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Executive Interview With Jose Maria Alapont, Chief Executive of Federal-Mogul



Alapont and other Federal-Mogul executives met with Counterman/aftermarketNews Publisher Jon Owens and Counterman Editor Brian Cruickshank at the AAPEX show in Las Vegas last month, where they spoke at length about Federal-Mogul’s emergence from bankruptcy, the current state of the industry and what Alapont thinks the future will look like for Federal-Mogul.

October 1, 2006 marked the fifth anniversary of Federal-Mogul’s filing for bankruptcy protection. As we sit here at AAPEX, are you prepared to definitively announce when Federal-Mogul will emerge from Chapter 11 bankruptcy?

One of my priorities when I joined Federal-Mogul in March 2005 was to develop within 30 days two parallel strategies: One, to address the process of emergence from Chapter 11; and the other, to drive the future of a world-class leading company.

We have been progressing successfully, both in our efforts to transform Federal-Mogul into a leading global company and in our achievements toward emergence from Administration in the U.K. and Chapter 11 in the U.S.

We were three-and-a-half years into the bankruptcy when, in September 2005, we signed major agreements related to the U.K. Administration. Recently we reached a resolution on the arrangements required for concluding the U.K. Administration. Under these agreements, which are referred to as company voluntary arrangements (CVAs), Federal-Mogul retains all of the U.K. Administrated businesses that have activities in Europe, the Americas and Asia Pacific.

Furthermore, on November 17 of this year, the U.K. Court entered an order discharging the Administration. We are now focused on the final stages of the process of emerging from Chapter 11. [Editor's Note: The Plan of Reorganization and Disclosure Statement were filed on November 21 with the U.S. Bankruptcy Court.]

This is a complex, cross-border procedure and we are very pleased with the recent developments and conclusion of the U.K. Administration, which completes a substantial portion of our global restructuring and will enable the company to emerge from Chapter 11 within the next few months. This will be very positive for our employees, our customers and our stakeholders – as well as the automotive industry.

Federal-Mogul has been successful on both of these fronts. We have developed a solid global growth strategy for the company and progressed efficiently toward emergence from Administration in the U.K. and Chapter 11 in the U.S.

Are there any specific barriers that now stand between Federal-Mogul and emergence from bankruptcy?

No. Everything is proceeding successfully.

There have been many notable bankruptcies of large automotive suppliers in the past several years. What does this say about the future of the large, multi-line and/or multi-system Tier 1 and Tier 2 automotive suppliers?

Developing the right strategy and business model is imperative in this very challenging industry. Global profitable growth is the key to sustaining long-term success.

Our global profitable growth strategy begins with building a world-class team and is based on providing leading products and services; technology and innovation; and quality excellence at the best global cost. To do this, a company must have the key organizational resources required to succeed in the areas of the world where you do business, whether it’s in North America, Europe or Asia Pacific.

In addition to developing the appropriate and necessary organizational resources, leading companies must have the ability to drive technology and the right product innovation.

Federal-Mogul is one of the few companies that is well balanced globally, both in the OE and aftermarket segments. Globalization cannot be superficial; it has to exist at the various levels of the organization, which means to be strategically located to serve customers worldwide, operate with around-the-clock engineering and manage the supply chain efficiently.

Leading technology and innovation, global lean manufacturing and a committed team are all required to achieve breakthrough performance in today’s marketplace.

You’ve alluded to Federal-Mogul’s balance between OE and aftermarket — it’s almost 50-50. What are your goals moving forward with respect to those two areas? Are there better opportunities on the OE side or vice versa?

Federal-Mogul has a uniquely advantageous position in today’s market. While some suppliers are abandoning the aftermarket segment and others the OE segment, we are part of an exclusive — yet very strong — group of suppliers that serve both industries. We supply a wide variety of quality and innovative automotive components and systems to automakers and engine manufacturers all over the world. By transferring this expertise and knowledge base to our aftermarket customers, we are able to offer OE design, function and fit.

We make it very clear to our customers how we can, to their benefit, leverage our capabilities in both of these segments. Our marketing message – "Driving OE technology and aftermarket solutions" – describes how our leadership in OE technology and innovation brings to the aftermarket solutions that are consumer- and maintenance-friendly.

We have every intention of remaining a leader in both the OE and aftermarket industries.

Your predecessor was focused on ‘manufacturing mastery.’ You, however, prefer to concentrate on ‘advanced technology.’ Can you provide some details as to how that will translate to superior value to both your OE and aftermarket customers?

During the 21 months that I’ve been with Federal-Mogul, I have visited more than 90 facilities. Hardly a week goes by that I don’t walk through one of our operations. The real action takes place at our manufacturing plants and R&D centers.

Technology, with competitive product cost, is driving the growth of the automotive market, from the development of today’s alternative energies to the countless advances that have helped increase vehicle safety, performance and reliability.

Advanced technology and innovation have an equally powerful role within the aftermarket. At Federal-Mogul we provide our aftermarket customers with OE design, functionality and fit. Our innovative product brands are tailored to address repair market challenges. Our Fel-Pro and Moog brands, for example, became the leaders in their respective categories by applying innovative technologies to challenges facing aftermarket professionals. The brands have specialized in leveraging advanced technology to deliver products that are easier and faster to install and which solve tough repair challenges that are unique to the aftermarket.

As another example, Federal-Mogul’s Wagner ThermoQuiet one-piece brake pad was developed by combining the strength of our advanced OE friction portfolio with a design solution engineered specifically for the replacement market. Innovation and technology will be the differentiators between those suppliers that are here today and those that will be here tomorrow. Technology and innovation are key drivers in our goal of global profitable growth. Developing breakthrough technology is not an option for us; it’s a must. We are spending much energy and dedicating many resources on innovating new technologies.

We are here at AAPEX, primarily a North American show. Our U.S. aftermarket is experiencing some significant challenges but still remains a growing marketplace with plenty of opportunity. However, one of the challenges is the fact that the OE dealers have more of a presence and they’ve penetrated the service market. I’m concerned for the aftermarket brand and its ability to service the aftermarket vs. the OEs and their ability to service the market. What are your thoughts on this?

We are focusing on ‘globalizing’ Federal-Mogul. Companies that become truly global will be the real winners. When we say ‘truly global’ it means providing our customers the opportunity to define for us what is right for their portfolios, and then manufacturing those products where we can provide the most value for our customers.

Historically, in the aftermarket we have seen two trends: North America is largely brand-oriented. We are fortunate to have premium, leading brands in our North American product portfolio. In Europe, the aftermarket, and the market in general, has been OE-driven. We continue to develop our business in these mature markets while focusing on growth in emerging regions of the world, both in the OE and aftermarket segments. This is a key strength of Federal-Mogul, a well-balanced business from a customer and market perspective.

Yes, North America is becoming more “OE” through imports and the developments at OE dealerships, while, thanks to the recent de-regulation of the European market, the European market is becoming more brand-oriented.

Federal-Mogul, as a global company, is very well placed because we can serve the evolution of both markets. Certainly, the North American aftermarket is going through a very challenging time. The marketplace has dramatically changed in terms of the market share for the different vehicle manufacturers. At the same time, there is also a clear trend of more blending of premium brands with entry-level brands and with OE products somewhere in the middle. This ultimately will require both the distribution channel and the aftermarket players to live by a new business model.

In the case of Federal-Mogul, our strength is that we are in a leading position today and are confident we will remain in that position because of our premium brands. We are a number-one, worldwide OE supplier -- in North America, Europe and Asia Pacific. In addition, we have developed a global strategy to provide cost-competitive products backed by the guarantee of Federal-Mogul technology, service and quality.

Here in the U.S. the trend lately is to look for European and other import brands…

To be frank with you, the North American market is demanding more OE product for import cars. If you look into those cars, those engines, you will find our pistons and rings, our seals and gaskets, and our friction materials. Of course, our European products and brands are leaders as well. In the aftermarket, we are one of the top players, and in the OE segment we are number one in each of our product categories. Therefore, if you are looking for OE products on imported vehicles, you will find Federal-Mogul. That is our strength.

The key is to train and develop the know-how in order to increase awareness in the marketplace that the original part in the vehicle is actually produced by Federal-Mogul. I believe we are doing a good job in this area.

Federal-Mogul has a number of very strong brands. Do you, because of the company’s global strategy, foresee some rationalization of your brand strategy in the future?

We currently offer more than 20 brands worldwide. I think we are doing an excellent marketing job to really define the boundaries of these brands and position these brands in different areas of the world. To position those brands globally, we conduct a thorough market analysis of the region to better understand the demand for the brand and help us establish which products should go under that brand umbrella. Certain products may be offered under different brand names that are clearly recognizable in that region of the world.

In the past, ‘brand’ essentially meant product. Today, in new and emerging markets in Asia Pacific, a brand is also a company’s image. For example, Champion conveys an image of flawless performance. You know that in the U.S., Champion stands for spark plugs, for ignition. In other regions of the world, it could stand for other vehicle performance products. This is where our global marketing approach is right on target.

As someone of European birth, you certainly see how well Europe has embraced diesel technology. How do you see diesel technology and hybrid technology emerging in North America and how does this differ from other markets such as Asia and Europe?

The customer and society are looking for a better performing, efficient, comfortable and environmentally friendly mode of transportation. We are very conscious that energy resources are limited, so we are seeing different alternatives. Some solutions are focused on fuel-efficiency, such as hybrids, for example, or diesels, which provide different efficiencies and better fuel consumption. In Europe, diesel also has better pricing. In South America and, particularly, in Brazil, there are both flexible fuels and diesel. At the end of the day, it will depend on the country’s regulations, however I believe diesel will become more popular in the U.S. since new diesel engines are high performing and are quieter and cleaner for the environment. A diesel hybrid is even more efficient. We are seeing a very strong drive for fuel efficiency and lower emissions. I don’t think there will be a single technology solution. The bottom line is, the industry is reinventing itself in a more efficient manner. Ultimately, it doesn’t matter what sort of energy you use – to power a vehicle you need to move it and stop it. Combustion engines will be around for many years and hybrids will still need an engine and brakes.

You come to Federal-Mogul, and this industry, with a global background. Can you comment on global political events and how much of that comes into play when you strategize the future and where you plan to take Federal-Mogul?

We will continue to drive our strategy for global profitable growth. The company is fortunate to have a team that is totally committed and supportive of this strategy. We need to be sensitive to the business risks of operating in certain regions, however in the emerging regions of the world, such as Asia Pacific and South America, and in countries such as China, India and Russia, we must operate with the same principles that we do here. We have changed our strategy from engaging in minority-interest, joint ventures or partnerships, to acquiring majority interests or 100 percent ownership of businesses where we have control of the management and can deploy our strategy. That is what we have done in India with Federal-Mogul Goetze India Ltd. and elsewhere around the world.

To be truly global, you need to have the same world-class standards everywhere. We have proven that Federal-Mogul is successful in implementing a global strategy for profitable growth; we have exited U.K. Administration and will soon emerge from Chapter 11 in the U.S. We are positioned to continue our leadership in the original equipment and aftermarket segments by creating value for our customers worldwide through leading technology and innovation at competitive cost.

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