ArvinMeritor, Inc. (NYSE: ARM) is a corporation headquartered in Troy, Michigan which manufactures automobile components for light service vehicles, trucks, and trailers. ArvinMeritor is a Fortune 500 company.[1]
In 1997, Rockwell International spun off its automotive business as Meritor. In 2000, ArvinMeritor formed from the merger of Meritor Automotive, Inc., and Arvin Industries, Inc.[2]

ArvinMeritor, Inc (NYSE: ARM) manufactures auto parts for commercial trucks and trailers. The company's 10 largest customers, including AB Volvo (VOLV) and Chrysler, account for 59% of revenue.[1] ArvinMeritor faces risk from the slowing of the truck and trailer market in North America as gas prices hit this sector of the automobile market the hardest, a market upon which the auto parts industry depends heavily. The company earned $4.1 billion in revenue and incurred a net loss of $1.2 billion in net income in 2009.[2]

As Emerging Markets boom and the American auto market flattens, ArvinMeritor is looking to Asia for growth opportunities. The weakening US Dollar has affected ARM and other auto parts manufacturers by boosting ever growing international sales. Meanwhile, a rise in key input prices, including aluminum and steel, could shrink bottom line margins and topline demand if the company passes part of the price increase on to its customers.

Company Overview

Headquartered in Troy, Michigan, ArvinMeritor supplies automotive parts to various customers in North America, Europe and in other parts of the world. Its core business (almost 70% of revenues) is providing parts and equipment for manufacturers of trucks and heavy trailers. These automotive parts are primarily emissions systems, aperture systems, drive train systems and undercarriage systems. The company operates 75 manufacturing facilities in 22 countries around the world.

Contents
1 Company Overview
2 Business Growth
2.1 FY 2009 (ended September 30, 2009)[2]
3 Trends & Forces
3.1 Rising Steel Prices lower earnings
3.2 European and Emerging Markets sales offset a weakening U.S. auto market
3.3 A weak dollar bolsters ever-growing international sales
3.4 Reliance on small number of customers limits ArvinMeritor's bargaining power
4 Competition
5 References
ArvinMeritor serves original equipment manufacturer (OEM) customers worldwide - examples of OEMs include General Motors (GM), Ford and Chrysler. Chrysler, for example, will purchase a part from ArvinMeritor and sell the part in one of its cars under the Chrysler brand. Aftermarket sales, on the other hand, refer to situations where someone, like a mechanic shop, orders a car part directly from ARM to repair a vehicle. Thus the company is tied to both original equipment production (OEM) and aftermarket trends.

The company operates through two main segments:[3]

Commercial Vehicle Systems (CVS) - Accounts for 75% of revenue. This segment makes undercarriage and drivetrain systems (axles and drivelines, braking systems, suspension systems, and exhaust) for medium- and heavy-duty trucks and trailers. It also includes ride control and filtration products and specialty vehicles for OEMs and the commercial vehicle aftermarket. AB Volvo (VOLV) and Chrysler are the two largest customers, with 17% and 12% of this division's sales, respectively.
Light-Vehicle Systems (LVS) - Accounts for 25% of revenue. This segment supplies aperture systems (roof and door systems, and motion control products), and undercarriage systems (suspension and ride control systems, and wheel products) to original equipment manufacturers (OEMs). DaimlerChrysler is the segment’s largest individual customer at 13% of revenue, followed by General Motors and Volkswagen with 9% each, and Ford with 7%.
Business Growth

FY 2009 (ended September 30, 2009)[2]
Net sales fell 36% to $4.1 billion.
The company incurred a net loss of $1.2 billion compared to a net loss of $101 million in the previous year.
Trends & Forces

Rising Steel Prices lower earnings
As an auto parts manufacturer, ArvinMeritor uses a variety of metals in the production of its products, including aluminum and steel. Hot-rolled steel in the United States is one of the most common types of steel input for auto suppliers. While prices peaked in September 2004 at $816 per metric ton, steel prices remain significantly higher than historical levels. As metal prices rises, so do the company's costs, resulting in declining earnings.

European and Emerging Markets sales offset a weakening U.S. auto market
Demand for auto parts is driven by new car sales. The percentage of sales from North America has diminished significantly in the last 3 years as the North American auto parts market flattens, a reflection of the declining U.S. auto market. In 2009, North American sales were 39% of total sales, a record low in recent years.[4] As Emerging Markets like China, who recently joined America as the largest purchasers of automobiles, demand more vehicles, demand for ArvinMeritor's parts also increase. Growing demand in emerging markets has helped ArvinMeritor avoid drastic decline in sales and earnings.


A weak dollar bolsters ever-growing international sales
With 60% of sales coming from outside of North America, ArvinMeritor has become increasingly dependent on fluctuations in the Dollar. As the dollar declines, foreign sales translate into higher dollar amounts, a boost to the company's earnings.

Reliance on small number of customers limits ArvinMeritor's bargaining power
ArvinMeritor's small customer base means that a few big players can demand ever lower prices, forcing the firm to agree to more price cuts in their products, or else risk losing a significant portion of its business. With North American automobile sales slowing there is a decrease in demand for auto parts, giving the buyers leverage in their negotiations with ArvinMeritor - which in turn has little negotiating leverage because it depends so much on a few key customers. Its 10 largest customers account for approximately 59% of revenue. AB Volvo (VOLV) and Chrysler, for example, account for 17% and 12% of the Commercial Vehicle Systems' sales, respectively.[1]

Competition

A majority of ArvinMeritor's sales are to manufacturers of heavy-duty trucks and trailers.

ArvinMeritor’s key competitors in emissions technologies are:

Tenneco
Faurecia
Eberspaecher
Benteler.
Of the four, Tenneco Automotive (TEN) and Faurecia are publicly held, though both offer a wider range of automotive-related products in addition to emissions products. Donaldson and Cummins also offer competing products, with a greater emphasis on commercial vehicles.

Key competitors in roof systems include:

Webasto
Inalfa
Aisin
ArvinMeritor provides OEMs in North America and Europe with sunroofs and sunroof systems for cars, trucks, and SUVs.

Competitors in door systems include:

Brose
Intier
Kiekert
Valeo
Aisin
Grupo Antolin.
ArvinMeritor is a leading supplier of steel wheels for light- and medium-duty vehicles, which it designs, manufactures, and markets under the Fumagalli brand name. The company is one of a limited number of wheel manufacturers with the capability of producing steel wheels in a full range of sizes from 13 to 22.5 inches in diameter. Competing wheel suppliers include:

Hayes-Lemmerz
Topy
Accuride
CMW.
Chinese manufacturers, however, have also begun penetrating this market, pulling market share away from ArvinMeritor.

ArvinMeritor lags behind many of its competitors in earnings in relation to sales, or earnings margins, a measure of operational efficiency. However, it is important to note that most of its peers manufacture the entire vehicle or machine (or a major part of one, in the case of engine maker Cummins) as opposed to individual components or systems for the vehicle with lower profitability, as ArvinMeritor does. In the graph below, only Accuride, Eaton, and Tenneco focus on individual components as ArvinMeritor does.
 
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