Lear Seating Corporation
Lear Seating Corporation
21557 Telegraph Road
Southfield, Michigan 48034-6817
Fax: (810) 746-1524
Incorporated: 1917 as American Metal Products Company
Sales: $3.15 billion
Stock Exchanges: New York
SICs: 2531 Public Building & Related Furniture, Seats for Automobiles; 3465 Automotive Stampings; 3495 Wire Springs.
Using a strategy of acquisition and geographic expansion, Lear Seating Corporation moved into a leading position among the world’s independent (i.e., not owned by an automaker) suppliers of automotive seats in the early 1990s. By 1995, the company held just over one-third of the North American seat market and nearly 20 percent of Western European auto seat sales. The company’s more than 100 locations around the world design and manufacture automotive seat frames, covers and components, as well as complete seats and other interior features. More than two-thirds of the company’s sales were made in North America, and the remainder were generated in Europe. Although Lear relied on two clients, carmaking giants General Motors Corp. and Ford Motor Co., for more than two-thirds of its sales, the company’s seats can be found in more than 80 different car models from automakers worldwide. Following a management-led leveraged buyout in 1988, Lear’s sales grew from less than $200 million to more than $4.5 billion by 1995, as the company broadened its geographic reach and expanded its product line to include a wider variety of interior automotive features.
Establishment and Postwar Growth
Although Lear Seating 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 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 Corp. and Ford Motor Co. AMP incorporated in 1928 and had broken the $1 million sales mark by the late 1930s. Wartime contracts 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 Alliance Ware, Inc. Burroughs Mfg. Co., 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 profit 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 and $2 million.
Acquisition by Lear Siegler in the Late 1960s
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 Co., 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.
Management Buyout in Late 1980s Sparks Rejuvenation
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 anti-takeover measures, Lear Siegler was acquired 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. (The “Siegler” has since been dropped.) He became the company’s chairman and CEO in 1988 and continued in that position through the mid-1990s.
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 1990s. 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.
Under Way, Lear strove for excellence on all of these fronts. The company had begun to adopt just-in-time (JIT) manufacturing, which emphasizes 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 is 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 has a number of industry “firsts” to its credit, including the patented Sure-Bond process, which adheres seat covers directly to the foam padding inside. This process cuts down on labor and waste and broadens 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 side-impact seat with an airbag. Lear also employed sophisticated computeraided design and manufacturing systems, utilized 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, and Mazda.
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.
Acquisitions Fuel Continued Growth in Early 1990s
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. Volvo’s interior business came next, in 1992. In 1993 Lear bought Ford Motor Co.’s North American seatmaking operations (Pavesa, S.A. de C.V., headquartered in Mexico) for $173.4 million in cash, thereby becoming Ford’s seatmaker of choice. Fiat’s seat operations (SEPI S.p.A.) were added in 1994, and in 1995 Lear formed a joint venture with Spain’s Inespo (a foam manufacturer) to supply seats to Volkswagen in Brazil. By the mid-1990s, Lear had plants in North and South America, Europe, Thailand, Indonesia, and Australia. At that time, more than onefourth of Lear’s sales were generated outside North America.
We will continue to follow the philosophies that have guided us thus far. We will remain lean, flexible and quick to react. We will work harder than the competition, using common sense in a never-ending effort to provide our customers with the highest quality, lowest cost products and outstanding services. We will concentrate on the basics as we strive to recognize, anticipate and fulfill our customers’ needs.
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 in its history. In 1995, Lear purchased Automotive Industries Holding Inc. for $626 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.
The purchase also seemed to indicate that Lear concurred with industry analysts and executives who felt that outsourcing of complete seat systems had reached its peak and would begin to decline in the late 1990s. As a consequence, Lear expected to maintain its double-digit rate of annual sales increase through research and development of new products, maintenance of a low cost structure, and strategic acquisitions. With more than eight decades of experience and a ranking among the global automobile industry’s top ten independent suppliers, Lear Seating Corp. appeared well-positioned to attain that goal.
LS Acquisition Corp. No. 14; Lear Seating Holdings Corp.; LS Acquisition Corporation No. 24; Fair Haven Industries, Inc.; Lear Plastics Corp.; Lear Seating Sweden AB; Equipos Automotrices Totales A.A. de (Mexico); Central de Industria S.A. de C.V. (Mexico; 59.6%); Lear Seating Canada Ltd.; Lear International Ltd. (Barbados) Lear Industries Holdings B.V. (Netherlands); Interim S.A. de C.V. (Mexico; 99.5%); NS Beteiligungs GmbH (Germany); Lear Seating Autositze GmbH (Austria); No Sag Draftfedern GmbH (Germany; 99.8%); Lear Seating GmbH (Germany); Lear France E.U.R.L. (France); Societe No Sag Francaise (55.8%); Souby S.A. (France); Spitzer GmbH (Austria; 62%); Lear Seating (U.K.) Ltd.; Lear Seating Australia PTY. Ltd. (99.9%); Pavesa S.A. de C.V. (Mexico); Lear Seating Italia S.r.l. (99%). [principal affiliates] General Seating of Canada Limited (35%); General Seating of America (35%); Industrias Cousin Freres, S.L. (Spain) 49%); Markol Otomotiv Yan Sanayi Ve Ticart (Turkey; 35%); Lear Seating Thailand Corp. (Thailand; 49%).
Flint, Jerry, “King Lear,” Forbes, May 22, 1995, pp. 43–44.
Hampton, Bill “Kenneth L. Way,” Chief Executive, May 1995, p. 32.
“King Lear: How Competitors View Lear/Automotive Industries Deal,” Ward’s Auto World, August 1995, p. 17.
Kisiel, Ralph, “Buyout Positions Lear as Complete Interior Provider,” Automotive News, July 24, 1995, p. 14.
Krebs, Michelle, “Integrated Interiors,” Automotive News, February 27, 1989, p. E20.
Phelan, Mark, “Rocking Around the Clock,” Automotive Industries, October 1995, p. 129.
Plumb, Stephen E., “Lear Expansion Jumping into High Gear,” Ward’s Auto World, December 1991, p. 63.
——, “Scrambling for Seats: Outside Vendors Offer Complete Seating Systems,” Ward’s Auto World, August 1989, p. 51.
Rivard, K.A., “Lear Seating Corporation,” Investext, Robert W. Baird & Co., Inc., November 30, 1995.
Sawyer, Christopher A., “Can’t Sit Still,” Automotive Industries, February 1994, p. 68.
Simmons, Jacqueline, “Lear Seating To Sell Shares in Public Offer,” Wall Street Journal, March 14, 1994, p. A8.
Sorge, Marjorie, “Do Seats Flog Your Fanny?,” Ward’s Auto World, November 1993, p. 44.
——, “Lear Gets Behind Outsourced Seating Plan,” Ward’s Auto World, February 1995, p. 50.
“Southern Exposure,” Automotive News, December 27, 1993, p. 8.
Winter, Drew, “Growing Modular,” Ward’s Auto World, January 1996, p. 57.
—April Dougal Gasbarre