Lear Q1 earnings: Adjusted net income plunges to $108M as inflation, industry headwinds slam suppliers

“Because of the volatility around volume production, changes in schedules, those types of things, we looked at how we could combine different administrative roles between e-systems and seating,” Scott said.

Lear optimized efficiency by combining not only functions such as engineering, purchasing, logistics, sales and marketing, but also manufacturing.

“The bulk of the opportunity really became clear in manufacturing,” Scott said. “We combined the two product groups together to really utilize and take full advantage of our efficiencies in our plants. We’re able to flex our labor … Can we take that and extrapolate that across both our business segments?”

Scott said the company hired a consultant to answer just that and put together a potential plant consolidation plan for the next three to five years.

The move would be in step with automaker customer demands of localizing its supply base around assembly plants and with the drastic, though gradual transition to EVs, which will require great manufacturing flexibility, said CFO Jason Cardew said.

“Having an ability to have a flexible manufacturing process that can service multiple customers, multiple programs in a flexible manner (and) move headcount between programs, I think positions us to lower our costs and service our customers,” Cardew said.

On headwinds, company executives said they expect a $695 million gross negative impact this year, and $155 million net impact, due primarily to inflation and commodity costs.

“We do have good customer relationships, and we are negotiating those settlements as far as inflationary costs,” Scott said. “All customers are slightly different in how they’re handling it, but I do believe over time we’re going to get some reasonable agreement with each one of our customers on the JIT model.”

Regarding new business, the company said it had $200 million in conquest awards. It is also targeting a 55 percent increase in new e-systems business to $500 million this year as it prepares for key launches including the GMC Hummer pickup, Volvo XC90, Mazda MX-30 and an undisclosed global EV automaker.

The company’s net sales projection was lowered for the year, from a range of $20.4 billion to $21.2 billion, compared to February’s outlook of $20.8 billion to $22.3 billion.

Lear shares rose 3.5 percent to close at $134.40 on Tuesday.

Scott said the supplier is positioned well to withstand inflation and the continued supply chain disruptions. In the long term, he aims to position the company’s plants to be flexible for the EV transition of automakers and their supply base.

“We think there’s real opportunity here,” he said. “We’ll be the only company in the world that can flex our plants like this. We have a global footprint that’s set up. We just got to look at it, reshape it for localization and our customer needs and flex it around their manufacturing plants.”

Lear, based in suburban Detroit, ranks No. 9 on the Automotive News list of the top 100 global suppliers with worldwide sales to automakers of $17 billion in 2020.