In one fell swoop this summer Meritor Automotive doubled its size by merging with Arvin Industries. The new $7.5B company, ArvinMeritor, ranks as the 11th largest automotive supplier. But in a meeting with business editors company chairman and CEO Larry Yost revealed he has even bigger plans for the company.

Q: What were the major driving forces behind the merger and what opportunities do you expect it to create?

A: Our OEMs are consolidating, our OEMs are outsourcing and they expect to be working with fewer and fewer suppliers…While we are number 11 today our goal is to be one of the top five suppliers in the industy. To do that we’re going to have to grow significantly. We really need to be a $15B-company and we need to do that in a reasonable amount of time like five years…I’ve talked in the past of the need to grow the Meritor business and I’ve pointed out with great pride that each of the three businesses – heavy vehicle OEM, heavy vehicle aftermarket and light vehicle – has grown at 10 to 11 per cent compounded annually over the last five years. As we go forward we expect to do the same but we looked at the light vehicle business today for Meritor and it was about $1.5B in a market that is $350B. So the real growth for Meritor was in the light-vehicle end of the Tier 1 supplier industry. And when we talked to Arvin they were looking to expand their business and interestingly one of the opportunities they saw was to take the exhaust technology in which they have a leadership position around the world and take that into the heavy vehicle market. That’s just one example of how together we are going to be able to capitalize on the strengths of one another…. If you look at the suspension components we have at Meritor and the Arvin ride control there’s some interesting things we can do there in putting our products together. That’s creating a lot of excitement. In our aftermarket business there’s certain products from Arvin we believe we can take into the heavy -duty market. Meritor on the heavy truck side is number one in braking systems and axles, Arvin is number one in exhaust for light vehicle and there’s some things we think we can do together in the long term and we know there is an increase in demand for superior ride and handling in both light vehicles and heavy vehicles so there’s a number of opportunities there. All these opportunities give us many new markets we can attack.

Q: How will the various joint ventures that Meritor and Arvin have entered into around the world be affected by the merger?

A: I think positively. In the case of Meritor the joint ventures that we have are managed very well and have been role models for how to do it well. We have a number of them that are premier performers in our business. Arvin has a number of them as well. I can’t think of a single joint venture that isn’t critical to us as we go forward.

Q: You estimate the merger will help you save $100M a year by 2003, half of that coming from the areas of productivity acceleration and facility optimization. Can you describe in detail what those elements actually consist of?

A: It’s very early to be any more specific than that. It is likely that over the next three years we will get savings of at least that magnitude and probably a lot more. I can’t be specific at this time but the numbers that we published I believe are very conservative.

Q: It seems that the stock market’s message to auto suppliers is get big or get out. Now that the merger is complete, what would be your message to Wall Street?

A: What the industry has been saying about Tier 1 suppliers is very simple in terms of the industry being a certain size and being serviced by a certain amount of suppliers – something in the neighborhood of 2,000 is one report that I saw – and we know that all OEMs have programs to reduce their supplier base over the next five years. I’ve heard numbers like 800. So if there is a certain amount of business being done today by 2,000 (suppliers) and it’s going down to 800, by definition suppliers five years from now are going to be at least three times the size they are today – it’s very simple math and that’s all driven by the customers. That’s what the customers want. What that will do for us is give us the economy of scale allowing us to spread certain fixed costs over a larger base allowing us to bring more engineering resources into play. The story for Wall Street is that while the automotive industry at the OEM level is a slow- to no-growth industry and it’s very cyclical, when you go down one level to the Tier 1 suppliers it’s a different ballgame. Tier 1 suppliers are going to be a tremendous growth opportunity and I think that translates to opportunities to grow earnings per share and to give us more stability as an investment opportunity.