The world car market slowed down last year, but GKN’s automotive driveline business grew strongly and is expected to boost profits again this year, particularly in the US.
The reason for the growth lies in the group’s ability to provide a high element of value-added technology to customers. In the US, where growth should more than compensate for the slowdown in key European markets, increased outsourcing by car makers will help the group improve in 1999.
Another factor, GKN’s diversity across numerous product areas and geographic markets, means that last year’s downturn in Asia and South America has only limited impact on the group as a whole.
One area where it is aiming for significant growth is in the light truck and mini-van segment in the US, where more manufacturers are shifting to use the driveline systems more usually seen in passenger cars.
GKN won two driveline systems contracts for a big US car maker last year the first to supply constant velocity jointed propeller shafts, halfshafts and viscous couplings, with the second to include catalytic converters.
Chief executive CK Chow said that both deals would increase the GKN product content per vehicle significantly.
But he said the trend that led to car makers outsourcing the development of these systems last year will continue and should lead to greater adoption of the all-wheel drive and independent suspension systems in which GKN specialises.
Chow made it clear that converting US manufacturers from their existing truck-based systems to high-tech car-like drivelines would be a priority.
About 46 new vehicle models were introduced last year around the world and GKN won 61% of all accessible contracts, excluding those where driveline development work was carried out in-house.
A potential threat, the flotation of General Motors’ components arm, Delphi, is a big opportunity for GKN, since it will open up GM to suppliers which have previously not been able to beat the in-house provider. A similar move by Ford’s components business, Visteon, should bring more opportunities.
Unveiling a 19% rise in automotive-related profits, from £207m to £246m, last week out of a group total of £462m Chow admitted the outlook for automotive components would be more challenging in 1999 than it had been last year.
Overall, however, with more growth set to come from the US market, the downturn in Italy and the UK will be more than matched by increased demand from US car makers.
One possible fly in the ointment is the off-highway and agricultural equipment market.
In the US these markets are in decline and a similar trend is expected in Europe. But the fact that GKN’s exposure to this market is less than 5% should mean it escapes the worst of the downturn.
Chow’s strategy leaves GKN’s automotive operations looking resilient while other tier-one suppliers are under increasing pressure to consolidate a trend that GKN should be able to resist.