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ArvinMeritor Inc.: Company profile
2005 edition
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ArvinMeritor Inc.: Company profile 2005 edition January 2005 Published by Aroq Limited Seneca House

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Table of contents Single-user licence edition.......................................................................................... ii

Copyright statement ..................................................................................................ii

Table of contents ........................................................................................................ iii List of tables................................................................................................................ iv

List of figures ............................................................................................................... v

just-auto.com’s research portfolio ............................................................................ vi Incredible ROI for your budget – single and multi-user licences..............................vi

just-auto.com membership ....................................................................................... vii Chapter 1: Company Dossier...................................................................................... 1

Chapter 2: Worldwide Locations ................................................................................ 4

Chapter 3: Financial Analysis ..................................................................................... 6

Chapter 4: Competitor Analysis ................................................................................ 8

Chapter 5: Key Events ............................................................................................... 9

Chapter 6: SWOT Analysis........................................................................................ 11

Strengths................................................................................................................ 11

Weaknesses........................................................................................................... 12

Opportunities.......................................................................................................... 12

Threats ................................................................................................................... 13

Chapter 7: Customers.............................................................................................. 14

Chapter 8: Products................................................................................................... 18

Chapter 9: Product Development ............................................................................. 20

Chapter 10: Prospects ............................................................................................... 22

Online sources of information.................................................................................. 24

Free email newsletters ........................................................................................... 24

Other research reports ........................................................................................... 24

Global news and feature articles............................................................................ 24

Search the web ...................................................................................................... 24

Your feedback ............................................................................................................ 25


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List of tables

Table 1: ArvinMeritor’s key consolidated financial performance, 2000-2004 (US$ millions, unless otherwise indicated)........................................................................ 6

1

Table 2 : ArvinMeritor’s sales by geographical region, 2003-2004 ....................... 16


Page v

List of figures

Figure 1: ArvinMeritor’s 2003 sales by geographical region (% of net sales) ........ 16

Figure 2: ArvinMeritor’s 2004 sales by geographical region (% of net sales) ........ 17

Figure 3: ArvinMeritor’s 2003 sales by OEM sector (% of net sales) ..................... 19

Figure 4: ArvinMeritor’s 2004 sales by OEM sector (% of net sales) ..................... 19


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Chapter 1 Company Dossier Page 1

Chapter 1: Company Dossier Company name ArvinMeritor, Inc. Business Activity ArvinMeritor, Inc., headquartered in Troy, Michigan, USA, is one of the leading

manufacturers and suppliers of a wide range of high-quality integrated systems and

automotive components & modules to the global motor vehicle industry. Recently, the

company decided to divest its non-core business groups and focus on the core business

groups, namely, Light Vehicle Systems (LVS) and Commercial Vehicle Systems (CVS).

It sold off its coil coating business in November 2004 and announced plans to divest the

Light Vehicle Aftermarket (LVA) segment in October 2004. For the year ended

September 2004, the company reported sales of US$8,033 million, of which US$4,818

million (or 60%) was generated by the LVS segment.

Stock symbol

ArvinMeritor’s shares are traded on the New York Stock Exchange under the stock

symbol, ARM.

Key executives Charles G. “Chip” McClure, Chairman, CEO and President

Vernon G. Baker, Senior Vice President and General Counsel

Brian P. Casey, Vice President and Treasurer

Linda M. Cummins, Senior Vice President, Communications

William K. Daniel, Senior Vice President and President, Light Vehicle Aftermarket

Juan L. De La Riva, Senior Vice President and President, Light Vehicle Systems

Thomas A. Gosnell, Senior Vice President and President, Commercial Vehicle Systems

Perry L. Lipe, Senior Vice President and Chief Information Officer

Terrence E. O’Rourke, President and Chief Operating Officer

Rakesh Sachdev, Vice President and Controller

Debra L. Shumar, Senior Vice President, Continuous Improvement, Quality, Engineering

and Technology



S.Carl Soderstrom, Jr., Senior Vice President and Chief Financial Officer

Ernest T. Whitus, Senior Vice President, Human Resources

Bonnie Wilkinson, Vice President and Secretary

Summary financials

US$ millions 2002 2003 2004 Net sales 5,790 6,723 8,033

Net income/(loss) 107 133 (42) Capital expenditure (129) (173) (152)

Key competitors

ArvinMeritor competes with several small and large manufacturers and marketers of

automotive components and systems. Major competitors of the company’s LVS business

group include Tenneco, Faurecia, Webasto, Brose, Kiekert, Stabilus, Thyssen-Krupp,

Kayaba and Hayes-Lemmerz. Key competitors of the company’s CVS business group

are Eaton Corporation, Haldex Braking Systems, Knorr/Bendix, Hendrickson, Dana

Corporation and Holand-Neway. The LVA business group competes primarily with

Tenneco, Kayaba, Goerlich’s, Honeywell and Champion Laboratories.

Key customers

ArvinMeritor’s major customer for LVS and CVS is DaimlerChrysler AG, which

comprises companies such as Chrysler, Mercedes-Benz AG and Freightliner

Corporation. DaimlerChrysler AG contributed to 16% of the total sales in 2003. Products

supplied to DaimlerChrysler include air and emission transmissions, windows and roofs,

undercarriage suspensions and wheels.

General Motors Corporation is a major customer for LVS and accounted for 12% of

ArvinMeritor’s total sales in 2003. Products supplied to GM include air and emission

transmissions and undercarriage suspension systems.



Outlook

ArvinMeritor is continuing to consolidate its LVS businesses to deal with the challenges

in the automotive supplier industry and put its businesses in a competitive position. Total

restructuring costs during 2005 are expected to be around US$16 million. Restructuring

activities could include additional business consolidations, facility closures and workforce

downsizing.

Since 2002, ArvinMeritor has tried to mitigate the risks of cyclicality through

diversification of revenues, customers and global presence. In line with this strategy, the

company’s CVS segment recently formed two joint ventures with the Volvo Group to

produce axles in France. Similar to fiscal 2004, growth in fiscal 2005 is expected to be

driven by the CVS business.

The divestment of LVA business (which had been making losses in the recent years) will

allow the company to pool in more resources for the growth of its LVS and CVS

businesses. The operating margins and the debt situation are also expected to improve

as a result of this disinvestment.

Overall, the restructuring initiatives including the recent divestments are expected to

generate significant cash savings for the company in the near-term. However, the

slowdown in the light vehicle production, lack of availability and increasing prices of raw

materials, especially steel, are continuing to have a negative impact on the company’s

revenues and profitability.


Chapter 3 Financial Analysis Page 4

Chapter 2: Worldwide Locations

Headquartered in Troy, Michigan, ArvinMeritor employs more than 31,000 people

worldwide. The company operates more than 150 manufacturing establishments in 27

countries including the US, Canada, Mexico, South Africa, and Australia; and regions

viz., South America, Europe and Asia Pacific. Of the company’s approximately 29.2

million square feet of total floor place, close to 26% was leased and the rest owned as of

September 2004. The operating facilities of the company’s LVS and CVS operating

segments in various locations are as follows:

LVS facilities

Approximately, 40% and 42% of the total LVS facilities in terms of floor space are

located in Europe and the US, respectively.

• The Americas

Manufactures roof systems, motion control products, window regulators for

heavy-duty CV and LV firms. and the company manufactures/assembles access

control systems.

Manufactures coil springs, torsion bars and stabiliser bars.

Manufactures fabricated and bend-seat steel wheel products for the LV OEM

market.

• Europe

Manufactures roof systems, window regulators, access control systems and

suspension components for European LV market; struts and mini-struts; and

corner modules.

• Asia Pacific

Manufactures roof systems and window regulators.



CVS facilities Approximately, 56% and 19% of the total CVS facilities in terms of floor space are

located in the US and Europe; respectively.

• The Americas

Manufactures truck axles including front steer axles (drive and non-drive), rear

drive axles (single and tandem), and front steers for light and heavy commercial

vehicles.

Manufactures air and hydraulic brakes for heavy and medium vehicle OEMs.

Manufactures foundation air brakes, hubs, rotors and drums.

Manufactures anti-lock braking systems.

• Europe



vehicles.

Manufactures foundation air brakes, hubs, rotors and drums.

• Asia Pacific



vehicles



Chapter 3: Financial Analysis

In 2004, ArvinMeritor posted a 19.5% increase in sales to US$8 billion, thanks primarily

to the strong performance of its CVS business segment. While the acquisition of Zeuna

Starker contributed to US$240 million in revenues, divestment of APA reduced revenues

by US$165 million. In addition, favourable exchange rate fluctuations augmented

revenues by US$395 million. Sales of LVS and CVS were up by 12% to US$4.8 billion

and 32.7% to US$3.2 billion, respectively. The growth in CVS segment is attributable to

the 30% growth in the truck and trailer volume in North America.

As a percentage of sales, selling, general and administrative expenses declined to 4.8%

owing to the company’s prudent initiatives to reduce costs. Overall operating income

increased by US$14 million to US$309 million while operating profit margin declined by

0.5 percentage points to 3.2% in 2004. Operating expenses included the tender

withdrawal costs of US$16 million for Dana Corporation and environmental remediation

costs of US$11 million. The company reported net losses of US$42 million compared to

net income of US$133 million in 2003.

Table 1: ArvinMeritor’s key consolidated financial performance, 2000-2004 1(US$

millions, unless otherwise indicated)

Source: ArvinMeritor, Inc.

2000 2001 2002 2003 2004Net sales 5,513 6,805 5,790 6,723 8,033Cost of sales 4,423 6,106 5,227 6,132 7,366Net income 218 35 107 133 (42)Capital expenditures 225 206 129 173 152Cash and cash equivalents 116 101 56 103 132Working capital 356 286 233 736 713Total shareholders' equity 793 651 741 925 988Total assets 4,720 4,362 4,651 5,448 5,639Long-term debt 1,611 1,370 1,474 1,541 1,487Number of employees 36,000 33,000 32,000 32,000 31,000

1 Fiscal years ended 30th September



In the fourth quarter of fiscal 2004, ArvinMeritor posted sales of US$2 billion, an increase

of 19% year-on-year due to higher commercial truck and trailer volumes in North

America. Despite the increase, the gross margins were negatively impacted due to

higher steel costs. Including discontinued operations, the company reported net losses

of US$153 million during the quarter.


Chapter 4 Competitor Analysis Page 8

Chapter 4: Competitor Analysis

ArvinMeritor’s LVS and CVS business groups compete with numerous automotive

component and system suppliers in North America as well as other global markets. The

company competes on various parameters such as pricing, customer loyalty, quality,

customised service, delivery time, efficiency of production processes, and product

development lead time. The company is regarded as the world’s leading manufacturer of

axles as well as air and emissions systems. The company holds the number one or

number two position in several of its LVS markets and an 11% market share in the CVS

segment.

Major competitors of the company’s air and emission system product line include

Faurecia, Eberspaecher and Tenneco. Hilex, Magna, Grupo Antolin and Brose compete

with ArvinMeritor in door and access control systems category; Inalfa and Webasto

compete in roof systems while Suspa and Stabilus compete in motion control products;

The company’s competitors for latch systems include Kiekert, Aisinseiki and Valeo while

those for ride control systems include Tenneco, Sachs and Kayaba. Rassini, Thyssen-

Krupp and NHK Spring compete with the company in suspension systems while Michelin

and Hayes-Lemmerz in wheel products.

Prime competitors of the company’s CVS business group in case of braking systems

include Haldex Braking Systems and Knorr/Bendix, while Dana Corporation competes

with ArvinMeritor in truck axles and drivelines. Holland-Neway and Hendrickson compete

with Arvin in suspension systems. Eaton Corporation is a competitor in case of the

transmission systems product category.

The LVA business group of the company competes with several independent component

providers and OEMs in North America and Europe including Tenneco, Bosal, Goerlich’s,

Flowmaster, Remus and Sebring in exhaust products. Competitors for filtration products

include Honeywell, Champion Laboratories, Dana Corporation, Sogefi Filtration, Mann &

Hummel and Mahle. Tenneco, Kayaba and Sachs are competitors of ArvinMeritor in ride

control products.


Chapter 5 Key Events Page 9

Chapter 5: Key Events

ArvinMeritor, Inc. was formed as a result of the merger between Meritor Automotive, Inc.

and Arvin Industries, Inc. in 2000.

Meritor Automotive, Inc. was formed in 1909 as Timken Detroit Axle Co., which was later

acquired by Wisconsin Parts Company. Willard Rockwell, in 1953, merged Standard

Steel and Spring, Timken Detroit and Wisconsin Parts to create Rockwell Spring and

Axle Company. Rockwell Automotive acquired the steel wheel company Fumagalli in

1973. In the late 1980s and early 1990s, Meritor extended its product line by supplying

two-speed and single-speed drive axles, families of speed on-highway transmission

systems, and anti-lock braking systems for trailers and tractors. In the period from 1993

to 1999, Meritor made a spate of acquisitions, including those of Skoda Miada Boleslav

in the Czech Republic, Dura Automotive Systems’ window regulator business, Volvo’s

heavy vehicle axle manufacturing plants in Sweden, Euclid Industries and LucasVarity’s

Heavy Vehicle Braking systems business. In 1996, Rockwell Automotive launched its

state-of-the-art Engine Synchro Shift (ESS) transmission system.

Arvin Industries was formed in 1921 as Indianapolis Air Pump Company. The company

initially produced car heaters, mufflers and catalytic converters. The acquisition of

Calspan Corporation in 1978 helped Arvin to enter into aeronautical wind tunnel testing,

government research and automotive accident research. In 1986, the company became

the world’s largest producer of valves for tires and tubes through the acquisition of

Schrader Automotive. The same year, Arvin expanded its shock absorber business by

acquiring Maremount Corporation and Gabriel, followed by Spain’s AP Amortiguadores,

SA in 1989. Through several joint ventures, Arvin expanded its operations in Thailand,

China, Taiwan, Malaysia and India. Also, the company acquired a 49% stake in Zeuna

Starker in 1998. The acquisition of WorldSource, Purolator and Camloc Gas Springs in

1999 was a major strategic initiative in Arvin’s history.

Subsequent to the creation of ArvinMeritor, the company acquired the remaining 51%

stake in Zeuna Starker in late 2002. In 2003, the company divested its shock absorber

business and sold off its light-tube manufacturing facilities. The same year, the company

also restructured its Mexican joint venture and increased its ownership share to 49.99%.


Chapter 5 Key Events Page 10

In late 2003, the company sold off its 75% interest in the Spanish joint venture to

Kayaba.

In March 2004, the CVS segment signed a strategic alliance agreement with Shenzhen

CIMC Heavy Industries Co., Ltd. (SCHI) in China to supply trailer systems. As per the

contract, the company would deliver 20,000 trailer axles per year.

During fiscal 2004, the company pursued its strategy to reduce vertical integration in

order to extend focus on core processes. In this regard, the company sold its Kenton

CVS trailer beam fabrication facility in Ohio during the third quarter of fiscal 2004. Also

during the year, the company terminated its participation in AP Amortiguadores, a joint

venture with Kayaba, and dissolved a commercial vehicle joint venture with ZF. In the

fourth quarter of 2004, ArvinMeritor formed a joint venture with STEC to produce

passenger vehicle sunroofs for a Volkswagen facility in Shanghai, China. This was

followed by the announcement of two joint ventures with AB Volvo to manufacture

commercial vehicle drive axles at a facility in France.

As part of its plans to divest its non core operations, ArvinMeritor sold its coil-coating

operations to an affiliate of Willis Stein & Partners. Similarly, the company is looking to

sell off its LVA business also. Through these divestments, the company intends to

mobilise more resources for building its core competencies and hence provide increased

support for its OEM customers. In December 2004, the company also disposed its

components manufacturing operation in Columbus, Indiana.


Chapter 6 SWOT Analysis Page 11

Chapter 6: SWOT Analysis

Strengths

ArvinMeritor is one of the premier suppliers of a broad array of integrated systems,

modules and components to the motor vehicle industry. The company serves light

vehicle, commercial truck, trailer and specialty original equipment manufacturers and

related aftermarkets.

The company enjoys a global footprint with more than 150 manufacturing facilities in 27

countries including the United States, Canada, Mexico, South Africa and Australia; and

regions viz., South America, Europe and Asia Pacific.

ArvinMeritor has strong presence in major international markets, thanks to its

acquisitions and joint ventures. With almost half of its revenues coming from outside

North America, ArvinMeritor balances risks associated with the cyclic nature of the

industry.

The LVS is currently one of the industry leaders in emission technologies that reduce air

pollutants and offer improved fuel economy.

The company’s return on invested capital is far higher than many of its peers in the

industry.



Weaknesses

Though sales at ArvinMeritor have registered a CAGR of 17.8% between 2002 and

2004, most of the company’s growth tends to come from acquisitions. Organic growth

has been very small and the frequent acquisitions and divestures make it very difficult to

measure the operational performance of the company.

Majority of the company's components are relatively based on simple technology,

leaving little scope for any significant product differentiation. Hence, ArvinMeritor

competes with a large number of players that result in severe pricing pressure.

Opportunities

The company has immense opportunities to look for additional joint ventures in growing

markets such as China, Latin and South America. The company also perceives

expansion opportunities in Europe and North America in CVS, which is showing signs of

strong growth.

ArvinMeritor is well poised to capitalise on the trend favouring increased outsourcing and

demand for integrated systems and modules by OEMs.

The company intends to make the most of opportunities for cross-selling of products and

operating synergies between its light vehicle and commercial vehicle businesses.

The acquisition of Zeuna Starker is expected to significantly help the company to meet

the growing demand for diesel engines in Europe.

Furthermore, the restructuring and reorganisation process carried out in the recent years

is expected to provide significant cost savings to ArvinMeritor in the near-term, thus

having a positive impact on its operating margins.



Threats

The rising steel prices, energy costs and continuous pressure from customers to reduce

prices could hamper the margins of the company.


Chapter 7 Customers Page 14

Chapter 7: Customers ArvinMeritor supplies to a wide range of original equipment customers worldwide

including light vehicle OEMs, truck OEMs, specialty vehicle manufacturers, trailer

producers and aftermarkets. Other customers include dealers, distributors, fleets and

aftermarket end-users. The company’s customers can be classified into three

categories:

Light vehicle systems

The LVS business group of the company supplies aperture systems, air and emission

systems and undercarriage systems for light trucks, passenger cars, motorcycles, sports

utility vehicles and all-terrain vehicles. The LVS customer base of the company consists

of automobile giants such as General Motors, DaimlerChrysler, Ford, BMW, Renault,

Volkswagen, Nissan, Peugeot and Toyota.

Commercial vehicle systems

The CVS business group produces drive-train systems and components such as axles

and drivelines, suspension systems, braking systems and ride control products for

trailers, heavy and medium duty trucks, and specialty vehicles to the commercial vehicle

aftermarket and OEMs. Top OEM customers for the CVS products include Volvo, Mack,

Renault Trucks, DaimlerChrysler, Paccar Inc, Fiat, GM and Wabash National.

In 2003, ArvinMeritor was awarded the Fiat Best Supplier Award and Honda Best

Suppliers Award for lightweight wheels. The same year, the company also achieved the

Intermodal Achievement Award for the Meritor Tire Inflation System. In addition,

ArvinMeritor was awarded NAPA Canada 2003 Vendor of the Year award for the light

vehicle aftermarket. Other awards and accolades include PACCAR Preferred Supplier

award for ride control products and Toyota Total Quality Award for LVS, exhaust

systems, roof systems, modules and wheels.



ArvinMeritor’s ten largest customers contributed close to 74% of the total revenues in

2004. DaimlerChrysler AG, which owns Mercedes-Benz AG, Chrysler and Freightliner

Corporation, contributed to 19% of the total revenues in 2004. Sales to customers such

as General Motors Corporation (13%), Ford Motor Company (10%) and Volkswagen

Group (10%) also accounted for considerable portion of the company’s revenues.

In fiscal 2004, the company’s LVS business won a US$90 million multi-year contract

from a European OEM for the supply of large opening three-panel sun-roof system.

Production for this roof-module business is expected to begin in 2006.

During the year, the CVS business segment entered into agreements with North

American Bus Industries, Inc. for the supply of axle and brake systems and with Tradisa,

a Spanish transport carrier, for the supply of full range of axle products. The CVS also

won more disc rake axle business from De Bock, a Belgium transport company.

In fiscal 2004, North America and Europe accounted for 50% and 39% of the total

revenues, respectively. The following table illustrates the company’s revenues across

geographical regions.



Table 2 : ArvinMeritor’s sales by geographical region, 2003-2004

Country/region 2003 2004

US 38.8 37.7

Canada 7.2 6.8

Mexico 4.8 5.6

Total North America 50.8 50.1

Germany 9.2 9.2

UK 7.6 6.5

France 5.6 6.1

Other Europe 16.1 17.5

Total Europe 38.6 39.4

Asia/Pacific 5.2 4.9

Other 5.5 5.6

Total Sales 100 100

Source: ArvinMeritor

Figure 1: ArvinMeritor’s 2003 sales by geographical region (% of net sales)

2003

Total North America50.8%

Total Europe38.5%

Asia/Pacific5.2%

Other5.5%



Figure 2: ArvinMeritor’s 2004 sales by geographical region (% of net sales)

2004

Total North America50.1%

Total Europe39.4%

Asia/Pacific4.9%

Other5.6%


Chapter 8 Products Page 18

Chapter 8: Products

ArvinMeritor is engaged in the manufacturing of a broad range of integrated system

components for light, specialty and commercial auto vehicles. The company claims that

it has an unmatched system integration expertise compared to its competitors. The

company manufactures its products under three business groups.

The LVS business group of the company provides integrated system modules to

passenger cars and light vehicle OEMs. Products include air and emission systems,

aperture systems and undercarriage systems. Air and emission systems include

mufflers, air induction and filtration systems, exhaust pipes, exhaust manifolds and

catalytic converters. Aperture systems include complete roof modules manufactured

using the patented LVS sunroof technology, door systems and motion control products.

The company’s roof module finds application in DaimlerChrysler’s SMART car.

Undercarriage systems include suspension systems, ride control systems and wheel

products.

The CVS business group of the company manufactures drive-train systems, braking

systems, specialty products, suspension systems, trailer products, and transmissions.

To address strict regulatory standards concerning nitrogen oxide emissions and diesel

particulate matter, the CVS segment of the company is developing advanced technology

products such as thermal regenerator, selective catalytic reduction system, and

hydrogen-assisted regeneration technology. CVS has supply contracts with Blue Bird

and Workhorse for integrated axles and suspension systems, and Freightliner for

providing integrated axles and wheel ends. In addition, CVS supplies specialty products

including off-highway vehicle products (for material handling, construction, mining,

agriculture and forestry), government products (for use in heavy- and medium duty

military tactical wheeled vehicles) and specialty vehicle products.

The LVA business group manufactures mufflers, tail pipes and exhaust pipes, catalytic

converters, automotive oil, struts, fuel and air filters. The muffler and filter products are

sold under the Arvin and Purolator brands, respectively.


Chapter 8 Products Page 19

Other products manufactured by the company include coil coatings, and coated steel

and aluminium substrates.

Figure 3: ArvinMeritor’s 2003 sales by OEM sector (% of net sales)

2003

LVS64.0%

CVS36.0%

Figure 4: ArvinMeritor’s 2004 sales by OEM sector (% of net sales)

2004

LVS60.0%

CVS40.0%

2003 2004 US$ million % US$ million % LVS 4,301 64% 4,818 60% CVS 2,422 36% 3,215 40% Total 8,033 100% 6,723 100%

Source: ArvinMeritor, Inc.


Chapter 9 Product Development Page 20

Chapter 9: Product Development

As part of its growth strategy, the company continues to offer engineering and design

expertise, develop new products and improve existing products that match customer

requirements. The company is integrating its existing product lines and collaborating with

technology partners to promote higher-value modules and systems. In fiscal 2004,

ArvinMeritor spent US$156 million or 2% of the total revenues for R&D. At present, the

company’s R&D department employs around 1,725 scientists and professional

engineers. Recent development projects of the company include:

• Development of diesel emission systems for six main light vehicle European

OEMs abiding EURO IV regulations and experimentation of systems meeting the

EURO V standards.

• Co-working arrangements with leading European OEMs to use metallic substrate

for catalytic converters to mitigate emission levels and improve vehicle

performance

• Development of complete suspension systems and integrated corner modules by

leveraging company’s expertise in auto components such as wheels, torsion bars

and shock absorbers.

• The products and applications include the Diesel Oxidation Catalysts, Thermal

Regenerator, Catalysed Diesel Particulate filter, Selective catalytic Reduction

(SCR) System.

• With the regulations for diesel particulate matter and nitrogen oxide emissions

becoming more and more stringent, ArvinMeritor is focusing on the development

of advanced technology products such as thermal regenerator, selective catalytic

reduction system, and hydrogen-assisted regeneration technology to strictly

address this important need of OEMs.. The CVS segment is focusing on

adapting products and technologies, made by the LVS emission technologies

unit, in the development of emissions control products for its commercial vehicle

customers.


Chapter 9 Product Development Page 21

• Development of modules and systems such as integrated axle-suspension

systems for International Truck and Engine, fully-dressed wheel-end modules for

Freightliner Corporation and emission management systems for Caterpillar,

thereby reducing vehicle weight and increasing vehicle durability and

performance.

• Development of next-generation air disc brakes for Volvo and Renault heavy

trucks.

LVS is currently supplying complete roof modules using its sunroof technology. The

company’s roof modules are currently used in DaimlerChrysler’s Smart car. While one

system is developed using long fibre injection technology, the other system features full-

glass appearance. In the door systems category, the company’s glass motion module is

currently being assessed by all major automakers, including Japanese OEMs. Under a

contract with Hyundai, the company is to provide latches, door modules, motors,

speakers, wire harnesses and window regulators for the production of Hyundai’s Sonata

and Santa Fe models commencing in 2005.

In 2003, the company entered into a development contract with LiteFlex LLC to become

the latter’s only distributor of trailer and truck composite mechanical springs. At the Mid-

America Trucking Show held in March 2004, ArvinMeritor and ZF Sachs (its clutch

technology partner) unveiled TwinXTend 15.5”, self adjusting clutch for class 8 vehicles.

The twin-plate clutch was developed to reduce the expense and downtime related with

manual clutch systems. Also during the show, the company revealed a new version of its

RideStar RHP trailer air suspension system that features an optimised upper control arm

assembly and new axle design.


Chapter 10 Prospects Page 22

Chapter 10: Prospects

ArvinMeritor is continuing to consolidate its LVS businesses to deal with the challenges

in the automotive supplier industry and to enhance its competitive position. The

restructuring charges of US$15 million during 2004 included the employee termination

costs associated with the reduction of around 975 hourly employees and 300 salaried

employees. With the intention of strengthening its core competencies, the company

wants to carry forward its restructuring activities into fiscal 2005. This can include

additional business consolidations, facility closures and workforce downsizing. Total

restructuring costs during 2005 are expected to be around US$16 million. Since 2002,

ArvinMeritor has tried to mitigate the risks of cyclicality through diversification of

revenues, customers and global presence. As part of this strategy, the company’s CVS

business recently formed two joint ventures with the Volvo Group to produce axles in

France.

Similar to fiscal 2004, growth in fiscal 2005 is expected to be driven by the CVS

business. ArvinMeritor expects to capitalise on the North American heavy-duty truck

segment where the production is expected to increase by 17% to 275,000 units in 2005.

Similarly, LV production in Western Europe and North America is expected to be 16.8

and 15.9 million in fiscal 2005.

Moreover, the divestment of LVA business, which had been making losses in the recent

years, will allow the company to pool in more resources for the growth of its LVS and

CVS businesses. The operating margins and the debt situation are also expected to

improve as a result of this divestment.

ArvinMeritor is also striving to derive maximum benefit out of the recent trend favouring

outsourcing of bigger and more complex modules and integrated systems. Overall, the

restructuring initiatives including the recent divestments are expected to generate

significant cash savings for the company in the near-term. However, the slowdown in the

light vehicle production, lack of availability and increasing prices of raw materials,

especially steel, are continuing to have a negative impact on the company’s revenues

and profitability. To mitigate the effect, ArvinMeritor is considering several alternatives,


Chapter 10 Prospects Page 23

including the search for new global steel sources, identifying substitutes, and negotiating

with customers to recover certain costs. Hence in the coming years, ArvinMeritor’s ability

to bring down its dependence on steel by reengineering its products might dictate future

margin levels.


Online sources of information Page 24

Online sources of information

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