“Evaluating the true size of the automotive market has become impossible”, Laurent Favre (Plastic Omnium)

LA TRIBUNE- The automotive industry is going through a period of uncertainty. However, what can you think about the outcome of this episode?

LAURENT FAVRE – We now proceed with a reduced outlook for the coming months and years. This is the first in the history of the automotive industry where growth is always written and where supply chains are locked in previously established growth models. But this industrial model experienced its first cracks before the Covid crisis, especially during the trade tensions between China and the United States. The health crisis only magnifies what we see, which are the flaws and risks of an industrial model based on trust between suppliers and between major regions of the world. There is a collective realization and what we believe to be a well-oiled supply chain has found its limits.

This industry model was shaken by a series of very short-lived events

We are not only facing a short-term crisis but also facing a deep and lasting change. First, geopolitical tensions are likely to continue. Global warming will also significantly affect the global supply chain. Until now, we have lived in a world of abundance… We must learn to manage shortages: energy, work, raw materials… Even recycled materials are depleted.

What conclusions can you draw from this in the evolution of the Plastic Omnium model?

We must continue to gain agility with stronger and more flexible cost structures. We will promote the regionalization of our production and our supplies. They already have paths that we explore before the crisis, because that’s the meaning of the story. But we have to speed up. However, there is one question that we cannot solve. Among the public assistance, deliveries are delayed due to shortages but also with the evolution of the movement behavior, it becomes complicated to assess the real magnitude of the need. Our assumption is that we will not return to pre-crisis levels. So we must be prepared for this scenario. And we have already taken steps by moving production capacities to more dynamic regions. We recently closed a site in Germany and opened a factory in Indonesia. We believe that Europe will suffer more than other regions of the world. The market is over-equipped, and the regulations, which ban the production of thermal cars in 2035, should have an impact on volumes. However, the decline of the market is trend-setting and global. This will force us to grow by value and not by quantity. This is the whole purpose of our transformation plan.

European regulations are a constraint but it can be an opportunity for an equipment manufacturer

Our concern is that supply and demand are struggling to meet due to price differences of up to 40%. Moreover, rejecting thermal engines, which are the strength of the European car industry against the Americans and the Chinese, is tantamount to putting oneself in trouble. Europe does not leave the industrialists the possibility of proposing alternative solutions and entrusts the heat engine even if what pollutes is what we put into it. To impose technology is to deprive oneself of innovations and potential more sustainable alternative solutions.

You’re talking about changing the Plastic Omnium. Historically, this group has developed around the applications of plastics in cars. But in recent years, you have increased acquisitions and diversity

Plastic Omnium is preparing for the transformation of the automotive sector and hopes to be in the new value chain by relying on its genes and industrial excellence. Our customers are reviewing their supply strategy and now expect more complete offers from their equipment manufacturers, which should be champions of new businesses. Thus, in lighting, we made two major acquisitions, that of German AMLS and that of Varroc’s automotive lighting activities. Lighting is expected to grow rapidly in the coming years. Our added value is its integration with our activity external system. With the absence of radiator grilles and ventilation grilles in electric vehicles, communication with the outside light is more important. We aim for one billion euros in turnover. It’s the same approach with the fuel cell. We are at the forefront of hydrogen tanks, they are themselves an extension of our fuel tank business. But we want to integrate the entire hydrogen value chain by integrating the fuel cell into our product portfolio. Each time, we explore synergies in our traditional businesses before proceeding with diversification. In 2030, 40% of the 15 billion euros of Plastic Omnium sales will come from products that we do not currently have in our portfolio.

You also get electrifying activities

We have acquired Actia Power, which is a first step for the Group in the electrification of heavy mobility. We believe that individual urban mobility will be restricted while the transportation of goods is set to improve. We expect a billion euro turnover in this business.

This diversification will cost you a lot, whether it’s acquisition costs or R&D investments in all these new businesses. Is it sustainable for you?

We have the financial capacity. We operate for the long term, and we are an independent group with a family shareholding that is also part of this long-term approach. All our decisions aim to invest in technologies that enable us to maintain our leadership in high-growth segments with high added value.

Valeo paid dearly to the market, its investments in its JV with Siemens in electrification

The assessments of financial agencies count, but are not the only compass in our investment decisions. However, we have the desire to be self-financing, and generate, despite our investments, between 3 and 4% of free cash-flow every year. It seems healthy and necessary for us. Yes, it is dilutive to our margin, but it prepares our future. We want to create value for the company.

You also need to manage cost pressures in the coming months and years.

The biggest challenge for us in the coming years is the impact of inflation on our costs and our profits. Logistics and energy costs will be subject to more significant increases. We have no control over these inflationary pressures. The lower you are in the value chain, the harder it is to pass on these price increases. Trade negotiations are complex and the sector must find a balanced solution. We are working on our productivity, together with our suppliers, but also on our presence in the value chain of tomorrow.

___

BOX

Sales increased in the first quarter

The French automotive supplier Plastic Omnium, the world leader in bumpers and fuel tanks, published on Monday (July 25) an increase in sales in the first half, confirming the good resistance to various disturbances that the world’s automotive industry is undergoing. , although profits fell. The turnover of the group and its subsidiaries reached 4.3 billion euros, which is 4.3% a year, driven by its sales in the second market, North America.

The group shows a strong stability in the context of the market interrupted by the increase in inflation and the closure of production lines linked to the continued shortage of semiconductors, the war in Ukraine and the health situation in China” due to Covid-19, said the general manager of the equipment manufacturer, Laurent Favre.

However “flexibility measures and mitigation of the impact of inflation”Plastic Omnium published a low operating margin, at 4.6% in the first half of 2022 against 6.2% in the same period of 2021. The net profit reached 104 million euros, against 142 million in the first half of 2021 .

Despite the uncertainty, the group on Monday it maintained its financial outlook for 2022 with an operating margin forecast between 5% and 6%.

“We think the volumes will increase”, explains Laurent Favre. “We expect a stabilization of logistics flows in the fourth quarter”. The leader also expects social relations to be “tense in many countries because of inflation.”