Mark Hogan has been around the automotive industry for more than 30 years, most of it spent at General Motors, where he had assignments ranging from running the automaker’s Brazilian operations to heading its global e-business unit to being responsible for advance vehicle development. Having spent more than a year on the other side of the table as President of Magna International, as a supplier, not an OE, Hogan says the auto industry is going through the most significant change in his career. He says automakers and suppliers must confront fundamental issues this year or risk the well-being of the domestic auto industry. Hogan points to the Delphi bankruptcy as a difficult, yet necessary, step that needed to be taken. “The business model has to change and obviously the OEs are confronting that and the supply base has to confront that with them,” Hogan says. GM represents 22% of Magna’s $21-billion in revenues and while it is not the supplier’s largest customer, Magna does play a critical role in a number of key automaker’s products, including the ’07 GMT-900 full-size truck program. Hogan says Magna’s focus is making sure the GMT-900 launch goes as planned, even though GM has reduced the launch schedule by six weeks for the full-size SUVs and more than 13 weeks for the pickup trucks.
Magna is willing to take on additional business with GM if the automaker becomes concerned over the future of Delphi and consequently decides to re-source some of its business to other suppliers, although Hogan says Magna has not been approached by GM to take on additional business from Delphi. “We compete with Delphi in a number of areas, but it’s really between Delphi and GM on that one. If we get a call we’ll try to move as fast as possible,” he says. Shifting business to other suppliers may be beneficial, but the underlying economics do not change, Hogan notes. He says suppliers are currently operating their businesses with profit margins “in the pennies” for many products, which is not sustainable for the long-term. He says every supplier must continue to reduce their structural costs, while OEs must look at suppliers as part of the solution to improved profitability. Collaborating with suppliers early on in the product development process is critical: “Those OEs that involve the supply base earlier on in the product development process are going to be more successful. The OEs that follow the more traditional late-sourcing model that’s based on multiple bids and multiple rounds of bidding are just going to jeopardize the product, and in today’s world you can’t afford that.” He says the days of OEs demanding retroactive price cuts are a thing of the past: “The only way you are going to be able to have more effective cost execution is by upfront collaboration.”
Hogan expects Magna to increase its penetration with Asian manufacturers by expanding the supplier’s presence on their home turf, along with building ties with the Asian brands in Europe. “The Asians are picking up market share here in the U.S. and in Europe, and they are spreading their wings in the rest of Asia, so it’s incumbent upon us to expand our manufacturing footprint in Asia to gain that business,” he says. Another key area for manufacturing expansion will be Central-Eastern Europe, where automakers are increasing their presence in low-wage countries, including Poland, Slovakia, Czech Republic, and Romania. Magna also plans to expand its presence in the automotive electronics sector, where margins are higher, demand for breakthrough products remains strong, and overall electronic content penetration is expected to reach 70% of total vehicle content within the next 10 years. Additionally, Hogan predicts his company will continue on its current path of 20%-plus annual revenue growth over the near-term. That’s pretty bold considering margins are slim, production for domestic manufacturers continues to decline and the perfect storm is still brewing.—KMK