Arvin Industries Inc.

• Author: Diggle, Jr., R.H.
• Position: Proxy Report Excerpts - Investment Indiana - Company Profile

Following four years of downsizing and restructuring, the "new" Arvin is a world-class manufacturer of automobile parts.

Mufflers and shock absorbers (both original and aftermarket equipment), catalytic converters, tubular manifolds, fuel-filler tubes and tire valves constitute about 80 percent of sales. A decade ago, 80 percent of Arvin's sales were made to the U.S. "Big Three" automakers. Today, this percentage of OEM business is about 20 percent of revenues. The aging fleet of existing cars and trucks represents a pent-up replacement-parts demand.

Arvin's European sales alone now exceed the company's total corporate automotive sales of 10 years ago. The European auto market is 20 percent larger than that in the United States, and currently is fragmented. The catalytic converter business in Europe promises to be an area of opportunity for companies such as Arvin, as global air-quality emission standards are tightened.

Arvin is a classic turnaround story. Its fortunes remain dependent on the depressed auto industry, which is growing at 2 percent to 3 percent worldwide. The key to margin improvement and earnings growth is the application of new technologies such as electronically adjustable shocks (now available in some upper-end vehicles), just-in-time inventory and increased replacement sales of mufflers and shocks.

Arvin is expected to maintain high capital expenditures--in the $100 million range--as it upgrades and adds robotics to older plants and builds new facilities next to customer plants to provide just-in-time deliveries. State-of-the-art metal-bending technologies are necessary to maintain product quality, and quality is the key to the OEM business.

Different from its major customers, Arvin is profitable, and management deserves credit for the painful cost reductions in recent...