Donnelly Touts SUV Product Content

June 5, 2002
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HOLLAND — The shiny blue sport-utility vehicle parked on the lawn outside of Donnelly Corp’s. corporate headquarters illustrates exactly why executives, despite the present industry downturn and years of lagging corporate earnings, feel so bullish about the future.

The new GMC TrailBlazer sports Donnelly windows, door handles and interior and exterior mirrors, the latter of which are equipped with electronic features that executives believe reflect the corporation’s future fortunes.

Vehicles produced in North America today are equipped, on average, with about $36 in Donnelly products. The new General Motors SUVs, like the TrailBlazer, have $350 in Donnelly product content — and that doesn’t include that company’s latest high-tech gadgets.

“No matter how you look at our product offerings and strategic position, we believe we are well positioned to achieve rapid growth in sales and earnings,” Donnelly Chairman and CEO Dwane Baumgardner told shareholders during last week’s annual meeting.

Much of the gathering was dedicated to outlining what Baumgardner sees as a rosy future that’s pinned to Detroit’s acceptance of new product offerings.

Baumgardner envisions Donnelly’s average per-vehicle content will grow from $36 to $75 to $100 in North America within five to seven years. The company has the ability and product line to produce per-vehicle content of up to $400 to $500, he said.

The bullish outlook comes as Donnelly, the world’s largest maker of automotive mirrors, continues to work to boost corporate earnings that for years have lagged behind industry standards as the company invested heavily during the 1990s in new product development and to expand into Europe to become a global player and remain independent in an era of rapid consolidation within the industry.

That initiative helped to push Donnelly’s annual sales from $439 million in 1996 to $858 million in 2000, although profits have not followed the same trend line.

Responding to a shareholder’s question on how much Donnelly could get if it were sold, Baumgardner reiterated the goal to remain a “strong independent company.”

“We do not consider the company for sale. We do not have the company on the market,” he said.

In recent years, Donnelly has moved into developing new electronic components for vehicles, such as its SmartRelease automatic trunk release and CameraVision technology that uses optical computer chips and video monitors to provide drivers a better view of the road around them, or into the backseat of the vehicle so they can keep an eye on their children.

Baumgardner told shareholders that he believes those efforts will begin paying off soon and that Wall Street investors will take notice, resulting in an improved share price.

“We’re going to keep doing the right things. We’re going to keep improving. And we’re working harder than ever to make sure that the investment community understands the true underlying value of this company,” Baumgardner said.

But the progress of the last couple of years could slow if the U.S. economy remains sluggish and gasoline prices keep rising, which would further cut into the sales of large SUVs and pick-up trucks that carry a high level of Donnelly content.

The auto industry saw vehicle production fall 17 percent during the first quarter from last year’s pace that resulted in the annual record production of a record 17.2 million units.

“Overall, 2001 is shaping up to be a challenging year. The issue for automotive suppliers in North America has been that while new vehicles sales have been brisk, vehicle production has not,” Chief Financial Officer Kevin Brown said. “The real question going forward is how will sales in North America hold up?”

Donnelly’s strategy of boosting its average per-vehicle content is one way to negate some of the effects of slower vehicle sales. While industry production slid 17 percent in the first quarter, Donnelly’s sales fell by just 7 percent, Brown said.

He believes that with new products and business commitments to date, Donnelly can return to a 15 percent annual growth rate in sales.

“We are putting plans in place to ensure we will be successful no matter what the economic climate,” Brown said.

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