Dura seeks growth beyond Big 3

By Robert Sherefkin Automotive News

Detroit, Michigan-This is the year that tests Larry Denton's durability.

The CEO of Dura Automotive Systems Inc. is trying to bolster the auto supplier's product base and customer ranks beyond the Big 3, which are squeezing him for price concessions.

Denton, who ran the Boston Marathon 18 years ago, now is in a hurry to win business from transplant automakers in North America as well as Europe customers. That process will take time, he says.

Denton, 54, joined Dura from Dow Automotive of Auburn Hills, Michigan, in January 2003. He says he has made progress on Dura's “debt load and rejuvenating our organic growth engine and innovation.”

But Dura and many auto parts makers are suffering from the Big 3's steady erosion of US market share. The traditional Big 3 brands held 73 percent of the market in 1996; last year the figure was 60.2 percent.

Internal growth at Dura, a Rochester Hills, Michigan, supplier of driver control systems, glass systems and door modules, is just 2 percent to 3 percent. So Denton has compensated by generating $50 million to $100 million of cost savings each year, offsetting price concessions to automakers. But that may not be enough.

“At some point ... management will have wrung all of the possible cost savings out of the company and there will be nothing to offset the volume and price declines,” reports Gimme Credit, a New York bond research firm.

Dura had $1.19 billion in debt at the end of 2003, up from $1.08 billion in 2002. But the company has adequate liquidity, or the ability to come up with cash. Dura plans to use free cash flow - the amount of cash that it has left over after it has paid all its expenses - to reduce debt by about $40 million this year.

Dura posted solid results last year. The $22.3 million profit on sales of $2.38 billion for the year ended Dec. 31, 2003, compared with a net loss of $289,000 the year before because of a writedown for goodwill and charges from discontinued operations.

The problem: Revenue

The problem for Denton is generating revenue.

Sales have been flat for two years. Revenue would have declined by $82 million last year had it not been for the effects of a weak dollar and an acquisition.

Dura's dependence on the Big 3 - 55 percent of sales, 26 percent from Ford Motor Co. alone - is doing little for internal growth.

“The company has a weak backlog of net new business," according to a Standard & Poor's report, which concludes that Dura will grow more slowly than its parts-making peers.

Wall Street wants to see suppliers increasing their business with Asian and European automakers who have plants in the US.

Denton says the company has won significant new business but wouldn't identify the customers. Still, he won't see much of that revenue until at least 2006.

Growth by acquisition

Dura was formed in 1990 from the spinoff of the Mechanical Components unit of Wickes Manufacturing Co. Thanks in large part to an acquisition blitz that added 19 companies, sales climbed from $110 million after its first year of operations to last year's $2.38 billion.

Automotive News ranks Dura as the world's 46th-largest supplier of original-equipment parts.

Acquisition-fueled growth will come more slowly now, Denton says. Dura is looking at small acquisitions of companies with less than $50 million in sales, he says.

Denton is focused on internal growth. If Standard & Poor's is correct in forecasting 2004 US light-vehicle sales of 17.1 million units, up from last year's 16.7 million, a rising tide could lift many boats, including Dura. Even then, S&P projects revenue increases of between 2 percent and 4 percent.

Dura has a four-pronged strategy:

1. Reduce debt

2. Invest only in businesses that generate high growth and returns

3. Expand production in low-cost regions

4. Invest in growth technologies.

Denton also is in a hurry to spruce up a product line - including parking brakes, seat controls, cables, tire carriers, jacks, hinges and latches, among others - that looked like the auto industry's junk drawer.

But he's trying to upgrade those commodity parts to make them more profitable.

For example, Dura has combined a commodity parking brake with a hood latch to create a single mechanism that saves weight and cuts installation costs.

And the company is a finalist for the 2004 Automotive News PACE Awards with an innovative plastic side-window lift in a package driven by plastic gears instead of steel cables that can slip out of adjustment.

In addition to such product innovations, Dura needs time - time to build relationships and sales to German, Japanese and Korean transplant.