities Litigation Reform Act
of 1995. Forward-looking statements are typically identified by words or
phrases such as "believe," "expect," "anticipate," "estimate," "should," "are
likely to be," "will" and similar expressions. Actual results may differ
materially from those projected as a result of certain risks and
uncertainties, including but not limited to global economic and market cycles
and conditions; the demand for commercial, specialty and light vehicles for
which the company supplies products; risks inherent in operating abroad
(including foreign currency exchange rates and potential disruption of
production and supply due to terrorist attacks or acts of aggression);
availability and cost of raw materials, including steel; OEM program delays;
demand for and market acceptance of new and existing products; successful
development of new products; reliance on major OEM customers; labor relations
of the company, its suppliers and customers, including potential disruptions
in supply of parts to our facilities or demand for our products due to work
stoppages; the financial condition of the company's suppliers and customers,
including potential bankruptcies; possible adverse effects of any future
suspension of normal trade credit terms by our suppliers; potential
difficulties competing with companies that have avoided their existing
contracts in bankruptcy and reorganization proceedings; successful integration
of acquired or merged businesses; the ability to achieve the expected annual
savings and synergies from past and future business combinations and the
ability to achieve the expected benefits of restructuring actions; success and
timing of potential divestitures, including our recently announced agreement
to sell our Emissions Technologies business; potential impairment of long-
lived assets, including goodwill; competitive product and pricing pressures;
the amount of the company's debt; the ability of the company to continue to
comply with covenants in its financing agreements; the ability of the company
to access capital markets; credit ratings of the company's debt; the outcome
of existing and any future legal proceedings, including any litigation with
respect to environmental or asbestos-related matters; rising costs of pension
and other post-retirement benefits and possible changes in pension and other
accounting rules; as well as other risks and uncertainties, including but not
limited to those detailed from time to time in filings of the company with the
SEC. These forward-looking statements are made only as of the date hereof,
and the company undertakes no obligation to update or revise the forward-
looking statements, whether as a result of new information, future events or
otherwise, except as otherwise required by law.
SOURCE ArvinMeritor, Inc.
CONTACT: Lin Cummins of ArvinMeritor, Inc., +1-248-435-7112,
Web site: http://www.arvinmeritor.com