NOVI, Mich.—Cooper Standard Automotive Inc. will shutter two more facilities, in addition to the 10 closures completed last year, as the auto supplier moves ahead with restructuring its global operations following a $67.4 million fourth-quarter loss.
The two plants will close in 2020 at a cost of $15 million, compared to 2019 restructuring expenses of $20 million to mothball six plants in Asia, three in North America and one in Europe.
"Two more significant manufacturing factories have been identified for closure," Jeff Edwards, Cooper Standard chairman and CEO, told investment bankers Feb. 25 during a quarterly conference call.
Edwards said this year's closures partly are customer driven and partly a continuation of corporate streamlining.
"We don't need as much space," Edwards said, adding the cost savings from the two pending closures represents a two-year payback of the $15 million restructuring expense.
Company officials didn't identify the locations of the two plants or say how many jobs will be lost. The 10 plants closed last year also were not identified, but layoff warning notices filed with local authorities indicate facilities in Sanford, Fla.; Goldsboro, N.C.; and Georgetown, Ontario, were closed in North America.
Cooper Standard produces rubber and plastic sealing, fuel and brake delivery systems, and fluid transfer systems for auto makers, including Ford, General Motors and FCA, which make up 55 percent of total sales, along with Mercedes-Benz and Renault Nissan.
This is a pressured time for auto suppliers. Production of light vehicles declined globally by about 6 percent in 2019, and in Cooper Standard's top market of North America, production dropped 8 percent in the fourth quarter and 4 percent for the year. In China, light vehicle production was down more than 8 percent for the year, and in Europe it declined more than 4 percent.
Cooper Standard lost $67.4 million in the fourth quarter but ended up finishing 2019 with a net profit of $67.5 million on sales of $3.11 billion. That compares to a $103.6 million net profit in 2018 on sales of $3.62 billion.
"In the context of the weaker production environment, demands for increased price concessions continue and commercial negotiations remain challenging," Edwards said. "In addition, despite lower production in the automotive market and other industries, commodity costs remain high throughout the year, creating a $29 million headwind."
Company officials also are attributing the year-over-year change in fourth quarter and full-year sales to the divestiture of the anti-vibration systems business, unfavorable volume and mix, customer price adjustments and the impact of the United Auto Workers work stoppage in the U.S. General inflation, higher raw material costs and unfavorable foreign exchanges also hurt the bottom line.
The protracted UAW union strike and the write-off of a discontinued customer relationship in China last year had a combined $22 million one-time negative impact on results for 2019, Edwards said.
Other headwinds remain. Company officials offered sales guidance of $2.85 billion to $3.05 billion for 2020.
"We believe the challenging market conditions that have persisted for the last 18 to 24 months are the new normal for the auto industry," Edwards said. "In an environment of slow to negative growth, we have to be more focused than ever before on improving efficiency, providing world-class quality service and innovation to customers, and driving the business to improve cash flow and returns on invested capital. And, we are."
In addition to the facility closures, the company is in the midst of a strategic review process to consider alternatives for other unprofitable operations. Edwards said details will be provided as decisions are finalized.
Cooper Standard also completed two vertical integration initiatives expected to result in savings this year and beyond. One is related to materials mixing in Mexico and the other to steel tube fabrication in China.
The company also launched a massive program to transform its supply chain that Edwards said will "allow us to claw back some of the material economic inflation, if you will, that have suppressed the margins over the last 18 months or so."
In 2019, Cooper Standard achieved about $81 million in operating efficiencies, according to the company.
Cooper Standard officials said their 2020 guidance factors include macroeconomic conditions, current customer production schedules, the company's operating plans, and a $50 million sales reduction due to expected first-quarter impact of the coronavirus outbreak in China.
"From a big picture point of view, we're nowhere near back to normal as it relates to our plants and our customers' plants," Edwards said. "I just saw an announcement ... of a couple customers that delayed startup until March 10. It's a very fluid situation."
Cooper Standard is fortunate to have an "incredible" Chinese management team in place in the country, Edwards added.
"They're doing a great job for us to address things in terms of the supply chain being cut off from certain parts in certain regions of the country," he said. "It is affecting everyone and our team is doing a marvelous job working 24/7 to support whatever our customers are requiring us to do."
Still, everyone is wondering if COVID-19-related issues will continue into the second quarter or beyond.
"How soon do we return to the new normal in China?" Edwards asked. "Frankly, I think Delta (Airlines) got it right. Toward the end of April would be my guess if you want me to give you a date."
Delta temporarily suspended all U.S. to China flights on Feb. 6 and plans to resume service there after April 30.
"The outbreak is creating an unusual amount of volatility and uncertainty," Edwards said. "We believe that the direct impacts in China have the potential to create a spillover effect that could further disrupt the global automotive market and the global economy in general. However, it is impossible to estimate those potential impacts at this time. So we continue to monitor the situation carefully."
The spread of the coronavirus in China appears to be slowing. However, there are outbreaks in Iran, South Korea and Italy, and the disease has made its first appearance in sub-Saharan Africa.
On the bright side
2019 was a record year of program launches for Cooper Standard, which took on 271 new programs—an increase of 38 percent over 2018.
Launch activity looks good for 2020 as well, with 190 programs planned, including 24 related to the company's innovation products. Two of the 24 launches involve Fortrex static sealing products.
The company received about $191 million in annualized net new business awards in the fourth quarter, bringing the total for 2019 to $451 million. Some of the contract awards are related to company brands, such as ArmorHose, ArmorHose TPV, Fortrex, FlushSeal, Microdence EPDM and MagAlloy.
"We expect these new awards combined with our continuing effort to reduce cost and overhead will help position us for future profitable growth," Edwards said.
Cooper Standard's top platform remains the Ford F-Series pickup truck, which has a high average content per vehicle of nearly $340. On a weighted basis, the company's CPV across its top 10 platforms are expected to be about $140 this year.
"We are proud of the continued strong mix of our top programs, which maintains a heavy weighting on trucks and SUVs," Edwards said. "This strong mix provides us with maximum opportunity to increase product content per vehicle and sales over time."
Cooper Standard has about 28,000 employees, including 3,200 contingent workers, at 174 facilities—103 manufacturing facilities and 71 for engineering, administrative and logistics—in 21 countries. The company believes it is the largest global producer of sealing systems, the second largest global producer of the types of fuel and brake delivery products it manufactures, and the third largest global producer of fluid transfer systems.