Not long ago, the auto-supply industry consisted of a sprawling constellation of factories, each turning out items as incidental as ashtrays, doorknobs, and rearview mirrors. The disappearance of those suppliers reflects the fact that carmakers aren't interested in parts anymore; they want systems. Jim Gillette of Inter-national Resources Network says that suppliers are rapidly consolidating to meet that need. Dashboard manufacturers have bought up glove-box, console, and ashtray manufacturers, only to be swallowed up themselves by seat makers, which in turn have been acquired by corporations that can supply a car's entire interior. "The bet these companies are making is that they can capture enough of the geography of the car to gain market share," says Gillette.
The industry has lately seen a raft of megamergers, creating multibillion-dollar behemoths such as Lear Seating, Johnson Controls, Nippon-denso, and Bosch. Those hardy survivors ship "modules," preassembled combinations of parts that can be installed rapidly. With fewer, better-qualified, and more-efficient suppliers making more parts, quality rises and the time spent building a car falls.
When Tsuha makes an acquisition--internal growth would take too long--he looks at the benefits through the eyes of his ever-demanding customers: who can supply the best subsystem at low cost? "You always have to assume that there's someone out there who's better than you," says Tsou. "Saturn's job is to either beat them or buy them."
The 1991 acquisition of Beta gave Saturn low-cost labor. It also offered two other elements that Tsuha figured would enable Saturn to claim more car territory. Before the purchase, Saturn was making electronic assemblies in low volume. Beta made electromechanical assemblies in greater volume. By expanding both the product line and the company's volume, Tsuha expected to attract larger customers and to increase Saturn's business with existing customers.
In 1993 Tsuha made a second purchase, buying MCAM Products, in Flint, Mich., which makes the plastic housings Saturn needs for its parts. That acquisition vertically integrated the manufacturing process, stripping out some cost.
In 1995 he moved horizontally, merging Saturn with MascoTech Controls, also in Auburn Hills, Mich. The merger broadened Saturn's portfolio of electromechanical parts and exposed the company to a number of new customers. "There was minimal overlap," says Tsuha. "Now we could offer complete electrical subsystems." Tsuha wanted to buy MascoTech because its plants were more automated than Saturn's. That meant that the company could turn out more and higher-quality work. In 1995, in fact, Saturn introduced 37 new products, largely a result of the MascoTech merger. (The number in a more typical year is 8.)
And Tsuha saw another dividend in the deal: MascoTech had a joint venture with Bitron Inc., a $500-million parts manufacturer based in Italy. Bitron's plants in six European countries would give Saturn access to the European market, while Bitron could source out of the United States. The two companies could also share proprietary technology.
To strengthen the tie, Bitron bought 20% of Saturn.
4.
The CEO's Task: Survival of the Smartest
Keeping a global company like Saturn on track amounts to more than a full-time job. Wally Tsuha knows that, and that's why he's structured Saturn in eight units, each run as an independent business by its general manager. "We want to keep the business units small in size and plan, so they don't exceed the manager's span of control," says Tsuha. Each plant typically employs no more than 300 people.
Tsuha says that his general managers have "total autonomy." But he expects them to know their business. "Wally likes one-liners," notes Tsou. "He says, 'I don't need the details. Just give me the big hit." In return, he gives his managers a lot of support.
An example: Saturn has a director of purchasing, but its general managers are free to do their own buying. Similarly, Saturn has a technology center at corporate headquarters, but 80% of R&D takes place at the business-unit level because Tsuha believes that his subsidiaries are that much closer to the customer. Saturn has a lean corporate staff--experts in areas like human resources, accounting, purchasing, and legal matters --that supports the business units. "It's like having consultants whom anyone in the company can call on," says Tsuha. "The corporate people are there to assist the plants. They're not policemen. The plants don't work for them."
Every weekday morning, Tsuha gets a one-page status report from each of his managers. Once a month Saturn's plant managers meet for half a day with top management "to pull the leadership team together," as Tsuha puts it. Each reports on operations for 10 minutes. The meetings rotate among the business units, so that the managers become familiar with their compatriots' operations. Each meeting ends with one of the plant managers presenting a "best practice" that has been instituted at that plant.
At the monthly meetings, Tsuha assiduously solicits new-product and project ideas from the field. He knows there's no formula for keeping Saturn on its upward trajectory in an industry where most assumptions have been knocked flat. In truth, it's not clear if suppliers like Saturn, no matter how big visionaries like Tsuha grow them, "can keep from cutting one another's throats," says industry consultant Gillette. He notes, for example, that Lear Seating, with sales that now exceed $5 billion, "is lucky to net out 2%." Hansen, the newsletter publisher, notes that Japanese auto suppliers typically earn no more than 1.5% after taxes. That's a low bar to limbo under.
That grim reality only serves to clarify Wally Tsuha's sense of mission. Going forward, he vows to leverage Saturn's technology into nonautomotive markets that are more forgiving on margins.
In the next year, he may well take Saturn public to raise a war chest for acquisitions. And should the secretary of commerce call again, he'll be ready to hop a plane to scout his next foreign alliance.
But it's closer to home that the war may finally be won. Tsuha keeps telling his mangers to talk to customers to uncover new ideas. "If you have a proposal that makes good business sense, bring it in," he tells them, quickly adding that "it has to have been thought through." Tsuha knows that that simple discipline in the end may be what gives Saturn its greatest edge in an industry where consolidation has not yet claimed its final victim. *
Smart Part
Saturn's direct-drive vent-window actuator has just 14 parts, supplied by seven different subcontractors from as far away as China. Compared with the Japanese part it displaced, it weighs a third as much and has half as many parts. It also costs the customer half as much--and that doesn't include the labor savings resulting from easier installation. To produce the cost-cutting part, Saturn made a capital investment of $500,000 over two years--with no guarantee that the customer would actually want to buy the component.
