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BorgWarner Inc
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January 2001
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CONTENTS
Overview
1.0
Company structure
2.0
Automotive products
3.0
Customers
4.0
Financial performance
5.0
Strategy
6.0
Product development and R&D
7.0
Prospects
List of figures
Figure 1
BorgWarner’s sales by division, 1999
Figure 2
BorgWarner’s sales by region, 1999
List of tables
Table 1
BorgWarner’s plants and technical centres worldwide
Table 2
BorgWarner’s customers, 1997 - 1999
Table 3
BorgWarner’s financial results, 1997 - 1999
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Overview
BorgWarner Inc (formerly Borg-Warner Automotive Inc) is a global supplier of components for powertrain
applications.
1.0
Company structure
Headquartered in Chicago, Illinois, BorgWarner employs 14,400 people at 60 facilities in 13 countries. The
company’s business is organised into five core divisions:
•
Air/Fluid systems;
•
Cooling systems;
•
•
Morse TEC;
TorqTransfer systems; and
•
Transmission systems.
BorgWarner’s cooling systems division was set up following the company’s business acquisitions from Eaton Corp
and the Schwitzer cooling businesses acquired as part of the Kuhlman Corp in 1999. A new 56,000 sq-ft divisional
headquarters and technical centre in Marshall, Michigan is due to open in October 2001.
TorqTransfer Systems was previously known as Powertrain Systems and Transmission Systems was previously
named Automatic Transmission Systems. The name changes were made to recognise the expanded growth
opportunities for each of these businesses.
Figure 1: BorgWarner’s sales by division, 1999 (% of total)
% of Total Sales
5%
17%
Morse TEC
35%
Air/Fluid systems
TorqTransfer systems
Transmission systems
Cooling systems
23%
20%
Morse TEC
Air/Fluid systems
TorqTransfer systems
Transmission systems
Cooling systems
Source: BorgWarner.
%
35
20
23
17
5
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The location of the company’s manufacturing plants and technical centres are shown below.
Table 1: BorgWarner’s plants and technical centres worldwide
Headquarters
Plants and technical centres
Morse TEC
Ithaca, New York, US
Turbo Systems
Indianapolis, Indiana,
US
TorqTransfer systems
Sterling Heights,
Michigan, US
Air/Fluid systems
Warren, Michigan, US
Transmission systems
Lombard, Illinois, US
Cooling systems
Marshall, Michigan,
US
Arcore, Italy
Guadalajara, Mexico
Ithaca, New York
Nabari City, Japan
Simcoe, Ontario, Canada
Tainan Shien, Taiwan
Asheville, North Carolina
Bradford, UK
Campinas, Brazil
Kirchheimbolanden, Germany
Byron, Illinois
Beijing, China (49% joint venture)
Cary, North Carolina
Livonia, Michigan
Longview, Texas
Margam, Wales
Muncie, Indiana
Pune, India (60% joint venture)
Seneca, South Carolina
Sirsi, India (60% joint venture)
Blytheville, Arkansas
Buffalo, New York
Charlotte, North Carolina
Chester, South Carolina
Dixon, Illinois
Grand Rapids, Michigan
Rothbury, Michigan
Sallisaw, Oklahoma
Springfield, Ohio
Spring Lake, Michigan
Tulle, France
Water Valley, Mississippi
White Pigeon, Michigan
Bellwood, Illinois
Coldwater, Michigan
Eumsung, Korea (80% joint venture)
Frankfort, Illinois
Fukuroi City, Japan (50% joint venture)
Heidelberg, Germany
Ketsch, Germany
Lombard, Illinois (aftermarket)
Margam, Wales
Sterling Heights, Michigan
Bradford, UK
Cadillac, Michigan
Changwon, South Korea
Fletcher, North Carolina
Gainesville, Georgia
Hengoed, Wales
Indianapolis, Indiana
Markdorf, Germany
Ningbo, China (70% joint venture)
São José doe Campos, Brazil
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In addition, BorgWarner has five joint ventures as follows.
•
NSK-Warner KK—based in Japan, NSK-Warner is a 50:50 joint venture with Nippon Seiko manufacturing
friction products.
•
Beijing Warner Gear Co Ltd—BorgWarner owns 49.9% of this Chinese joint venture producing manual
•
transmissions with Beijing Gear Works.
BorgWarner Automotive Korea Inc—a 50:50 venture with NSK Warner KK manufacturing friction products.
•
Divgi-Warner Ltd—BorgWarner owns 60% of this Indian business producing transfer cases, manual
•
transmissions and automatic locking hubs.
BorgWarner Shenglong (Ningbo) Co Ltd—BorgWarner owns 70% of this Chinese business manufacturing fans
and fan drives.
In May 2000, BorgWarner’s cooling systems division formed an alliance with Valeo Engine Cooling to develop
engine cooling systems for light, medium and heavy truck applications. The partners are working on ways in which
to increase the thermal and aerodynamic efficiency of systems with the aim of improving fuel efficiency and meet
increasingly tough emissions regulations.
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2.0
Automotive products
BorgWarner’s products are sold worldwide, mainly to the original equipment manufacturers of passenger cars,
sports-utility vehicles, trucks, commercial vehicles and industrial equipment.
•
Air/Fluid systems: key products for engine air intake management systems include throttle bodies, intake
manifolds, throttle position sensors and complete engine induction systems. BorgWarner’s products for
emission control include mechanical and electrical air pumps, air control valves and pressure feedback exhaust
gas re-circulation valves. Its fuel management and vapour recovery products include roll valves, canister purge
solenoids and complete vapour recovery systems.
•
Cooling systems: manufactures viscous fan clutches, on-off fan drives and fans for engine cooling systems.
•
Morse TEC: manufactures chain systems, crankshafts, sprockets, chain tensioners and snubbers as well as
turbochargers.
•
TorqTransfer systems: products include 4WD and all-wheel driver transfer cases and related systems to
transfer torque within the drivetrain.
•
Transmission systems: main product lines include friction plates, one-way clutches, transmission bands and
torque converter lock-up clutches for automatic transmissions.
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3.0
Customers
Ford is still BorgWarner’s largest customer, accounting for 31% of consolidated sales revenue in 1999, although
BorgWarner’s dependence on the vehicle manufacturer is diminishing. As table 2 shows, the US Big Three
collectively account for two-thirds of the company’s sales.
Table 2: BorgWarner’s customers, 1997-1999 (% of consolidated sales)
1997
43
14
20
23
100
Ford
DaimlerChrysler
General Motors
Others ¹
Total
1998
36
14
16
34
100
1999
31
19
13
37
100
¹ BorgWarner’s other customers in 1999 included Toyota (accounting for 6% of total sales revenues) and VW
(repres enting 4% of sales).
Source: BorgWarner.
Figure 2: BorgWarner’s sales by region, 1999 (% of total)
% of total
14%
Americas
18%
Europe
Asia
68%
Americas
Europe
Asia
Source: BorgWarner.
%
68
18
14
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4.0
Financial performance
BorgWarner posted a 34% rise in sales in 1999, with a corresponding 47% hike in operating profit. The company
attributed these results to a number of factors, including: increased BorgWarner content and automatic transmission
programmes that improve fuel economy and emissions; strong global production; continued popularity of sport utility
vehicles and light trucks; and strong internal growth boosted by acquisitions.
Table 3: BorgWarner’s financial results, 1997-1999 ¹($m)
Net sales
Operating profit
1997
1,767.0
157.9
1998
1,836.8
140.7
1999
2,458.6
207.0
¹ Years ending December 31 st.
Source BorgWarner
In the third quarter of 2000, the company’s performance improved with a 5% rise in sales for the quarter and 15%
improvement in the year-to-date over 1999. BorgWarner said it will take around $19.6m in the third quarter as a
restructuring charge. BorgWarner says this charge includes restructuring costs related to the rationalisation and
integration of some of its businesses and ‘actions taken to brings costs in line with vehicle production slowdowns in
major customer product lines.’ The charge will save the company around $9m a year from 2001. Like many other
component manufacturers, BorgWarner is affected by reduced vehicle production by Ford, caused by the Firestone
tyres recall programme. Ford is BorgWarner's biggest customer, representing some 28% of its sales.
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5.0
Strategy
The most recent key drivers of growth for BorgWarner have been new engine and automatic transmission
programmes. In an effort to reposition its product portfolio, the company has acquired a number of significant
businesses as well as sold several ‘non-core’ concerns over the last three years.
In October 1997, BorgWarner acquired a majority interest in a German turbocharger and turbomachinery
manufacturer, AG Kühnle, Kopp & Kausch. As the turbomachinery side of the business does not fit comfortably with
BorgWarner’s business, it is not included in its consolidated financial statements and reported as ‘an investment held
for sale’. A year later, BorgWarner acquired 100% of AG Kühnle’s turbocharger business.
In October 1998, BorgWarner bought the Fluid Power division of Eaton Corp. The company subsequently combined
them with the Schwitzer cooling businesses to form a new operating segment, Cooling Systems.
In March 1999, BorgWarner acquired Kuhlman Corporation, a manufacturer of vehicle and electrical products. As
the electrical products businesses did not fit BorgWarner’s strategic direction, they were sold soon afterwards. The
remaining businesses, formerly known as the Schwitzer Group and Kysor, manufacture turbochargers, fuel systems,
fans and fan drives as well as heating, ventilation and cooling systems.
BorgWarner has also sold a number of non-core businesses, including its forged powder metal operations in
Gallipolis, Ohio, Kuhlman Electric (manufacturing transformers), Coleman Cable (producer of wire and cables). Most
recently, in December 2000, the company completed the sale of Kysor-Westran (producer of HVAC for agricultural
and off-highway vehicles) to Bergstrom Climate Systems.
BorgWarner is now focussing on becoming a leading supplier of powertrain technology. The company’s goal is to
double the size of BorgWarner by 2004, primarily through internal growth. In November 2000 BorgWarner said it
had won $950m of new powertrain business through 2003. About 43% of the new business is engine-related and
40% relates to 4WD systems. It includes work for a number of carmakers, including:
•
Chain-driven timing systems for Honda, Ford and DaimlerChrysler engines;
•
Next generation turbochargers for European customers;
•
•
Electronic engine cooling systems for a major (unnamed) North American sport-utility and light truck maker;
InterActive Torque Management 4WD systems for Acura;
•
4WD transfer cases for General Motors and Hyundai.
In addition, BorgWarner has won orders to supply components for five- and six-speed automatic transmissions;
continuously variable transmissions in Europe, North America and Japan; and dual clutch and controls modules for
automated manual transmissions in Europe.
John Fiedler, the chairman of BorgWarner, expects growth from continuing operations in 2001 to be about 3 – 5%,
including the new business.
In Europe, Mr Fiedler expects BorgWarner to more than double the size of its business from $357m to more than
$900m in the next five years, adding that this growth will be driven by three factors:
•
market trends that are expected to produce a dramatic increase in the application of automated shifting
•
transmissions;
significantly increased use of turbochargers and chain-driven engine timing systems; and
•
increases of sales of all-wheel drive vehicles.
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In Japan, the company is taking steps to prepare for new business. Researchers at BorgWarner believe that
changes in engine technology will significantly increase BorgWarner’s sales in Japan. In an effort to satisfy product
demand, the company has expanded its Morse TEC operation in Nabari City, known as BWA-KK, by 50%. They
estimate that of the 15m engines produced by Japanese carmakers worldwide, only 3.6m use chain drives. The
remainder use belts. By 2005, they expect 50% of these engines to use chain drives. BorgWarner claims that the
switch from belts to more durable timing chain systems makes engines more fuel-efficient and reduces emissions.
On a divisional, product basis, BorgWarner’s strategy centres on the following opportunities.
Growth opportunities
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Timing chain systems for direct injected diesel engines.
Engine timing systems moving from belts to chains in Japan and Europe.
Growth of overhead cam engines.
Systems integration; alternative technologies.
Chain belts and HY-VO pump drives for continuously variable transmissions.
MORSE GEMINI chain systems for noise reduction.
Direct injected diesel engines.
Emissions / fuel economy needs.
Emerging applications on light trucks and sport-utility vehicles.
New technologies such as variable geometry.
Continued popularity of 4WD in an established market segment.
Growing popularity of 4WD / AWD passenger cars and cross-over vehicles.
European and emerging markets.
Application of electronically controlled torque management expertise in
alternative technologies.
Air/Fluid systems
•
•
•
•
Transmission systems
•
•
•
•
•
•
•
•
•
•
Market consolidation of suppliers in strong strategic product segments.
Phase-in of new regulations in Europe and North America.
Direct injected gasoline and diesel engines.
Increased use of electronics and electromechanical actuation for underhood
applications.
Move from four- to five- to six-speed transmissions.
Shift from components to sub-systems strategy.
Development of subsystems for continuously variable transmissions.
Automation of manual transmissions.
Substitution of modular wet starting clutches for torque converters.
Continued popularity of light truck and SUVs.
Consolidation of supplier base in commercial vehicles.
European, South American and Asian market expansion.
Module development agreements with other key suppliers.
Emission regulations related to diesels.
Morse TEC
Turbo Systems
TorqTransfer systems
Cooling systems
Source BorgWarner
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6.0
Product development and R&D
Consistent with its strategy of developing technologically innovative products, BorgWarner spent $91.6m (3.7% of
net sales) in 1999 and $65.1m (3.5% of net sales), on R&D activities. Not included in the reported R&D activities
were customer-sponsored R&D activities that were $0.4m and $8.4m in 1999 and 1998, respectively. BorgWarner
employs more than 500 engineers, mechanics and technicians at nine R&D engineering centres located worldwide.
In 1999 BorgWarner opened its third technical centre in Europe, at Heidelberg in Germany. Around 50 engineers
and technicians based at the company’s Transmission Advanced Product Development Centre for Europe are
developing clutch systems and control modules for automatic and automated manual transmissions for the European
market.
In Auburn Hills, Michigan, BorgWarner is building a 175,000 sq-ft technology centre, due to open early 2002.
Initially, 425 people will work at the technology centre which will also serve as global headquarters for three of the
company’s business groups —Air / Fluid Systems; TorqTransfer Systems; and Transmission Systems.
The company has recently revealed the following two new products
•
A new electronically-controlled four-wheel drive system that engages only when needed, sensing when the front
wheels slip and transferring power either to the rear axle, or from one side to the other, or to a single wheel.
The system is fitted to the Acura MDX luxury sports-utility vehicle launched in September 2000 in North America
and may appear in the European market in 2001. The company claims that, compared to mechanical systems,
its so-called InterActive Torque Management system is lighter, improving fuel economy and reducing emissions.
It also interacts fully with existing systems such as anti-lock brakes and vehicle dynamics systems.
•
A new dual mass flywheel for Chevrolet, Ford and GMC diesel powered light-duty trucks. The company claims
that its so-called Brute Power Dual Mass Flywheels relocate the damper from the driven disc to the engine
flywheel, dampening the engine torsional vibrations more than is possible with standard clutch disc dampening
technology.
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7.0
Prospects
The $750m purchase of the Kuhlman Corporation in 1999 was an important step in the company's engine systems
plan in that as well as giving BorgWarner a stronger position in fans and fan drives, it also brought $150m of
additional turbocharger business. Borg-Warner is now the world's second-largest turbocharger supplier following an
earlier acquisition of Kuhnle, Kopp & Kausch. In looking ahead, the company forecast that the worldwide market for
passenger car turbochargers will grow 72% by 2004.
The demand for turbochargers is rising fast, especially in Europe, where direct injected diesel engines are powering
more and more passenger cars. For diesel and gas -powered vehicles, turbochargers lower fuel consumption, allow
smaller engines to provide the power of larger ones and reduce emissions. In the supercharger market, BorgWarner
is preparing to challenge Eaton Corporation’s near global domination of the automotive market. BorgWarner has
obtained a contract to supply superchargers to a marine engine builder and is seeking inroads with the world's
carmakers.
In addition, the forecast growth in 4WD systems and direct injection engines, the gradual shift from conventional
manual gearboxes to continuously variable transmission units, automated manuals and automatics all underpin the
belief that the company is set to benefit from these developments and surely support the company’s ambitious
strategy for growth, doubling turnover by 2004.
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