Saturday, September 17, 2005

Financier seeks success in auto parts

Wilbur Ross wants to take downtrodden suppliers and transform them into one large, diverse company

By Danny Hakim / New York Times

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DETROIT -- Wilbur L. Ross Jr., the man who recently built up and then sold North America's largest steel maker, has set his sights on the auto industry.

Ross, the 67-year-old New York based financier who specializes in restructuring broken businesses, wants to build up a collection of downtrodden auto suppliers and transform them into one of the world's largest auto parts companies. In an interview Friday, he said the company he envisions would avoid the current pitfalls of Detroit, where suppliers seem to be tumbling like dominoes into bankruptcy, by being more globally diverse than competitors and by not relying too heavily on a single automaker for business.

"We have a clear vision of what we would like to accomplish," Ross said. "Time will tell whether we are able to achieve that. We do think that size matters. We do think that geographic diversity matters. If that produces the largest company or one of the largest, it probably is not a difference that makes a lot of difference. But scale is important."

Ross has a solid track record. Starting in 2002, he rolled up the remains of five bankrupt steel companies into the International Steel Group, which he sold earlier this year for $4.5 billion, about a tenfold profit, he said. That was aided in no small measure by the fact that he bought the companies after their health care plans had been terminated and the government had taken over their pension plans at considerable cost. After coming on board, however, Ross did create a fund to cover the drug costs of retirees of the predecessor companies.

"That's a somewhat unusual and progressive view compared to many others in the corporate sector," said Marco Trbovich, a spokesman for the United Steelworkers union. "The fact his company was willing to create a benefit for companies he never owned is exceptional."

Ross appears now to be using the same playbook for auto parts. In recent months, W.L. Ross & Co., his investment group, bought a stake of more than 25 percent in Oxford Automotive, a small French supplier that recently emerged from bankruptcy. "We like the management," Ross said of the company. "In fact we think they could run a considerably bigger company."

His group has also been buying up the debt of Collins & Aikman, a bankrupt supplier in Troy, Mich., that makes everything from dashboard instrument panels to carpets. Ross' group is bidding on the company's European operations and plans to bid on its American operations. His group already owns majority stakes in two Asian auto suppliers, Nikko Electric and Ohizumi. Ross announced his Oxford Automotive stake on Thursday morning, and his Collins & Aikman investment was later reported by Bloomberg News.

These investments are just the beginning, Ross said. Among other things, he is watching how Delphi, currently the world's largest supplier, resolves its three-way talks with General Motors, its former parent company, and the United Auto Workers union. Robert S. Miller, Delphi's new chief executive, has threatened to take Delphi into bankruptcy by mid-October, before a change in bankruptcy laws, unless GM and the union offer billions of dollars worth of concessions. Ross has experience with Miller, who was chief executive of Bethlehem Steel when it went into bankruptcy and was bought by International Steel.

"We have a good working relationship with him, but there is nothing pending now," Ross said. "The last thing they need is to complicate their negotiations with another party."

But he is paying attention to how the talks unfold.

"I would take seriously the deadline he proposed, because I can't imagine that he would allow himself to give up negotiating edge," Ross said.

David Cole, the chairman of the Center for Automotive Research, a consulting firm, said Ross could succeed where others have failed because his timing might be more opportune.

"We'll see some things happen in terms of restructuring that will be quite profound in the next year or so," he said, adding that the time could be right for fishing for distressed assets.

Ross expects suppliers will see worse times ahead. Many domestic suppliers are barely able to stay afloat despite heady American auto sales of about 17 million cars and trucks each year. Much of that demand, however, has been propped up by the Big Three's heavy discounting. For GM and Ford Motor in particular, that has led to profitless prosperity at home--decent sales, big losses. And they take out those losses on their suppliers.

"One of the things that's making us going slowly here is that you have all these auto parts people going bankrupt in an environment where we're going to sell 17 million cars," said Ross. "Think what happens if that shrinks to 14 or 15 million. There's plenty of risk here. Sooner or later, we're going to get a downturn in auto sales."