ArvinMeritor: Progressive business plan in China as well as Asia-Pacific

Aziz Aghili
Vice President, Global Procurement
Vice President, Commercial Marketing and Business Development, Asia-Pacific
Light Vehicle Systems, ArvinMeritor

Aziz Aghili is the vice president of Global Procurement and vice president of Commercial Marketing and Business Development in Asia/Pacific within ArvinMeritor's Light Vehicle Systems (LVS) business group. In this position, he is responsible for the growth of LVS businesses in the region and also for leading global procurement strategies that maximize LVS sourcing opportunities from Leading Cost-Competitive Countries. With more than 23 years of experience in the automotive industry, his specific focus is on strategic growth opportunities through joint venture activities, strategic alliances and organic growth.

Aghili joined the company in 1989 as a manager of Engineering for Rockwell Automotive in Melbourne, Australia. In his 16 years with ArvinMeritor, he has held several roles of increasing responsibility within LVS, including director of Operations and business liaison in Asia/Pacific; general manager of Service Parts; and most recently, vice president of Global Procurement. Prior to this experience, Aghili spent three years serving GE Plastics in Melbourne, Australia, as a manager of Engineering and then Marketing for the Australia region. He also served Nissan Motor Manufacturing in Melbourne, as a product engineer and then a senior product engineer.

He holds a bachelor's degree in mechanical engineering from Teesside Polytechnic in Middlesbrough, U.K., and a post-graduate diploma in business administration from the Australian Graduate School of Management at the University of NSW in Melbourne. He also holds a graduate diploma in international management from the INSEAD Business School of Management in Fontainebleau, France. Aghili is fluent in Turkish, Farsi and Arabic.

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.

The Thirteenth Edition of a Series of Interviews with MNC Auto Parts Suppliers

Gasgoo: Thank you for joining us at Gasgoo.com. First of all, can you give us a brief introduction of your company?

Aziz Aghili:
Yes. Thank you very much. It's our pleasure. What I would like to do is to go through a very quick presentation about ArvinMeritor. This will give you a good understanding of our business globally. ArvinMeritor is about a 6.2 billion dollar supplier to the motor vehicle industry, you know that ArvinMeritor divested its exhaust business recently; our sales in 2006 were actually approximately 9.2 billion, so this shows the sales after the divestiture.

We have about 100 years of heritage as ArvinMeritor. ArvinMeritor was part of initially Rockwell international, Rockwell diversified the Meritor portion of the business, automotive portion of the business which is called Meritor, and merged with Arvin Industrials in 2000 to create one company called ArvinMeritor. We have about 19,000 employees in 24 countries and our headquarters is based in Troy, Michigan, and of course ArvinMeritor trades as ARM in the New York stock exchange.

This basically gives you a very good idea of our product line, we have very strong on commercial vehicles, and by commercial vehicles I mean large trucks, and you know we supply a driveline, axle, braking system, suspension system for trailers, and we have a dominant position in US and European markets on their heavy truck side of the business. On the light vehicle side which is the car side of the business, we have our door system business, we have our roof system business, we have a chassis and suspension business and our wheels business as well. In all of our products, ArvinMeritor is either No.1 or No.2 in the market that we serve.

This shows our sales and breakdown for commercial vehicle and light vehicle system. And as you can see, Volvo and Daimler Chrysler are the biggest customer base, on the other side, our customer base again Daimler Chrysler and Volkswagen, and the Asia OEM is very small at the moment, as you can see, is about 4 percent of our total sales, but our expectation is to grow the sales with the Asian OEMs, that also includes Chinese OEMs here in China. There are three areas that we are focusing our drive. Vehicle chassis, suspension module, shock absorbers and wheels, these are the products that we are positioning ourselves here in China on the light vehicle side. On the vehicle drive train, that is axles, ArvinMeritor has got a strong position in North America, and we want to bring that here as well, braking systems and transmission on the heavy vehicle side. Also on the vehicle aperture, that means opening and closing areas which includes roof system (sunroofs), door systems, and door latches.

The vision of stake goal of ArvinMeritor is to change our revenue base to have one third, one third, one third. That means one third of the revenue to come from North America, one third from Europe, and one third from Asia-Pacific region, and of course China and India is going to play a major role for us to achieve that goal.

Gasgoo: That's the main reason why you come to Shanghai?

Aziz Aghili: That's one of the main reasons. Actually I came to Shanghai when I accepted the job at ArvinMeritor to lead their procurement side globally. I relocated the procurement headquarter two years ago to Shanghai from Detroit. The reason was that we were driving our sourcing what I've called "leading cost cut competitive countries". We believe countries like India, China, Mexico and Brazil, have the leading edge in terms of costing. We use the leading cost competitive rate of low cost, because low cost got a negative connotation of low quality, and to change the mindset within our organizations, we came the leading cost competitive countries to get the support of the business and make sure that we maximize our opportunity in this region.

Gasgoo: But for Magna and Marelli, they call the low cost countries the "best cost countries".

Aziz Aghili: Is that right? Yes. Yes.

Gasgoo: Great minds think alike. 

Aziz Aghili: That's right, so apart from the sales side that we want to have one third in the Asia-Pacific, we're also looking at sourcing about a billion dollars worth of components from this region, to also support our need in Europe and North America as well, we'll be growing our supply base here in China, we also need to enhance our engineering and product development footprint, You know, ArvinMeritor announced just recently that we'll be setting up a tech-center here in Shanghai.

Gasgoo: When?

Aziz Aghili: The tech-center is already approved, we have signed an agreement but we are actually building a new building, the building will be completed by the end of 2008, and to have somewhere around 350 to 400 engineers for R&D (research and development) and testing, we are talking about very high level of testing, that means chassis and vehicle testing that there are not many of those test centers available here in China.

Gasgoo: That's right.

Aziz Aghili:
Yes. This test center will allow us to be able to test full cars in terms of vibration and chassis development, for suspension, module, tuning and so forth, this test center will have the capability to do it. We also recently announced that a president for Asia-Pacific, my boss, his name is Rakesh Sachdev, he will be based here in Shanghai, he is responsible for Asia-Pacific, he's the president for Asia-Pacific, but he chose Shanghai as the headquarter for Asia-Pacific region as well.

This shows where we are now, which shows of course we are a North American, European focused organization, and where we are going, which shows that we're going to change our footprint and our revenue in the next five years, to achieve a balance sales globally, so one third, one third, one third basically.

Gasgoo: This next five years means before the year of 2010?

Aziz Aghili: No, This means that by 2012 and 2013, our expectation is to achieve one third, one third, one third. So we have a huge challenge in front of us in terms of sales growth here in Asia-Pacific. This shows that transforming ArvinMeritor's business Asia-Pacific strategy, dedicated full time leader, that means president for Asia-Pacific as I mentioned, Mr. Rakesh Sachdev, establishment of one regional office or headquarter for Asia-Pacific here in Shanghai, and we really also want to aggressively pursue and manage the growth that we have in front of us in this region. We also need to expand our technical center in India, we have already got a large technical center in India, we need to expand that as well as in China, we already have technical people in China, but mainly they are based in this office as well as in our plants, but we want to consolidate everybody in the tech center by the end of 2008.

Gasgoo: Actually before we arrived, we were very curious about the fact that ArvinMeritor set up a senior R&D center in India.

Aziz Aghili: Yes. We set up an initial tech center in India back in 1998.

Gasgoo: Very early

Aziz Aghili:
Very early, and we did that because when we were in India, we saw a great opportunity in India with the engineering community that they are able to support ArvinMeritor quickly. In India basically they support some of our global needs, not necessarily just our needs for India. But in China as we built our presents, the technical center is very important. The OEMs have been basically demanding the design and development to be done here in China. 

This shows the procurement opportunity in Asia-Pacific, leading cost cut competitive countries that shows our strategy, what is in 2005, in terms of spend, we buy from LCC countries, by 2010 we expect to buy 60% from LCC countries.

Gasgoo: How much percentage for China?

Aziz Aghili: As you can see, we call it the "BRIC countries", that means Brazil, Russia, India and China, these are for us the leading cost cut competitive countries. I believe China will play a major role, for two reasons, one reason is business expanding very rapidly domestically here, you know, as we grow more, we have to buy local Chinese components as well as develop the Chinese supplier. Secondly, we need to utilize the suppliers that we have developed to support us globally as well. As a guess, I would say maybe 40-50% of that could come out of China.

Gasgoo: Very impressive. As we know that currently the most sourcing activities of your company have been in Brazil. 

Aziz Aghili: No, I think we have devoted a lot of effort in the past two and a half years, both to India as well as in China. We have a dedicated team here in Shanghai and these are global procurement teams that their job is to identify potential suppliers, and we have a dedicated supplier development team here, that works very closely with procurement to assess those suppliers, and based on that we developed a lot of suppliers support our needs globally.

This shows our technical center, the one on the left shows the technical center in Bangalore, the new one is the one we are proposing for Shanghai.

These are some of our Asia customers, that we mentioned to you, that we are trying to grow, as you can see, Chery is one of them, and we have few others in China, including SAIC, CAC, and in India, Tata for example, you may know that.

Gasgoo: Do you find some difference between your global clients like Daimler Chrysler, and Chery for local part? Any difference when you contact with those OEM clients?

Aziz Aghili: No, not really difference, I think the OEMs expect the same technical support and services, but their needs can be a little bit different. Some of the local OEMs, because the local OEMs are trying to upgrade their quality, right now you know they are going to different phases, so based on that they also requires certain suppliers that they can partner with them, support their expectation in terms of cost as well as quality, so we need to work very closely with the OEMs to deliver their expectation.

Gasgoo: Actually to help those grow to meet the benchmark

Aziz Aghili: Of course, especially they wish to start exporting cars overseas because their expectations of overseas customer base, is different, and yes.

Aziz Aghili: Of course focusing on Chinese here, China is a market driver, we know that vehicle population is increasing, their life time of vehicles gets longer, we also know that there is going to be a lot of cars built here for export out of China to overseas market as well, so China is a huge market, and from my view, it's going to expand for the next decade to come.

Gasgoo: Another thing that China become attractive not only for its huge potentiality of the local markets, as well as you mentioned the leading cost companies, more of the leading competitive, leading cost competitive countries

Aziz Aghili: Supply base?

Gasgoo: Yes. So your company's strategy in China, you built plants, factories, and you are going to build the R&D center in Shanghai.

Aziz Aghili: Yes

Gasgoo: In order to offer better service to the local clients, like Chery or Fiat, GM, SAIC, FAW. Is the main aim you also treat it as a low cost to supply the global business?

Aziz Aghili: I think it is both, we can look at our run of business today, we export maybe 40% form our plant in Zhenjiang to Mazda in Japan, we also supply window regulators and latches from Zhenjiang which is in China, to Australia, Thailand, Philippine, South Africa, so we are already utilizing our plants here in China, where it's appropriate to export and we have the right quality to be able to accomplish that and the right cost base.

This shows basically the growth domestic forecast for a number of countries, including Japan, India, Germany, US and China, and of course it shows that by 2015, China is going to be one of the leading countries in terms of growth of domestic products GDP. 

I'm sure you have seen the China passenger car sales production forecast, there are number of forecasts, this is maybe a more conservative forecast, and this shows by 2011, maybe we are looking at 8 million cars.

To give you some information about our truck side of the business, of course, China alone is one of the largest commercial vehicle (truck) manufacturing in the world, In China it's about 300,000, US is about 225,000, Europe is about 300,000, India is about 200,000, as well, so it's again a huge market, by itself for the commercial vehicle side as well.

This shows our current operations that we have. We have an axle assembly 100% on the heavy vehicle side in Pudong, We've just opened the new facility in Wuxi, for trailer axle, we are trying to expand that, as well in Wuxi; In Zhenjiang, we have operations since 1993, which we manufacture window regulators and door latches. We can see the customers include Mazda Japan, and FAW, VW, and many other customers. We have a smaller operation in Changchun, and we supply the whole door module for FAW, and we have a cooperate office here, we've just opened also a new plant for sunroofs, in Pudong, it's not just listed in here, but it will be operation by October.  

Gasgoo: This year?

Aziz Aghili:
This year, yes, to be operation this year, the SOB date, is August of next year, but the plant would be start to be ready by December this year.
This shows you some of the joint ventures ArvinMeritor has here, we have one joint venture with SAIC for sunroofs, supporting SVW and SAIC vehicles, we have a plate joint venture in Changchun with FAW, we have a very large axle joint venture in Xuzhou, which we make off-highway axles, and we also got the braking business as well, very small braking joint venture. 

Gasgoo: What are the main driving points for ArvinMeritor to build a factory by joint ventures or by your own?

Aziz Aghili: I think it's going to be depending on different scenarios, sometimes the customer request a partnership for certain specific product lines. 

Gasgoo: Customer requirement?

Aziz Aghili: Sometimes. Sometimes for a company to have a market entry, it's important to have a quick entry, maybe just through partnership, and it was in the past. Over the times our changing now, so different business cases, but certainly we have seen sometimes the OEMs which to have certain strategy outline, with the suppliers, because they believe certain parts are core and important for the vehicle and they wish to have a joint venture with the supplier for particular components or systems.

Gasgoo: It's also choice that for the past ten years, most of the multi-national companies when they enter China, they tend to build joint ventures, but now more and more of these companies choose to build their own factories.

Aziz Aghili: It's true, yes, because the market dynamic is shifting.

Gasgoo: so it's also true for your plan,

Aziz Aghili:
It's true, but you know, we have as I mentioned a goal of growing our business to 1 billion dollars, the reality is we are not going to achieve a billion dollars, by what we call "organic growth", that means 100% of trying to win in the business, majority of course will be through organic growth, but some of that grows will also come through partnership, through some strategy alliance with other suppliers, maybe acquisitions of joint ventures.

This just shows that ArvinMeritor is strongly involved in China, and shows some of our teams basically, CVS Shanghai, our Xuzhou plant, that's our other CVS plant, we have in the bottom, our Zhenjiang LVS plant.

ArvinMeritor is a very socially responsible company, and this slide basically shows that we made some contributions to the Chinese football donation, and supporting social activities in the environment that we have operations in our plans, and when for example, the tsunami hit here in Asia a few year ago, ArvinMeritor was there to provide support as well, so we have a strong foundation, we have of course very strong talented people, technical people, we have a global presence that helps us, and we have a diversified customer base, you know to drive our business we have good global leaders with global thinking to be able to drive our business, and certainly ArvinMeritor has got the best class processes in terms of manufacturing, and it is not just one time, process improvement but it is the continuous improvement in all of our processes, from manufacturing or office processes to engineering process, and we are technology focused, we want to solve problem, we need to innovate and bring innovate solutions.

Gasgoo: Know-how

Aziz Aghili: Yes, of course, so this was just a quick overview of ArvinMeritor.

Gasgoo: For the first talent and experienced people, we know that since the automotive industry is booming in the Chinese market, is naturally that for the company of this industry to have sense of fierce competition in the talent of the people?

Aziz Aghili: Absolutely, in China

Gasgoo: Have you ever encountered some human resource problems?

Aziz Aghili: I think in China many organizations are facing the same challenge. First of all, finding the talented people, and secondly creating an environment that they stay, because many companies coming to China and they are looking to hire the same people.

Gasgoo: That's right.

Aziz Aghili: The challenge is especially for multi-national company, they are looking for people that can speak English, understand western culture as well as Chinese culture. Unfortunately that pool of talent is very small number of people. And that is posing a challenge for us and for many companies here in Shanghai, but you know I think our HR leaders are coming up with some creative solution for us to be able to retain our people, the most important is to create an environment that people enjoy to come onboard with an organization. The second thing of course is that we need to have a long term retention program, for our talent people. So it's a challenge, but we have certain solutions, we have in place that will help us to overcome this challenge, but it's a big challenge.

Gasgoo: For the presentation we notice that the commercial vehicle business accounted 67% in the year of 2006.

Aziz Aghili: Yes.

Gasgoo: Is there any trend for ArvinMeritor that you focus much more attention on the commercial vehicle business?

Aziz Aghili: Yes, although you saw the adjust number; because we sold our ET business, emission technology actually happened in May of this year. 

Gasgoo: May 17

Aziz Aghili: That's right. So we actually took that number away, and that’s why our numbers looks 6.2 billion, just to clarify, so before the sale of the ET businesses in the last years'number, actually the light vehicle system was bigger than the commercial vehicle system side, but after the ET divesture, that's correct, the commercial vehicle system is bigger than the light vehicle system side, in terms of whether ArvinMeritor going to invest more on commercial vehicle versus light vehicle side, I would say ArvinMeritor will invest where it is appropriate return for the business and with the customer base are, I don’t believe the investment will be based on this size of business we have, but it will be based on the size of opportunity.

Gasgoo: And the feedback of the market

Aziz Aghili: Of course. If the market shows that we need to invest more and there is a return for LVS side in China, of course ArvinMeritor would invest more on the LVS side, but in China, as you know, both commercial vehicle and light vehicle sides grows very fast, the same opportunity for both sides of business here in China.

Gasgoo: But generally speaking, the large vehicle system has bigger potentiality than commercial vehicle system in China. You know the huge population.

Aziz Aghili: Yes, it depends on how you look at it. I agree that the light vehicle system in China, the vehicle growth is going to have huge potential, but even the commercial vehicle side, you know, as I showed to you, China is as big a market as north America for commercial vehicles, and our presence is very small at the moment on commercial vehicle side, so we have based on that, I believe we have as much growth potential, to capture on the commercial vehicle side. I'm sure ArvinMeritor leadership will be making a balanced decision to grow both of the business, here in Asia Pacific, as the business case justifies.

Gasgoo: Another question is that in the presentation, we notice that Daimler Chrysler accounted for 8% of your business, so now we all know that Chrysler has been sold out, if there is any affects on your corporation.

Aziz Aghili: I don't believe so, I mean the management change in terms of investment, I don't believe that will change ArvinMeritor's strategy in terms of growing the business with Daimler Chrysler, I believe we'll be driving and trying to build business with Daimler Chrysler, as we've done before.

Gasgoo: Another thing is about China sourcing, what are the main products you are sourcing in China?

Aziz Aghili: We are looking at sourcing products with some value added.

Gasgoo: fasteners?

Aziz Aghili: We are looking at fasteners, we are looking at subassembly of certain components, we've look at cable assemblies, in that we buy, we even look at some electronic parts, some stamping parts, not just buy itself, but with additional value on the stamping parts, we've seen that if you are just going to source a basic injected molded part, plastic part, or stamping part, by the time you pay for a large cost, you can not be competitive, because the material price globally are approximately the same, you can make it a little bit cheaper, but by the time you pay and take the risk . So you need to get involved in the area that got more labor content, machining cost and other labor content, and by doing that you'll be able to achieve a bigger percentage of cost reduction which make sense then to buy from China for global requirement.

Gasgoo: Do you personally contact with the Chinese local suppliers?

Aziz Aghili: Of course, personally me? Yes! 

Gasgoo: How is your general impression?

Aziz Aghili: I believe in general, of course in China there are suppliers, there are more than 20,000 suppliers, maybe even more.

Gasgoo: Definitely.

Aziz Aghili: So its impossible to cover all of them, but we have a pool of suppliers, that we believe they are good, they got potential to be developed and some of them really best in class I would say, and some of them needs to develop. So yes, I think they are hungry for learning which is important, because when you want to learn, then you want to learn best practices, you are going to implement, you goanna be successful, and these are the suppliers that ArvinMeritor wants to deal with, because when we have a problem, we know they are going to help us to overcome it.

Gasgoo: Can you point out the three major problems facing now for the Chinese suppliers if they want to make a better growth? Give them some suggestions.

Aziz Aghili: In terms of improvements?

Gasgoo: Yes

Aziz Aghili: Yes, of course, as I mentioned, we have teams that support our suppliers that we wish to develop, and that team consists of our purchasing team, supplier development team, and people from business, you know business that we are going to supply for Europe, so people from Europe will come and spend sometime with the supplier.

Gasgoo: Really?

Aziz Aghili: Yes, because the suppliers in the end they have to understand the expectation of the end customer, and the end customer is not the purchasing guy here in Shanghai, that's going to buy the part, the end customer is going to be at the plant maybe in Europe or US, that's going to use their part. If they can not overcome the communication difference, perception difference, we'll always have problem, so it's very important that we overcome that, so they will visit the supplier, and then we usually have weekly review between the supplier and our receiving plant, before any shipment goes to Europe or US, while their development tools and so forth, to make sure that both the supplier and the receiving plant is very clear about every expectations, so when we got to launch the products, you have flawless launches.

Gasgoo: Thank you very much to accept our interview.

Aziz Aghili: Ok. Pleasure.

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