Interview with Nexteer COO Laurent Bresson: Chinese capital “transfusion” brings Nexteer “back to life”

Chinese capital “transfusion” brings Nexteer “back to life”  Translated by Alina Dong

Over the past five years, Nexteer, an automotive steering and driveline company headquartered in Michigan, has transformed from GM’s business sector struggling over financial problems to a Hong Kong-listed company with stable profits and rapid growth.

Nexteer will release its earnings report for fiscal 2014 around early-mid March, and the industry and the market hold positive expectations. Nexteer’s share price currently stands at around HK $7.5 per share, up by 177% compared with its IPO price of HK $2.7.

It is an epitome of the Greater Detroit Area’s automotive industry walking out of the shadow of the recession, and entering the fast track of recovery. Chinese capital, which acquired Nexteer from GM in 2010, also benefits from the industry’s huge and rapid recovery process.

This is Chinese capital’s largest overseas acquisition in the automotive components industry, as well as one of the most successful acquisition cases among Chinese capital’s investment in the automotive components industry in the Greater Detroit Area.

“In 2010, we thought about how to survive,” said Laurent Bresson, president and COO of Nexteer, in interviewing with 21st Century Business Herald, “while now we are thinking about how to get close to the key decision maker, seek new business opportunities and clients, and improve brand influence.”

In less than four to fives years after walking out of its financial problems, Nexteer has grown into an important supplier of global automotive steering and driveline systems, with electric power steering (EPS) being its core product.

In 2010, Yizhuang International Investment and Development Corporation, which has a connection with the Beijing government, established Pacific Century Motor (PCM) with Tempo International Group, to wholly acquire GM’s Nexteer. The acquisition involved Nexteer’s global steering and axle business, including its 22 factories, six engineering centers, and 14 client support centers around the world. The terms of the acquisition is confidential, but the acquisition amount was estimated to be about $450 million. Soon after, Aviation Industry Corporation of China Automotive (AVIC Auto) obtained 51% of stake from PCM, and became Nexteer’s controlling shareholder, with a transaction amounting to $420 million.

“Looking back, it is the best for the company (to sell to Chinese investor).” Said Bresson.

Returning to Detroit

Recently, Nexteer just announced a decision to move its Saginaw-based global headquarters to the north suburb near Detroit.

Bresson told the reporter that the relocation will be completed by the first half of 2016, with approximately less than 150 employees moving to the new headquarters office, while the engineering and manufacturing center will remain where it is.

“The company has been growing rapidly since being acquired by PCM. We want to improve our existing clients, while develop new clients and business opportunities, so we hope we can be more closer to the key decision makers in the auto industry, and they are within 50 miles from the Greater Detroit Area.” Said Bresson. 

Bresson said, different from the European auto industry, where the cores of each part are scattered in different countries, in the U.S., the Greater Detroit Area is still the center where the auto industry and its components gather, with seven of the top ten global manufacturers as well as industry leaders, suppliers and clients cluster, which is very conducive to the future development of Nexteer.

“Greater Detroit Area is very influential in this aspect, and we will get closer to the decision makers in the industry after coming here.” He said.

A few years ago, the auto industry plummeted into great depression along with the economic crisis, which in turn caused industry recession in the Detroit area, and eventually became one of the main causes of Detroit city’s financial crisis and petition for bankruptcy. However, in just a couple years, the U.S. auto industry becomes one of the most rapid-growing industries after the great depression, thanks to which, the Greater Detroit Area came back to the spotlight.

Currently the Greater Detroit Area is still the global headquarters of the Big Three — Fiat-Chrysler, Ford and GM, and 63 of the top 100 auto parts suppliers in North America have headquarters in Michigan.

In 2014, about 120,000 people were employed in the auto industry in the Greater Detroit Area, which increased by 32,000 compared with the lowest period in economic crisis, although it couldn’t compete with the peak of 250,000 in 2001.

From December 2010 to date, Nexteer has increased over 1900 jobs globally, with 11,000 employees altogether.

“The auto industry in 2009 and 2010 during the great depression is so different from it is now. A lot of jobs were cut, which could be seen in many places in Michigan,” said Bresson. “Now the auto industry is coming back. The job opportunities at companies like Nexteer are amazing, because we have more need than the market can provide, particularly engineers. Many companies are fighting for those talents, and it is a great place.”

The role of Chinese capital

Chinese capital has played an essential role in Nexteer’s development over the past five years, and also benefited from the company’s rapid growth.

“In the beginning, the acquisition is for stabilizing our client base, which is very important, because our clients want to see us maintain stable financially. It is an important milestone in our company’s growth.” Said Bresson.

He told the reporter that Nexteer was facing a lot of issues financially, and the priority was to find investment. Yet it is important to find a prestigious investor, because it is an industry where it takes long-term investment to gain good returns, and the automotive manufacturers need suppliers and partners with long-term stability.

After that, Nexteer began to focus on operation and strengthening leadership. Two years later, the company with good momentum began to focus on how to make the company public. He said that it is a natural choice for the company to go public in Hong Kong, because its main shareholders are in China, and the investor structure is more international in Hong Kong.

Nexteer successfully raised HK $2.3 billion from going public, and PCM still hold two thirds of the company’s shares. Later Nexteer began to focus on other capital operation, and issued high-yield bonds at the end of 2014, which in turn expanding its financing channels.

Before Nexteer was acquired in 2010, it was at loss through the whole year, but it grew rapidly along with the recovery of the auto industry. According to the company’s latest financial report, within the first six months of fiscal 2014, the company’s operating income amounts to more than $1.4 billion, up by 23% compared with the same period over the previous year; its gross profit amounts to $204 million, up by 20%. However, over the same period of time in 2012, the company’s has an operating income of $1.1 billion, with gross profit of $155 million.

The injection of Chinese capital not only rescued Nexteer from its financial trouble in the beginning, but also helped them develop the Chinese market. 

Bresson said that since Nexteer was acquired by Chinese companies in 2010, it has invested over $840 million globally, with $145 million in the Chinese market. A few years ago, their market share in Chinese was about 4%-5%, and that reached 11%-12% last year, and it is still growing.

“With the most growth strength, the Chinese market is also the market that our international clients focus on. To our American auto manufacturers client, they are also happy to see our major shareholder’s background in China’s state-owned capital.

 

Now Nexteer has many new clients in Chinese market, including Shanghai GM, SAIC-GM-Wuling (SGMW), and Dongfeng Peugeot Citroen Automotive (DPCA). Meanwhile, the Chinese market is the only area that Nexteer provides entire product lines of electric power system (EPS).

 

(消息来源:21世纪经济报道 特派记者 叶慧珏 | News Source: 21st Century Business Herald Accredited Journalist - Emily Ye)