One of Trevor Bonner’s strengths is that he is comfortable in the international arena – a strength he also credits to his employer GKN. And he believes it is the key to further growth in the automotive and agritechnical products division of which he is managing director.
GKN has operations in more than 35 countries and has invested in emerging markets such as the Pacific Rim and South America over the past decade. All this has helped establish joint ventures abroad in Bonner’s mainstay business, constant velocity joints.
`I’m optimistic about our division going forward. We’ve done pretty well over the past 20 years, in a highly competitive sector.’
A long and gradual restructuring process away from GKN’s original steel making interests ended in 1995. It shed non-core businesses and focused management attention on three main divisions: automotive, aerospace and special vehicles, and industrial services.
Recently though, the contribution to GKN’s profits from the automotive division has been overshadowed by growth of industrial services, particularly its Chep pallet business. Last year automotive’s half year contribution dipped from 68% to 57%, having been at an historical level of about 60%. And aerospace has been in the spotlight with much press speculation about GKN’s ambitions to buy Vickers’ tank business.
But Bonner contends that automotive’s contribution to profits will not fall below 50% in the next five years, and is bullish about growth opportunities, which should return its contribution to previous levels. This growth will come through acquisitions and through more outsourcing opportunities as vehicle manufacturers, particularly on the Continent, contract out more work in GKN’s core driveline business.
A standard front-wheel drive vehicle has two complete CV driveshaft units and about 85% of all vehicles are fitted with them. With 34% of global output in 1994, GKN has long been a world leader in driveline systems.
`The CV joint business has potential but only in the emerging markets outside western Europe, North America and Japan,’ says Bonner. With only three major suppliers of this product in the world – GKN, NTN of Japan and Delphi-Saginaw, part of General Motors – there is not much room for further consolidation.
So prospects for acquisitions look strongest in what Bonner calls `performance businesses’. These are successful medium-sized businesses within the division, which tend to be national or regional in their specialisms.
`Given moves in the automotive sector towards globalisation and a leaner supply chain, we will be looking to develop this status,’ says Bonner.
Chief among the candidates for expansion are the Powder Metallurgy and Sankey Engineering Products businesses. GKN’s approaches to engineering group T&N about the possibility of buying its powdered metallurgy business have already hit the headlines. GKN has powder metallurgy operations in the UK, Italy and India, and annual sales are $60m.
Bonner is reluctant to comment on the T&N press speculation, but obviously knows its powder metallurgy business well. `It has three particular features: a very successful UK business, an operation in France which has given them a significant presence which we don’t have and a foothold in North America.’
While a potential deal with T&N stays on ice, Bonner is pursuing opportunities elsewhere in the powder metallurgy sector, which is growing faster than the rate of vehicle output.
`We need a base in North America, and we need to have a stronger base to develop further into emerging markets.’
Acquisitions in any of the performance businesses must `complement our existing technology, supplement our existing customer base and give us a stronger geographical base.’
For Sankey Engineering, comprising engineering products, wheels and industrial products, Bonner foresees acquisition opportunities in its underbody components and vehicle assembly activities. `We lack a manufacturing facility on the Continent, although we do ship components into northern Europe from the UK. We also think we’ll need a presence in North America, and some joint ventures or greenfield sites in emerging markets.’
There will be opportunities for growth in the CV driveline business through contracting out by the big car makers to vehicle suppliers, says Bonner. GKN has taken over production of these components for Fiat in Italy – a move in which Bonner, at the time managing director of the driveline systems business, played a leading role.
`Over the next five years, we would expect to see significant new opportunities on the Continent where about 40% of demand is still met in-house.’
The takeover of Fiat’s driveline business in 1994 will in the longer term spawn new customers and markets. `We have no commitment to supply Fiat only. From 1998 onwards, we will be looking to expand the customer base in Italy and beyond.’
Bonner’s vision for automotive division may be clouded in the future, however, by recent legal action in the US between GKN and franchisees of its Meineke exhaust business. Some $380m (£230m) has been awarded to franchisees as a result of alleged misdemeanours relating to advertising duties dating back to 1986. GKN may have to make provisions in its 1996 accounts due in March for payouts in the case. Total costs of the legal action could wipe out the group’s cash pile of £483m as of June last year and could cramp any expansion plans. GKN is expected to appeal against the initial legal award and does not expect to be thrown off its acquisitive course.
Bonner began his international career in 1971 but his roots are in in the Midlands. Born in Birmingham in 1943, he trained as an accountant and in 1968 joined the accounting department of one of the oldest industrial UK businesses, Guest Keen and Nettlefolds.
Then in 1971 he joined Uni-Cardan in Germany, a manufacturer of propshafts within GKN’s automotive division, as a consultant. Having introduced a uniform planning and accounting system, he was promoted in 1973 to head of finance at Uni-Cardan. By 1981 he was chairman of the management board and also took on the role of corporate management director for GKN group.
Bonner still holds various chairmanships on supervisory boards of several of GKN’s international businesses and is a non-executive director of the German-British Chamber of Industry and Commerce.
But for all his international outlook, Bonner has a strong allegiance to the UK and is confident about prospects for his division from recent investments in the UK car industry.
`Despite flat markets in western Europe, there’s no doubt that UK car output is going to continue to grow and we reckon industry estimates of two million vehicles by 2000 are realistic. We’re obviously quite optimistic and, we think, quite well positioned to take advantage of this growth in output.’
Bonner expects to gain most from recent production increases announced by Japanese plants in the UK. `If the new output increases announced by Toyota and Nissan substitute imports of completely built vehicles from Japan, GKN stands to make a potential 100% gain in component sales,’ he says. But, he cautions, this may be offset by potential losses of market share by other European produced vehicles which are also GKN customers.
As vice-president of the Society of Motor Manufacturers and Traders, Bonner is also closely involved in the SMMT Industry Forum, which is working to improve the performance of the UK’s second and third tier suppliers. But Bonner still sees room for improvement among the first tier. `While not wishing to decry the achievements of the components supply industry of the past decade, there is still more improvement to be made in shopfloor processes, including manufacturing and design.’
Product innovation is another area where he believes UK industry has to improve its performance. `Our record has not been strong compared with Germany, for example.’
With nearly 30 years experience in one of the most competitive of industries, Bonner clearly thrives on challenges and change. The appointment of CK Chow, from BOC, as GKN’s new chief executive last month is no exception.
Chow has assured him that GKN’s position in the automotive market will continue to be `extremely important for the group’. Bonner concedes that there may be some truth in reports that Chow may bring some additional impetus for further growth. But he adds: `It would be quite wrong to imply that this was not there before.’