Valeo Considering Closing Rochester, NY Parts Plant.

French auto parts manufacturer, Valeo, said it is considering closing its struggling plant in Rochester, NY if profits there did not improve rapidly. Valeo acquired the troubled Rochester plant, which manufactures wiper systems, motors and actuators, when it purchased ITT Electrical Systems in September 1998.

The possibility of the plant's closure is a sign of just how poor the acquisition has turned out to be for Valeo, which viewed it at the time as a key step in its expansion outside Europe. "We have been talking since last week with the unions about rapidly improving profits at the site and eventually taking decisions about whether it can continue operations," Valeo Chairman and CEO Thierry Morin told shareholders at an annual meeting.

The Rochester plant was struggling with an aging product line-up and labor unrest even before clients such as General Motors Corp. and DaimlerChrysler AG slashed U.S. production in the fourth quarter of 2000. Low productivity and cuts in orders to the plant were one reason according to analysts.

Valeo missed its target of a 2000 operating margin - operating profit as a percentage of sales - of seven percent. Valeo hoped the worst was over when it signed an agreement with unions to gradually reduce the work force. But the sudden slump in the U.S. market led to a further 130 million-euro ($113.8 million) charge to cut output at the plant, which pushed Valeo to a loss in the first three months of this year.

The Paris-based parts supplier has already begun talks with a view to selling all of Rochester's unprofitable activities, Morin said. "We have also launched a plan to bring our production base back to an acceptable level," he said. He said Rochester is one of four "work sites" where he was trying to boost profits. The other three are lighting and signaling, Sylea, a wiring maker acquired last year, and the replacement parts division.

Morin said Valeo has replaced the head of the lighting and signaling division, which suffered from cost-overruns as it tried to shift to manufacturing clear headlights, and has begun talks with customers on getting better prices for its lighting products. Sylea has been split into two units - electronics and electrical wiring, and detection systems, he said.

Valeo also plans to sell three categories of non-strategic businesses, which account for a total 10 percent of revenue: non-automotive activities, those with weak sales growth and niche products with low technology-content, Morin said. He added that Valeo would make more electrical and electronic parts, such as electrical energy management systems and in-car comfort and entertainment products.

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