Billionaire Investor Wilbur L. Ross says he wants to assemble three multibillion-dollar auto-parts companies from the heap of troubled suppliers that has piled up over the past two years.
In an interview Tuesday at his midtown Manhattan office, Mr. Ross said the $500 billion-plus auto-parts industry is ripe for radical change, and everyone, from battled-tested unions to struggling carmaker-customers, is embracing it. His hope is to create at least two new companies within three years, one focused on auto plastics and one on metal parts. Each would be the largest in its niche, with annual sales of almost $15 billion －－ putting each one among the Top 10 global auto-parts makers.
The third, smaller company Mr. Ross says he hopes to create would specialize in auto-safety products such as seat belts and air bags.
The 67-year-old chairman of WL Ross & Co., an investment fund that in the past has made similar bets on troubled industries like steel and textiles, Mr. Ross says he has upward of $4.5 billion for his auto-parts wager, adding, Getting more money for what we are doing is not a problem.
If the tide of bankruptcies and poor stock prices is any indication, Mr. Ross is taking a contrarian view, diving into a business that others are fleeing. Rising commodity prices, falling sales at General Motors Corp. and Ford Motor Co., severe price pressure from those customers and growing retiree-benefit burdens all have pushed about 30 auto-parts suppliers into federal bankruptcy restructuring over the past two years.
The country's largest auto supplier, Delphi Corp., filed for Chapter 11 protection in early October. The second-largest supplier, Visteon Corp., needed a massive bailout from its former parent, Ford: The automaker took back Visteon's poorest-performing plants and will try to sell them. Other suppliers that haven't tumbled into bankruptcy, such as Dana Corp., are reporting disappointing earnings or facing restructurings.
Enter Mr. Ross. Our interest ... is to be a provocateur of change. And if we don't see a big way to change the dynamics of the industry we don't go in －－ like with airlines, which we've been looking at forever, but we can't see a way to change that, he says. Auto interiors, for example, realize they are at a crisis point and ready for a change, so our goal there is to be the biggest auto-plastics business in the world.
Robert S. Miller, Delphi's Chairman and chief executive, dealt with Mr. Ross while Mr. Miller was running Bethlehem Steel. He calls Mr. Ross a very constructive element.
Mr. Ross cites the recent GM-United Auto Workers deal to lower GM's health-care costs in the middle of a contract and Ford's new strategy in purchasing, slashing vendors while offering longer-term contracts, as signs the industry is ready for change. Those things ratify our thinking that the time is right, said Mr. Ross. So far, his firm has put in place a joint venture with Lear Corp., with Lear contributing some or all of its $3.5 billion auto-plastics business.
To build his auto-steel company, Mr. Ross will start with the European assets he owns of the former Oxford Automotive, a recently-liquidated Troy, Mich., firm that had sales of about $600 million. The auto-safety business he hopes to build starts out with Safety Components International, a Greenville, S.C., company of which he owns 77%.
But he will start with auto plastics, an area he says he knows far better than the others. Auto plastics make up much of a car or truck's interior, including instrument panels, center consoles and door panels, as well as many bumpers. Mr. Ross estimates the segment has about $75 billion in annual sales.
The Ross-Lear venture's first priority is bidding on the assets of Collins & Aikman Corp., a Troy, Mich., auto-interiors supplier that filed for bankruptcy-court protection in May, a few days after ousting its chairman, David Stockman, the former Reagan administration budget director. Mr. Ross's investment group and other funds he is working with have snapped up about half of Collins & Aikman's bank debt, as well as stakes in smaller suppliers in Europe and Asia.
Mr. Ross is one of two final bidders for C&A's European operations, with about $1 billion in annual sales. Last week, C&A's creditors asked a U.S. Bankruptcy judge in Detroit to seize documents from Mr. Ross about his ownership in C&A debt and to depose him about conversations they allege he has had with customers in Europe and North America. Their fear is he is trying to position himself as the clear favorite to buy C&A assets by dampening others' bids.
Mr. Stockman made a similar bet in the late 1990s, merging several auto suppliers together in order to withstand price-cutting pressure from big automakers. But that gamble didn't pay off. Mr. Ross says what makes his plan different is that he is looking to assemble a company three or four times the size of C&A and to do it on the cheap.
Still, getting better prices from automakers, cut deals with unions, dominating with global size －－ all are practices that are tried but not always with great success, says Robert Barry, Goldman Sachs auto analyst. There have been many suppliers that had multibillion-dollar presences and couldn't withstand price pressure －－ look at Delphi. Automakers do seem willing to pay a little more for interior plastic parts, so they don't have another C&A on their hands. But what they want is to only pay a little more so they can keep you out of bankruptcy, not to make it much more profitable, he says.
Mr. Ross has had success before betting big in troubled industries. Starting in 2002, he began rolling the remains of five bankrupt steel companies into International Steel Group, which he sold to Mittal Steel last April for $4.5 billion, pocketing about a tenfold profit, he says. He hopes to benefit from cheap labor in Asia by building plants there －－ or buying companies there －－ to supply cars and trucks built there.
In some of his past ventures, Mr. Ross got some government protection against foreign imports. In this case, he is hoping to make the auto-parts businesses global, pushing into China, India, eastern Europe and Latin America.
