AAH #777 - Lear CEO Ray Scott: AI, Automation, Vertical Integration and Other Keys To Competitiveness
Autoline After Hours
AAH #777 - Lear CEO Ray Scott: AI, Automation, Vertical Integration and Other Keys To Competitiveness
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Term
modular concept
A modular concept means that car parts are made to fit together in different ways. This makes it easier to change or replace parts and can save money in building cars.
Part
seat harness
A seat harness is what keeps you safe in your car seat. It holds you in place so you don't move around too much if there's an accident.
Part
lumbar support
Lumbar support is a part of a car seat that helps support your lower back. It makes sitting in the car more comfortable, especially on long trips.
Term
British racing green
British racing green is a specific shade of green that is often used on British cars, especially in racing. It’s a classic color that many people love.
Term
gravity seats
Gravity seats are a type of car seat that might not be safe or comfortable enough for certain places, like the U.S. They are made differently for different markets.
LIVE
Speaker 1: You buy Alex Partners. For more than forty years, we
have helped companies and their stakeholders around the world harness opportunity, overcome challenges, and achieve outsized outcomes. Alex Partners when it
really matters.
Speaker 2: Hey, everybody, welcome to Outline after hours. Me here and
you there. Gery what a surprise, we're back at it again.
We got to let everybody know that we've got Ray Scott, the CEO of the Lyric Corporation, with us today. And Ray,
fantastic to have you on the show here.
Speaker 3: It's great to be here. Really is special.
Speaker 2: And well, you know, the timing's great. You just had
your year end financial earnings report yesterday. That's kind of
given us a lot of ammunition to ask you about what's going on in the industry.
Speaker 3: Yeah, it was a good call. It was good finishing
up what I think was a strong year and I think gave us some really strong momentum heading into twenty six.
You know, it's been an exciting time in the industry.
There's always something going on, but you know, it just feels good. It feels a little bit better.
Speaker 2: Well, last year was I mean, it was.
Speaker 3: A tough year.
Speaker 2: Tariffs disrupted everything. You had all kinds of EV programs
getting canceled or delayed, and yet you guys came through pretty strong.
Speaker 3: Yeah, you're missing a couple there too. You had the
the copper situation with the index and the you know disconnect.
You had the cybersecurity attack with one of a major OEM, and you're right, you had the geopolitical issues going on relative to different volumes and platforms. And so that's why
I'm really proud of the team, you know, to to really work through those issues and have what I consider to be a good year. And we kind of measure ourselves.
What's great is we put ourselves out there. We've were
measuring ourselves two different ways. One is net performance, which
how do we perform above things like customer productivity, uh, transactional changes facts, those type of things, labor economics. And
we had outstanding year almost two hundred million dollars of net performance. And the second one, and I think equally
is important, is growth. So hey, Dave, I don't good
to seeing him.
Speaker 2: So David Welsh has joined the show here, David Welsh from Bloomberg. Anyway, great to have you on the show here.
I would say move that mic up a little bit higher.
That's good, Okay, not now it's like you're ready to go here.
Speaker 3: It's all good.
Speaker 2: But anyway, Ray was just giving us a quick recap of the financial earnings that they reported.
Speaker 3: Yet, yeah, I had had a good call yesterday and we're talking about the second part of the growth. And
the team did a remarkable job, you know in these systems of one point four billion dollars of new business second uh uh, you know, record year for us in new business wards. So I think it was a really
good time. We pivoted from what was ev we saw
the demise or the volume reductions and EVS, and now we've re pivoted with ice vehicles, particularly in an these systems and in seating. There were some really special awards.
The on shoring with General Motors with the Orient facility, a great continuation of our relationship. Really looking forward to
putting that plant up here in Michigan. So I think
that just continues with our extension of the premiere trucks and SUVs for General Motors. And then you know, we
talked about some conquest wins. We can talk more at
a little bit more about it, but right now, it was it was a major conquest win on a truck platform that we'll be launching in the next several years.
But what was exciting about that in the seating world was it was really around technology innovation in the manufacturing processes.
Speaker 4: Let's talk a little bit about wait wait, wait, wait wait wait, you're you're assuming everybody knows what LEAR is and I think that Ray, if you would you position the company, tell us what you do. I mean, because
you know you're you're more than I think people think.
So if you put that in a snapshot, make the conversation better for the people who are list.
Speaker 3: Okay, twenty three billion dollars in revenue, one hundred and seventy five thousand people globally well positioned and seating Seating really the core part of our business. Uh, most vertically
integrated sea company in the world. You know, luxury vehicles
all the way around the world, from you know, the North American customers to the domestic Chinese to the German OEM so well positioned with the customers. And then these
systems wiring, U terminals, connection systems and then electronics and so you know, two different product groups but doing a really nice job and each one, what's in that because they can be some pretty basic stuff like CILVI wire harnesses.
So from what are basic harnesses all the way to very complex harnesses on autonomous vehicles and so those get very complex. You can have some very simple, well you
have very complex with the terminal connectors and and just the complexity of the harness itself from a manufacturing perspective, and then ternals connectors, more of the sophisticated t's and c's that are on the harness, and then very selective specific electronic modules. You know, we just got awarded a
Pace Award with a zone control module and that we're going to supply with the customer launching this year. And
so you know, so we have very specific electronics business that we also do.
Speaker 2: Everything that you're saying is triggering triggering a million other questions.
Speaker 5: I mean, this is a fascinating thing.
Speaker 4: I mean, so, you know one of your favorite subjects is zonal computing it and you guys are into that with that new development that you.
Speaker 3: Have, and we got recognized for that program around our algorithm the software and creating a really flexible software program that allows the customer to change features as opposed to changing hardware, and so the technology that is really driving what I think are a much more efficient products through tech, analogy and innovation are really helping our customers, and then that's what's really what it's all about. Very similar with
seating with our modularity concept where we make a much more i'll say simpler type concept as opposed to a layered seat build. You have a modular concept where we
build thermal comfort solutions into a modular component. That reduction
of fifty percent of the part numbers significant weight reduction, the customers preferences and comfort improved dramatically, and you build it where you can actually scale it. And everything we
talk about we'll talk about volatility and changes, and we just discuss all the things going on in the industry. Well,
our focus is around how we can drive durability and sustainable margins given everything else going on in the industry, and so modularity and seating being very vertically integrated, having the capabilities around engineering, product engineering, and the importance of how that connects to manufacturing. I think, you know, historically
it's been somewhat separated, but the two really engage when you start talking about manufacturing technology and design changes required to really drive the next generation of products and so doing a really good job. That's why I think the win,
the Conquest win that we talked about on the earnings call was so important because it validated, you know, our strategy and how we've been positioning ourselves because we've bought a lot of different companies where we kind of have the spring of pearls string of Pearls approach in touch the gore Whip Automation, which is a software company that does AI capabilities that we developed for our own production uses on our manufacturing plant floor Stone Shield that we just recently announced with Automation, and so you know, we've
been doing and going at this for ten years and the combination of having best in class product that line up with the manufacturing componencies are getting tied together, and that win was all about that. So, you know, when
the customer came through, they went through an audit, a process.
They came in. We have a facility in Rochester Hills
where it's a lights out facility. We're showing a lot
of the greatest and newest technologies on the manufacturing side.
And they came through and they audited us and went to our manufacturing plans. They're looking at our modular design
and saying this is the type of innovation from a supply chain we want to move forward with. And so
we're ward of the program based on that criteria. And
so you know, as one of those we're going through and you know there's there's a continuation. Well there'll be
parts of it that are absolutely lights out, yes, and what it lights out, it's it's interesting. I think everyone thinks, Okay,
what what happens is you have no, no, no, you still have very technical skilled resources and capabilities that required what we what we look at is a transition to software engineers. You know, we have very specific capital, you
know with dexteria or certain applications for the capital we're using in our plant for you know, the modifications of the capital that we're using. So no, you still have
people that would be very technical, being very capable around the capital that's on the floor but used in a different way. But yes, from start to finish, the capitol
itself is helping that product through the plant.
Speaker 4: Well, you mentioned just quickly in passing Stone Shield that you acquired it and I looked into that and it deals I think with Davity was talking about where harnesses automation that you know will give you guys an advantage in terms of being able to manufacture.
Speaker 5: No, that's something's difficult to do, which is why they're made in Vietnam, in Mexico in a lot of cases.
Is it's very way more intensive to make a wire.
Speaker 3: So are trim covers, I mean trim covers harnesses. There
are elements of it, yes, that that are automated, but it's a very complex, labor intensive job. But there's parts
of it that that technology will vastly improve, the automation and the manufacturing plants. And so Stone Shield was a
very important acquisition for us because the redundancy of taping and getting down to an automedia. When you look at
it and you see the people that are required to just tape the harness themselves, you say, there's got to be a better way out there, and there is. And
so it's the it's combining these type of capabilities and what I love right now and why it's so exciting I think in the auto industry is technology is advancing so quickly. You know, you talk about AI or you
talk about software, the digital changes, the capital side, the automation side, and the suppliers and or the oas that are moving fastly towards the technology are going to be the ones that are going to be successful, because I think if you're five years ahead in this type of area of technology, you're really you're so far ahead that it's even difficult for anyone to catch up. So there's
a need to move very fast. And I always look
at this way. So all of it's not solved when
the harness is very complex or trim covers. But what
I am seeing is what everyone used to say is impossible.
It truly is possible. I'm seeing on the plant floor
the problems being solved with technology and innovation, and I think there'll be a time when it will be solved.
And I always look at this way too. If we
do have an area that we're trying to gap out because we haven't solved yet, wait six months, I tell the team, waits six months. It is amazing. I was
just in a facility last Friday and they talk about the dexteria the fingers and you know, being able to do things, you know, like sewing or wire harness. There
are other types of applications when in the plant and now it's there. I mean in medical areas where they're
solving problems that were unsolvable. You know, this is this
is great as we look at manufacturing and the need for manufacturing going forward. Today in the US, there's one
hundreds of thousands of unfulfilled manufacturing jobs. You have to
gap it out with capabilities. Because the manufacturing jobs and
the requirements for manufacturing jobs in the future are increasing, population growth rates are decreasing, you know, the attractiveness to other jobs is increasing, and so technology will gap that out.
It is very helpful, but it's also a very helpful way to improve job satisfaction. Every time I walk through
these plants, employees love what we're doing. You talk about quality,
you talk about throughput, You talk about just the general overview of the efficiency, the technology that's driving the new layers of what we're going to do. As far as
hiring new talent.
Speaker 5: Could you have a shortage of assembly workers manufacturing workers in your plants.
Speaker 3: Well, that's more of a regional and I think it's more in different areas. Yes, we can find issues relative
to shortage or absenteeism or other things, but that's more of our origional things. We have great areas. We have
a great facility here in Detroit, we have a great facility up in Flint, Michigan. So you know, it depends
on the region you're talking about and where.
Speaker 2: You know, going back to these changes that you're seeing and better throughput and saying, you know, being able to automate parts of the wiring harness, which is amazing. I'd
love to see more details on that. Is it changing
the design of the product to go together easier or is it better automation that's able to do these things.
Speaker 3: So it's both. You can solve problems with the products
that are in place today, and that's a lot of what we're doing. So we initiated Idea by Lear and
it is about three years ago because we were acquiring all these companies. We're trying to figure out how do
we how do you pull all this together? You know,
like I said, we've acquired seven eight different companies in innovation, technology, automation, those type of things. Then along with the software and
the digital solutions that we're bringing forward, we brought together Idea by Leer, which was, you know, innovation, it's the digital side, it's the engineered what you're talking. The product
side is an important element of this. This automation idea
really clever, huh, it is. But what it did was
it got the team. You know, we have one hundred
and seventy five thousand employees in our company. So you
want a culture that's built on creating innovation and driving and understanding that it's okay to take a little risk and push innovation in the plant floor or in the product side. So ideally it's the combination of the product
changing like I talked about with a modular solution for a just in time environment, but you can also solve near term issues that you have on a plant form floor through digital changes that with the current product or automation and technology that's that's here today. And so it
really is both if you want to hit it ideally, but you can you can get at it with a current product that's in place today.
Speaker 4: And I think we should be pointed out your idea program saved you guys thirty million dollars in the first half of last year. I mean, so this is just
not some you know, slogan nets out there. I mean,
you guys are really yeah, yeah.
Speaker 3: I think what was great about that that's been you know, I say, when you're five years ahead. So we put
that in place three years ago, and we were already driving modular concepts ten years ago, and so the combination of the acquisitions were making it's like, how do we fit them? You have one when you go through an
acquisition culturally, the fit of how you can get at and scale it properly to make sure you don't burn a new company that you just acquired into what you're trying to do. How do you look at the capacity
that's available within their technology innovation? How do you prioritize it?
So we set up an organization around idea by layer and it was it was really centered on and focused on how do we optimize that? And then when we
started realizing, yeah, we're getting at these these opportunities quickly.
And then when you have over two hundred and seventy manufacturing plans across the manufacturing you know, the breath of manufacturing that we have within layer, how do you prioritize it?
How do you every investment dollar, how do you look at a return? Then how do you prioritize it? Then
how you stretch it across all your plans? And so
setting up the organization so you're given the people the tools to do their job, but you're also given the organization and support. So idea really resonated with the team.
We have a great culture. Lear has a great culture
of looking at innovation and driving And I say that because I'll see in other companies that well, if it's not created here, it doesn't really exist, that won't work here, that we're not built that way. We have a culture
that wants the grassroots within the company embrace it. It goes,
so then we start tracking it and I think the way we look at it, there's some soft and hard savings, and the herd savings are what we really want to start monitoring and letting our investors know the investment dollars were putting in place, here's how we're driving results. Because
in today's world, especially in automotive, it's about there's going to be challenges this year. You know, last year we're
sitting here and you know, tariffs were coming out. What's
it mean? And we're looking at these big numbers and
we managed that very well. You know, you go into
supply chain issues, you go into cybersecurity attacks. You got
the copper issue that that came up. So we're gonna
be dealing with things, So how do you create an organization that's durable, that can sustain and manage change because you're going to have it. Maybe it's not clear what
those changes or issues are going to be today, but they're coming at us. And so building something around technology
and innovation that helps you scale and really allows it to connect throughout the other plants, it's very helpful and once it's a very competitive atmosphere in some respects too.
So one one plant has we I went through this this fellowship program which is an AI tool that we're using through Foundry, which is Pallunteer, and we had this absent teas and pool way to really track and define and get at what was inefficient versus driving efficiency within the absolute and teas and pool. And once one plant
has it, they all want it. And so now it
says how do you do it in a way that makes sense? And it's a tremendous savings. But it's also
better for the people on the floor too. It really
helps out how we're bringing people in, how we're managing people, how we're not wasting somebody's time. And so I think
everyone thinks about oh, you're just looking at cutting heads.
It's not that. It's actually job satisfaction. It's helping drive
efficiency and the amount of wasted hours that somebody might be spending on just Excel spreadsheets and trying to get that information and having the clarity around that to drive the plants in a much more efficient manner. So it's exciting.
It's it really is exciting stuff. I get to sit
through these projects and it helps you think, Okay, we got this, we got now how do you connect the dots quicker?
Speaker 2: So would you say that whole idea process is what led to you getting this big Conquest deal for full sized truck program.
Speaker 3: Yeah, well, I think it's that. I think it's proof
of concept. I think it's the validation and the production
orders we have in place. I think it's the Rochester
Hills facility. I think it's a combination of a lot
of different things. You know, I think it you know,
like I said, it takes time. I mean I've always
said when you introduce a new way of thinking about for example, when seating a modular concept where you the components come together in a design, that's exactly John, what you're talking about is you design the product differently. When
you look at a seat system today, if you are unravel it and take it apart, you have harnesses you have you know thermo match, you have pham pads, you have you know lumbar, you have motors. Well, they're all
designed individually to source individually. Well, if you look at it,
you would sit there in common sense is well, no, you design these together. Why don't does this fit together? Now?
Why wouldn't this just go? And why when you get
rid of this harness? Because you don't need these harnesses?
And then I say, when you reduce a part that has been in traditionally around for a long time, fifty percent of the partnermers weight Scott and half the time to sensation for a customer is changed dramatically. It's all
common sense. And so looking at it and driving it, now,
what's great that's going into production? And I always say
what's great about our industries? Once you start benchmarking and
somebody looks at another vehicle and they say, wait a minute, why is that so much more efficient and cost? The
cost has changed dramatically and it's much more efficient for the end consumer. Okay, then it moves much faster.
Speaker 2: Is that because you're vertically integrated that you're able to do that or are you bringing in suppliers right at the design state?
Speaker 3: So we tried that, and that's very difficult to bring in suppliers because you've got protection, you got ips, you got somebody that wants to make this profit, you want to make that profit. We tried that and so yeah,
we went and we acquired Kongsberg and IGB and it gave us instant credibility in the thermal comfort business. And
then so we can still quote independent components. What's beautiful
about what we've done is we can still quote traditional it's called purchase seeing strategies. That's fine, but then you
have some of the more extreme you know, the domestic Chinese are much more open to considering all types of options.
You know, you have Tassa, you have others that are much more open to modular concepts. And I think within
the middle there's probably a high bred of different noyees that we want to look at manufacturing and modularity and so we can quote any different solution than any one of our customers want. But what we found, and again this
goes back ten years. I remember when I was in seating.
I wasn't the CEO. It was in seating, and I
was like, the relationships are very clumsy, they're very tough, and at someday, at some point, somebody wants to make the money or drive it. And so it wasn't gaining
a traction. And so we went and we acquired Kongsberg
IGB very selective, very strategic, went after him, and now we have engineers on the product side and know exactly what they're doing, designing products that are matched up with their foam and trim experts into a modular solution. And
so that's going, and that's that's in production. That's going.
You know, that's come a long way. And so once
you have in production, it's validated. You know, the ride
and drives, the validation procedures, the statement of requirements, you're through all that. It's a lot easier to take it
to another OE and say, hey, look this works. And
it's agnostic to any seat frame too, so you can you can you can place it anywhere, which is nice.
Speaker 4: You mentioned Palenteer and Passing, and it's very interesting that you guys are working with their foundry and warp speed manufacturing operating system. And what I find fascinating is that
when people think about manufacturing, they might think about SAP or QAD or a company like that. Tell us about
how you got hooked up with with Palenteer and what it's providing you, guys in terms of capability.
Speaker 3: Boy, we've been probably working with Polunteer for over three years now, and it originally started off and if you think about lear, we've gone through all these acquisitions, we have somewhat of a fragmented called it system. And so
what Palneer brings in is the media connectivity and connection and so their their ontology and the way they look at and the way their system works. It ties our
systems together in a way that we can actually take the data and use it in a meaningful application. And
that's one side of it. But their foundry tool has
allowed us to look at everything and get at decisions and drive efficiency. I'm not just talking about the manufacturing plant,
which we've seen tremendous results. It's in how we look
at inventory, supply chain, nonprod purchasing, what we're doing with administrative resources. What we found was we had individuals that
sixty percent of their time was pulling together Excel spreadsheets sixty percent. Could you imagine talk about job satisfaction? Sixty
percent of your time is working on I have to get all these Excel spreadcheets boom done done. Now they
can actually now focus and reapply their efforts to something that's very meaningful in the company. And so the use
cases that So we had over three hundred, you know, seventeen thousand users. I talked about it yesterday. It's just
expanding throughout our company. And so what started I love
This's what I love about Lyer. I talk about culture.
It wasn't something I had to push in the organization.
It was a grassroots It got pulled, you know, it was or more of the organization kind of pulled at it.
And so once one plant we've kicked it off in the UK to do some work within our manufacturing plants, immediately every other plant wanted it. Then it went from
no one was going to use this tool to everybody couldn't live without it. And so I sat through. So
we had our first Fellowship program, which is a very unique program that Pallunteer established with us, and and they trained eighty five their employees and these tools I always I always tell my kids, I'm like going, listen Excel.
When you had to learn Excel, I had to learn Excel.
I mean they're gonna have to learn these tools. I
mean they're gonna be part of your everyday life. And
so at eighty five individuals that were trained in foundry, and those individuals are much more engaged with what we need to fix within the company. So the projects they
went forward with were truly revolutionary in my mind. And
I sat through the presentations, I'm listening these going I never even thought that way. I mean, so if this
younger generation is coming in, they're working on problems that I always got used to just that's what you do.
They don't think them and so they can connect the dots a lot quicker. And these projects are fixing how
we look at capacity.
Speaker 2: And this is mainly using AI artificial intelligence.
Speaker 3: It's mainly using tools and part of that is AI. Yes,
And it truly is remarkable how it pulls everything together in real time.
Speaker 2: Can you take this from an AI buzzword to bottom line dollars.
Speaker 3: In side by lear? How why we're holding ourselves accountable,
which I don't know if any other company is really looking at the way we're looking at with net performance on the supplier perspective, because we want to push ourselves and we believe this. So everything we're doing is net
improvement to our operating performance. And so that's how we
look at it. I have a whole finance team measuring this,
not just on the digital side, but on the hardware side too, and the capital and so, you know, I want to look back and I tell everyone twelve months, I want to know exactly what our investment dollars made us and how we apply it and how we prioritized it.
And that's probably the biggest issue we have right now. Issue,
if it's an issue, is you know, it's prioritizing. You know,
we have hundreds of different things. How do you prioritize
it based on what is the best results?
Speaker 5: And pressure is there to implement robotics, automation, AI tools.
Piece of you, your competitors who are also bidding on future business out there. Is it just constant heat to
do that to be able to drive down costs and stay competitive with what else is out there in the world.
Speaker 3: Yeah, you know, I I here's the way I look at Okay, I don't spend a lot of time on my competitors in that and in regards to what you just mentioned, I think about more in terms of our own survival that this is something that if you're not the best and you're not best in class. So I
do measure where we're at relative to our own industry, but in some cases I have to go outside of our industry to look at manufacturing integrators. How we look
at automation. And listen, you can go buy a cobot
or robot. Everyone does. That's it's the manufacturing integration into
purpose built capital for your consumption. And so like a
lot of suppliers will say, yes, we use automation, well yeah, everyone uses automation in some respects for you know, you know a certain vantage either through throughput or quality or other things. But it's how you use that particular capital
for efficiency for your own consumption. And so the companies
we bought are designing the parts that go on the colbot.
See we we we created a visual system and it's cameras.
It's when you know, in in touch with a company that we acquired that has the visual capabilities. So for
quality checking throughput, you know where you're actually you know, there was a tremendous amount of cost on the end of line on the quality and how you measure and how you look well. We we had we had this.
We did some AI work with and it was through the medical We had a woman that was from the medical industry that came in and was taking medical technology in AI to help us with how we look at appearance on our seats. And she designed a program that
will get appearance right for time, and it checks it and it gets smarter, and it gets smarter and it gets smarter as it's working. And so there's these applications
that we're using. So I always look at it. It's
like we have to be best. We have to be
the best, and we're kind of in a survival mindset of like you know, if you're not, you will lose.
And you you know, you got the domestic Chinese that are doing a great job, and you got the traditionals that are doing a great job. You got you know,
you have to position yourself where you're creating a value proposition for your customer every single day. And so you
when you when you drive the company that way with that mentality that yeah, you can you can benchmark, but sometimes the benchmarks are not direct competitors. They're there are
other competitors in our industry or their competitors outside of or there are other companies outside of our industry. Is
why I find with manufacturing integration.
Speaker 2: Hold that thought near. We got to take a quick
break right now. Give a great shout out to our sponsor,
alex Partners.
Speaker 6: We act, we grow, we transform, we protect, we rescue in moments that define the future. We are the partner
you can trust Alex Partners when it really matters.
Speaker 2: Here's for the sponsorship. Gary, pologies for having cut off,
but it's all yours. So right, you were talking about
the survival mindset. Now you know the litany of issues
that came up that you.
Speaker 4: Mentioned last year, you know, from the tariffs to the copper and so on. Is this is this mindset more
intense now than it was let's say five years ago, or is this part and parcel of the way Leer operates.
Speaker 3: I think it's kind of over the last several years.
I think from COVID, you know COVID, I think you know what we kept hearing, Well, let's get back to the normal, and then you have the chip crisis, and then you have you know, labor economics and inflation. Then
you have materials and you have material short calls, and you have you know, labor strikes, and you have you know, it just became okay, this I think everyone's oh, this is the new normal. This is what we live in,
this is the industry we're in, this is what we.
Speaker 5: Choose to do. Policy changing, Then.
Speaker 3: You have the geoclinical stuff that the policy changes, the major shifts that we've seen with evs, and so, you know, I think it's over time. I wouldn't say it just
immediately came. And I think John, you know, you and
I talked. I think when you're at our place not
too long ago, and and and watching other always too in how they behave and how they're thinking about things.
Think about the domestic Chinese when when I do meet with our customers out there, and when there's two hundred different always trying to gain the same market share to be successful, and you witness that, and you're watching that's a different mentality. They're in a survival mode. They're if
they don't get that next unit out, they don't feel they're gonna be around, and they don't get the next technology or innovation out, they won't be around now. It's
kind of this. It's a mentality you'd love to push,
but you want to create this crazy sense of urgency that people panic, and so there's a balance there. When
I say survival, it's like understanding where you need to be five ten years from now.
Speaker 5: We have to be there.
Speaker 3: I mean the successful companies will be around, will be there, and they're going to find a way to adapt, to move through these things, to be flexible, to scale properly.
The old normal's gone, you know, and can you operate in this environment? And like I said, that's why I
felt so good about last year. No, we're not where
we need to be or want to be by any stretch, but I felt we managed a lot of the things that came at us with a different type of mentality.
And culturally, I think we're built for that. And culture
is very important. I used to talk about culture way
back when, and it's not very exciting when you talk to investors and they're like, okay, culture, everyone's got says they have a great culture. But culture is very important
because you have to have that type of drive to not panic but still know that you have to do these things and you have to. Some of them are
going to drive risk, but you're going to be better off for it because we're in an industry where risk is not is not a word we're used to, you know, using because of a quality issue or warranty issue or anything else. You avoid risk at all costs. But we're
going to have to challenge ourselves with innovation technology and that's going to be risk.
Speaker 4: You mentioned COVID in culture and you guys did amazing work during the pandemic in terms of making it possible for people to work safely.
Speaker 3: I mean, you guys should get big, big credit for that. Yeah. Thanks,
It was the team did a great job. And you know,
I think from a layer perspective and others, I mean, we saw exactly what was going on in China and November of really eighteen or nineteen, and so having that knowledge and seeing what was going on and being able to share that it just then we're used to running off the playbook, and that's what we kind of put in place.
Speaker 2: Talk a little bit more about that, because to Gary's point, you guys came up with a playbook of how to deal with this, and you you published it for the industry to be able to use and everybody I know grabbed dons.
Speaker 3: Yeah, well, I think it started, you know, internally, a layer where we're running into certain situations that there wasn't anything.
If if you think back to that time, it was like wear a mask, don't wear a mask, Maybe you should wear a mask. There was nothing. There was no guidelines,
there was no best procedures. There wasn't anything in place
that would tell you here's how you treat a certain situation, or here's the type of equipment you should be using to protect people, here's the protocols or the you know, a time that you should be thinking about. And so
while we're going through it, we're like, we we went through in China. We had great people on the ground
in China that we're going through it, so we were learning from there. We learned in Italy. So we are
learning from different experiences that we're going through. And so
we need to write up everything that we have. Just
let's start benchmarking everything because it was changing so quickly.
And you're right, we did write the playbook and we're going to use it for our own internal consumption. And
I was like, this isn't right. This doesn't feel right.
It just and I was also concerned, like you publish something like that when no one's publishing anything, you know, are we to be criticized for what do they know?
And so we did put a disclaimer in there. This
is not this is just what we know at this point.
These are the best practices we're using. Please use them
if if you find them helpful. And boy, it was
downloaded over forty five thousand times. I mean truly, I
didn't think anyone downloaded it and use it, but boy, heard from grocery stores, I heard from municipalities, I heard from schools that that's what they used. But that was
remarkable because at the time I was like, ah, I should I put this out there, And boy, I'm glad I did, because you know, I really believe to save lives.
But it was really a calm nation of everyone in the company pulling together what we're learning. You know, day
by day, you're learning hour by hour, and so yeah, I'm really proud of what Lear did because of that playbook.
And it was a lot of hard work that the team did, and then I think it really helped out the industry to get back on their feet.
Speaker 5: Quicker you mentioned all the challenges that from COVID onward that auto industry companies have had to deal with, and the changing EV policy. Now you can make seats for
either vehicle, but a lot of programs out there that have been delayed or more likely canceled because of big change in policy and tax credits and all that sort of thing. What are you seeing out there? I mean,
is it are there a lot of programs that you were kind of getting tool up ready to go or that are just not happening now and it's being retooled for an internal combustion vehicle, and so the interior work you guys are going to do or the wiring electronics work is a little bit delayed. Here, Like how much
flux is there in that future product system that you guys that that is your forward book.
Speaker 3: Yeah, well it's regional. So China we've seen more of
a move from EV's to highbreds, you know, China.
Speaker 5: Yeah, in China, EV sales were down by d just had a really tough.
Speaker 3: Quarter yeh, And I think there's a lot of stories that still need to be told.
Speaker 2: You know, that's amazing. Hybrids are hotter in China now
than EV's well.
Speaker 3: It's definitely changing, yeah, that we're seeing more hybrids. And
then I mean in Europe we've seen the shift, you know, from the evs to the highbreds.
Speaker 5: So I think it was not last quarter. I think
it was the last month. By We just had a
story a BYD sales were down like thirty EV sales are down like thirty percent.
Speaker 3: Yeah, yeah, And I think we're gonna see more of those type of shifts. And you know, I've seen we've
seen the market run up, you know, from what was what twelve thirteen percent to above you know, twenty five percent of the global market and maybe slightly higher. So
I still think that story still needs to probably work its way through. But we did. The big change was
here in North America, and you know, we did a really nice job. We did a great job positioning ourselves
with EV manufacturers in EV product, both in these systems and seating, because you're right, and seating is we're agnostic.
I mean, we can build ice it is.
Speaker 5: But if someone cancels an EV, they may still pick other seats for whatever the vehicle that's going to replace it in their lineup, and that might take them another twelve months to release that.
Speaker 3: Yeah, program last year we saw and we went through that.
So I think we were you know, what were the customers going to do relative to their product placement. And
we saw canceled programs, we saw delayed programs, and we've seen you know, volume, you know, really decreasing on evs and now we're seeing the shift on shoring. We're seeing
new platforms coming out, either Highbreds or ICE, and so I think we've worked our way through that. I think
we're in a much more clear position. So commercially, we
worked it through with our customers. We've kind of repositioned ourselves.
That's why I think with these systems. I was really
excited about the one point four billion dollars in new business win because you know, a good chunk of that is ICE vehicles. And so we're repositioning ourselves for what happened.
I really think in you know, twenty four and twenty five, and so I think that's really behind us right now.
Now to your question, if it, you know, policies changed, you know, in the future, you know, we'll see what will happen. But I think we're in a much better
position as far as where we're at and things are clearer than they were back in twenty four and twenty five on what was going to happen.
Speaker 2: Ree, you've brought up Chinese national car companies a couple of times in this discussion. Are you pivoting towards going
with the Chinese nationals? Because I mean that's where the
growth is in the Chinese market, And how does a company like Lear compete against the low cost Chinese suppliers and the supply chain that they've got.
Speaker 3: Well, so, so, okay, yes, we've been doing a nice job of growing with domestic Chinese, but I still think that for later we still have opportunities with the traditional OEMs and we're seeing that play out. I mean, I
think we've done a nice job, so I still think we can gain market share even with the traditionals, even as the market share may increase with the domestics globally.
So we're doing a nice job with the domestic Chinese, and you know, from a competitive standpoint, we're there, you know, so we're really good with the luxury products where you have the technology innovation that's required to produce those seats, We've done a really nice job, and so we're going to continue on that on that growth path, both in these systems and seating. And I think there's another element
too with the Japanese OEMs that that you know, we're really I think doing a nice job of positioning ourselves for longer term relationships and growth with the Japanese. And
so in Japan or in globally, so not not just in China. China we've done a nice job, but I
think globally we can do a really nice job. And
so from a layer perspective, you know, I think we have a really nice balance approach of how we're going to grow the business, you know, across those those different areas of the industry. And so yeah, the domestic Chinese
I think have grown, you know, like I said, significantly over the last several years. But so we with the
domestic Chinese.
Speaker 4: So you guys have a big focus on manufacturing excellence and it's proven out with the many words you've won you mentioned earlier, you want to pace a word for that see zone control module. And you guys recently introduced
a new material, a recyclable material to replace PHAM. So
I wonder like you guys are doing R and D and manufacturing, I mean how do you balance that.
Speaker 3: Well, So we prioritize a based on where we can create the best value for our customers. The zone control
module was an area where from an efficiency standpoint, you have to change the whole hardware all over, you get to change the software. So we saw a need where
our customers needed, you know, a solution. Flex air foam
is one of the dirtiest products that is out there, and so I have a personal issue and I've been working on that for a long I have the team has been working on that. I can't dirty chemicals, chemicals
and just the process itself. And so you know what
we did was we partnered with the company we're the only ones in the automotive industry that have this flex air capability, and it was baby mattresses and so it's it's it's recyclable, one hundred percent recycled, much better from a chemical perspective, environmental standpoint, the.
Speaker 5: Baby mattresses are recycled, Yeah, breathable.
Speaker 3: So you think about when you're in the seed with the phone that the td I or the you know, the current foam situation gets hot. You know, it doesn't
it absorbs the heat in from the occupant but flex Air is a breathable bone pad. That's why you guys
should come out to Rochester Hills facility and see this stuff.
And it's just common sense.
Speaker 2: That's where you do your R and D.
Speaker 3: Well, we do some of it, so you see the manufacturing, some of the manufacturing R and D out there. Yeah,
I think it puts it together. So, yes, we work
on these things, but what we really try to do is like, is there a problem that we can solve and and that's what we focus on. And so we've
gone down paths to trying to solve things that don't you know, maybe never really materialize from a po or a contract standpoint. So you have to focus on where
the customers need you. And that's one that I thought,
you know, it was really big, you know, environmental sustainability, you know, still something I think is very important. Customer
doesn't you know, really engage with it, they'll actually get from a comfort standpoint, I think, better satisfaction. But it's
one that I think needs to be fixed from a seat perspective.
Speaker 2: Hey, I was at a CEES a month ago and AI was everywhere. We've talked a lot about AI, but
Humanoid Robots was also one of the big splashes at CES.
I'm just curious what your reaction is to them.
Speaker 3: Okay, I think the manufacturing plant itself is a giant humanoid.
I don't think you know, the human body is not designed for manufacturing from an optimal perspective, So I don't see, okay, humanoid replacing individuals on a plant floor. I think the
plant floor itself will replace. If you're going to go
down that road.
Speaker 5: You'll be replaced with automation that makes more.
Speaker 3: For that application. And you know, carrying material from from
one point to another point, no, you have other means to take that material back and forth. So now humanoid
robots I think are familiar. People feel less threatened, you know,
from what the application would be in the manufacturing plant, which was probably bigger, more industrial. But but I think
that the manufacturing plants themselves, through the capabilities UH will solve those issues. When we talk about, you know, the
actual use of humanoid robots in a plant, you know, there are applications you can do it. We are we
are you know, experimenting with it. But I don't see
a long term manufacturing.
Speaker 5: The assembly.
Speaker 4: He wants a giant optimist not to three pook that looks more like a normal robot. I mean, I would
think that if you have a giant humanoid in a factory versus you know, a six axis armed that you know, could could lift the car up.
Speaker 3: And we've seen those. Those are intimidating, and I think
that would be probably more practical in a manufacturing setting than what you know, a very selective humanoid robot now in your home. For other applications, yeah, absolutely, I think
it would be outstanding. And you know there's other applications
that might be perfect.
Speaker 5: So what's the future of work?
Speaker 3: Then?
Speaker 5: If we've got all these different types of robotics AI software taking technical.
Speaker 3: Capabilities around, you're gonna have more a lot more software engineers.
You're gonna have applications around AI capabilities. You're going to
have there's specific needs for the capital on the on the plant floor. There's absolutely gonna be a need. There's
going to be a need for humans in the manufacturing plant to take care of those capabilities. It's just it's
a kind of a transfer. We need humans working assembly line.
I mean, if you're if someone's ambition is to just kind of clock in and do assembly work, factory work, we don't need those people. And you think there's gonna
be applications under different types of product lines, absolutely well, you.
Speaker 2: Know, I think what a key to remember is the shortage of manufacturing job that there are out there right now, not just in the United States but other places too.
So jobs are people shorter people exactly, That's what I mean.
Speaker 3: I think that's the missing point is there's more manufacturing jobs required than there are people, and so the gap gets solved through technology, but there's gonna be jobs. There's
gonna be jobs now. Those jobs change slightly, yeah, I
think they will now what time you're talking five, ten, fifteen years or longer, But they're the demand for manufacturing jobs, you know, I'm showing here in the US or around the world are increasing and there's not enough people. And
the other thing too, is there's a lot more optionality too with jobs. I mean you can take different types
of jobs and do different types of things. Today. I mean,
you know, the attractiveness to a particular manufacturing job isn't what it used to be, you know, twenty thirty years ago.
You know, it's changed. Where'sibility and other things have kind
of uh, you know, been more attractive and I'm not saying for everybody. I'm just saying that things have changed.
The environment has changed. But what we're seeing globally is
a shortage of people relative to the need for manufacture.
And this is we're one industry. You have the data
centers that are you know, uh, in need of people.
You've got all kinds of new technology and building up all these robots that we're going to need and everything else.
So there's there's going to be needs for manufacturing in different types of shapes and forms of products. Because where
I'm at is that, you know, that's why I think the technology is so important, is that there's going to be areas where you may not have the population that that can satisfy the jobs that are required.
Speaker 4: Great, you guys are global and you have manufacturing everywhere.
Speaker 3: Does reassuring have.
Speaker 4: An effect on your business as much as it would if you were less global?
Speaker 3: Uh yeah, let me ask that question again.
Speaker 4: Okay, So if job or if programs are being brought to the US for manufacturing, Okay, you guys have plants everywhere US, Europe, Asia, South America.
Speaker 2: Does it matter to you or do.
Speaker 4: You have a network of manufacturing where it basically is transparent.
Speaker 3: Okay, two different ways to answer this. From a personal perspective,
I love that we're bringing jobs to the United States, and you know, I think that's great and we can support that and and a lot of applications. That makes
great sense too. You know, one thing I realized that,
you know, when you look at the US and the types of manufacturing jobs we're not familiar with, from simple apparel to things that are basic you know, needs that we are required to manufacture as a country. It's great
and so it's bringing attention to those areas and we can expand those. You know, we do textiles. I would
love to expand the textile business, you know, because there's one location where we get our textiles and the chemicals for those textiles. So I'm shoring of those areas.
Speaker 7: I'm all for in Mexico is that all Mexico China cut and so we do a lot of cutt and so in Mexico.
Speaker 3: But you know, so so I think there's there's absolute areas that we need to kind of reinforce and bring back, and I think they're great. So, but as far as
our capabilities, we can manufacture anywhere in the in the world, and and you know, so it isn't such a such a big issue from a from that perspective, but from a personal perspective, the lair perspective. Love to see the onshore, love.
Speaker 5: It design question for you. So it's a company cares
off that this tear downs vehicle benchmarking and so forth, and got a bunch of Chinese vehicles. Was like, yeah,
so I'll get the interiors there. And I'm looking at
B y D Shell vehicles, all different manufacturers, and I'm seeing cool blues and greens and all kinds of wild colors with the weathers and the interiors and everything. And
I could go to the show where any brand in the United States, I get my choice of gray or grayish black, beige, or those crafty Koreans they go with a like an arctic weight that does look pretty cool, but that's it. That's all I got. I get a
tan and got a grayish black. And you know, when
we you know, will we ever see cool colors in interiors and weather in the United States.
Speaker 3: I work at design studios for the oees here, but I know they.
Speaker 5: I'm not saying it's your fault, like it's you. They
tell you what they want to make.
Speaker 3: I know, they put a lot of time and effort to what makes sense for the customers in a region, and so, you know, I think there are some regional differences based on customer preferences. And I have been to
China quite quite a bit, and I've seen the products, and you know, there's a lot of wild features and some of them I think are great, and some of them, you know, I'm not sure that great to sell here, and the customers would really be wild by them. But
doesn't mean that you don't push it and then you bring it back. But you know, you know, I think
on that side, I think there's an awful lot of work by our customers to make sure they're hitting the right markets are in for those customer needs.
Speaker 2: But I would add this, the design departments totally agree with what you're saying. Completely the problem. Here's the problem.
The cars at dealerships get ordered by the dealers and they don't want anything risky.
Speaker 5: Real estate, every wall you want to sell your house, everyone in the house has to be gray.
Speaker 3: Yeah, exactly right.
Speaker 2: So it's not just interior colors that have been limited.
I used to have a poster. I've got it somewhere
here that showed colors of cars in the US, in Europe, and in Japan. Japan was always white and black. It
didn't much change. But if you look at US cars
in the nineteen fifties, sixties, and seventies, it was a wild palette of colors. And then started in the nineteen
eighties in Europe. Europe started to get to these very monochrome,
understated paint jobs, and we followed suit. And so today
we don't have the wild disparity of colors that we had back then. But I'll tell you it's mainly because
dealers order what they think are safe colors.
Speaker 4: David, see the interior of the twenty twenty six key.
I tell your ride and your colors are there.
Speaker 7: All right?
Speaker 5: Well, I was talking to Mike Simko before he retired as head of design for GM, and we were in the design studio. Like the color ab at General Motors,
the xterior color was pretty awesome and they were working on some cool stuff in design and Mike said, we said, you know, said, buyers are getting sick of red, silver, black and white. I'm like, that's good to hear because
I've been buying British racing green Minis for about twenty years now, and Mini does have a pretty big color palette, but it's a funky car. Cheap does too. But for
most vehicles, your your basic crossover, SUV, small, medium, large, you know, five or six basic colors on the X tier in the interiors like.
Speaker 2: Three, white, black, silver. So ray are seats in China different?
Speaker 4: I mean, are they basically what we are familiar with?
Speaker 3: No, they have they there's seats that are developed in the China market that would not meet the requirements here in the US, you know, gravity seats or certain seats that would not meet what we we have to meet here in the US for validation. And so yeah, they're different.
A lot of it's the same, A lot of it's the same. I mean they're really pushing technology innovation, but
they also pushed to an extreme that I would say, you know, would meet the specifications requirements here in the United States.
Speaker 4: I mean, do they look cool when you say, wow?
Speaker 3: That really? You know. One thing that I think, you know,
I've learned post covid IS is going over to China, and I've been there frequently. Is it the quality, fit
and finish, the innovation, the technology is a whole other level.
You know. They they work extremely hard. You know, like
I say, the story you know, still to be told.
And there's six days, ten hours a day in the office.
They they are working, and there they have, like I said, this mindset. If they're not driving the next innovation or technology,
that they're out of business. And so they're pushed. They're
pushed differently and they're thinking differently. But the quality and
the fit and finish, they're doing a really nice job.
They really are.
Speaker 5: Two hundred pound guerrilla in the middle of the room. Here.
Usmc A gets renegotiated this year. The us is in
all kinds of tussles with Canada looking at some separate deals with Mexico. What do you want to see happen
with the USMCA for a company like as you do some cut and so in Mexico, you probably send some stuff over there, you send things to Canada, bring stuff over here. You're you're a global company with plants everywhere.
Speaker 3: Well, I'd like to see the USMCA stay you know, where it's at and intact and we continue with the relationship we have and we continue to bring you know, we talked about onshoing and one thing about onshoing is that the goal is to build here, and part of it is to supply parts here and vehicles here and export.
You know, how do we get the export. You have
to be competitive. You have to have the parts and
the supply chain that is competitive. And some of that
is not all on shoring and manufacturing. Some of is
getting the best landed part here for the consumers here with a good price and you can export competitively. And
so you know, when we first went through this, I saw some of the disconnects when some of our trade agreements, and I think we all have and say, listen, this isn't right. I mean, we got to fix some of
this stuff, but some of it for the on shoring purposes.
You want to make sure that you have the best cost here and then you can export. But if that
starts to get too different, it's very going to be very hard competitively from a price standpoint to compete. And
so you know, I would like to see it stay in place, very very you know, much the way it is today, so we can still have a competitive supply chain.
I mean, the supply chain has been built up over what thirty years of this this global situation. Some of
it needs to change, I get it. But for the
most part, keeping that balance of competitiveness in the right places is good.
Speaker 2: Look, that's probably a good note to wrap things up here.
Note Well, you know, hey, look, you your your favor of bringing back more jobs to the US and keeping US MCA or the North American supply chain competitive, and that's why I think that's a good note to wrap it up on. But Ray Scott, thanks so much for
coming out show today. Really good discussion here, it was excellent. Yeah,
David Wells, great to have you here.
Speaker 5: Glad to be here.
Speaker 2: And Gary, I always like being with you. And why
don't you come on back again next week.
Speaker 3: I'll be here too.
Speaker 5: All right, we'll do that.
Speaker 2: Okay, we'll do it. I want to thank all of
you for having tuned in.
Speaker 1: Auto Line After Hours is brought to you by ALEX Partners.
For more than forty years, we have helped companies and their stakeholders around the world harness opportunity, overcome challenges, and achieve outsized outcomes. ALEX Partners when it really matters,
About this episode
Ray Scott, CEO of Lear Corporation, discusses the company's recent financial performance and strategic pivots in response to industry challenges. He highlights Lear's focus on AI, automation, and vertical integration as keys to maintaining competitiveness. The conversation delves into the importance of modular design in seating and the integration of advanced manufacturing technologies. Scott also shares insights on recent conquest wins and the company's innovative approaches to product development, emphasizing the role of technology in driving efficiency and sustainability in automotive manufacturing.
Original notes
TOPIC: Lear Corp PANEL: Ray Scott, Lear Corporation; David Welch, Bloomberg; Gary Vasilash, shinymetalboxes.net; John McElroy, Autoline.tv
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