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WIKI ANALYSIS
Autoliv, Inc. (NYSE: ALV) manufactures protection systems for automobiles, with a product portfolio consisting primarily of safety airbags, seat belts, and steering wheels. Autoliv recorded total revenues of nearly $6.8 billion in 2007.[1] Autoliv sells its products to automobile manufacturers such as Ford Motor Company (F), Nissan Motor (NSANY), General Motors (GM), and Volkswagen (VLKAY).[2]
Autoliv is the largest airbag and seat belt producer with 33% of the world market. Despite Autoliv's large size, it is heavily exposed to a few customers as sales to the company's five largest customers comprised nearly 60% of Autoliv's 2007 revenues.[3] The company was also hurt by a nearly $100 per ton rise in the price of steel during 2007,[4] which increased the cost of raw materials from 25% of total manufacturing expenses in 2002 to 40% of total manufacturing expenses in 2007.[5] On the other hand, a weak dollar provided the company with a $323 million boost in 2007.[6] Likewise, a government mandate that all passenger cars must have side curtain airbags by 2012[7] led to a 9% increase in Autoliv's total revenues. Autoliv's two main competitors are TRW Automotive Holdings (TRW), which has 23% of the market, and Takata (TKTDF), which has 20% of the market. Small manufacturers, like Key Safety Systems, and automobile manufacturers that make airbags and seat belts in house, such as Toyota Motor (TM), comprise the remaining 24% of the global market for airbags and seat belts.[8]
Business Segments
Autoliv's main products are airbags and seat belts, but the company also makes related automobile safety products, including night vision systems, steering wheels, and electronic control systems.[10]
Airbags and Associated Products (65% of 2007 revenue)
Airbags and Associated Products manufactures airbags and related products, such as airbag inflators and modules that control when the airbags deploy.[11] Autoliv's airbags include innovations such as the "Safety-Vent Airbag" which changes size and shape based on the weight and build of the driver or passenger it is protecting. Due to new federal laws in the U.S. requiring that all passenger vehicles in the United States have side curtain airbags by 2012, Autoliv said it expects side curtain airbags to be this segment's strongest growth driver.[12]
Seat Belts and Associated Products (35% of 2007 revenue)
In addition to seat belts, the Seat Belts and Associated Products segment makes related components like pretensioners, which tighten the seat belt right before a crash to help prevent injury, and load limiters, which loosen seat belt tension in a controlled way to decrease pressure on the occupants chest.[13]
Business Financials
Autoliv 2007 Revenue, Operating Income, and Net Income[15] ($ in millions)
| Segment | 2007 | 2006 | 2005 |
| Airbags and Associated Products | 4,377 | 4,085 | 4,116 |
| Seat Belts and Associated Products | 2,392 | 2,103 | 2,089 |
| Total Revenues | 6,769 | 6,188 | 6,205 |
| Operating Income | 502 | 520 | 513 |
| Net Income | 288 | 402 | 293 |
A court ruling against Autoliv decreased operating income by $30 million in 2007.[16]
Key Trends and Forces
Rising raw materials costs increased Autoliv's COGS by 10% in 2007
Between January 2007 and December 2007, the price of hot rolled steel coil rose from $549 to $630 per metric ton, and the price of hot rolled steel plate rose from $747 to $837 per metric ton.[18] Because of increases like this, the cost of raw materials as a percentage of the total production costs increased from 25% of costs in 2002 to 40% of costs in 2007,[19] and Autoliv's cost of goods sold (COGS) increased 10% in 2007 alone. It is difficult to pass rising raw materials costs on to customers as price increases, which can hurt profitability.
All passenger cars sold in the U.S. must have side airbags by 2012
In 2007, the National Highway Traffic Safety Administration announced a new regulation under which all new cars sold in the United States must have side curtain airbags by 2012.[20] As a result, Autoliv's revenue increased over 9% from $6,188 million in 2006 to $6,769 million in 2007.[21]
Autoliv's five largest customers accounted for 59% of revenue in 2007
Sales to Autoliv's five largest customers generated about 59% of the company's 2007 revenue, with Ford Motor Company (F) (including Volvo) accounting for 18%, Renault (including Nissan Motor (NSANY)) accounting for 12%, General Motors (GM) accounting for 11%, Volkswagen (VLKAY) accounting for 10%, and Peugeot accounting for 8%.[22] A loss of or a significant decrease in orders from any one of these companies would result in Autoliv losing up to 18% of its revenue. Also, Autoliv does a combined 20% of its business with Renault and Peugeot, while TRW Automotive Holdings (TRW), one of ALV's main competitors, does not list either of the two among its largest customers.
A weak U.S. dollar gave Autoliv's international sales a $323 million boost in '07
Because Autoliv reports its revenue in U.S. dollars but does 75% of its business outside of North America, its revenue is highly exposed to fluctuations in exchange rates. Between June 18, 2007 and June 18, 2008, the USD depreciated relative to both the euro and the Japanese yen,[24][25] which boosted the dollar value of Autoliv's international sales by $323 million in 2007.[26] When foreign currencies depreciate, the dollar value of Autoliv's international revenues decreases. On the other hand, when the value of the dollar decreases (foreign currencies appreciate), the dollar value of Autoliv's international revenues increases.
Key Competitors
- TRW Automotive Holdings (TRW) provides active safety systems such as braking and steering controls as well as air bags and seat belts to automobile manufacturers.[27]
- Takata (TKTDF) provides seat belts, airbags and related safety products to automobile manufacturers.[28]
- Key Safety Systems is an example private company that manufacturers of airbags, seat belts, and related safety components. The company sells its safety components to automobile manufacturers.[29]
Autoliv and Key Competitors 2007 ($ in millions)[30][31]
| Company | Revenue | Net Income | Net Profit Margin |
| Autoliv | 6,769 | 288 | 4.25% |
| TRW Automotive Holdings (TRW) | 14,702 | 90 | 0.61% |
| Takata (TKTDF) | 4,529 | 201 | 4.43% |
| Key Safety Systems | Pvt. | Pvt. | Pvt. |
Note: Revenue and operating income for Takata (TKTDF) are for the fiscal year ending March 31, 2008. Figures for Takata (TKTDF) were also converted from Japanese Yen using the average exchange rate from April 1, 2007 to March 31 2008.
Autoliv Share of Automobile Safety Components Market
Market Share for Autoliv and Key Competitors[33]
| Company | 2007 |
| Autoliv | 33% |
| TRW Automotive Holdings (TRW) | 23% |
| Takata (TKTDF) | 20% |
| Others | 24% |
Note: Others includes small private companies like Key Safety Systems and manufacturers who make their own products in house like Toyota Motor (TM).
References
- ↑ ALV 2007 10-K Exhibit 13: Note 19 to Consolidated Financial Statements
- ↑ ALV 2007 10-K Exhibit 13: Note 19 to Consolidated Financial Statements
- ↑ ALV 10-K Risk Factors: Our business could be materially and adversely affected if we lost any of our largest customers
- ↑ MEPS STEEL PRODUCT PRICE LEVELS ACROSS 2007 - 2008
- ↑ ALC 2007 10-K Exhibit 13: Cost Control
- ↑ ALV 2007 10-K Exhibit 13 Non-U.S. GAAP Performance Measures: Components in Sales Increase/Decrease
- ↑ Edmunds: NHTSA Mandates Side Airbag Protection in All Passenger Cars
- ↑ ALV 2007 Annual Report: Customers, pg 15
- ↑ ALV 2007 10-K Exhibit 13: Note 19 to Consolidated Financial Statements
- ↑ ALV 2007 10-K Item 1 Business: Business
- ↑ ALV 2007 10-K Item 1 Business: General
- ↑ ALV 2007 Annual Report: Technology, pg 18
- ↑ ALV 2007 Annual Report: Autoliv-Driven for Life, pg 3
- ↑ ALV 2007 10-K Exhibit 13: Note 19 to Consolidated Financial Statements
- ↑ ALV 2007 10-K Exhibit 13: Note 19 to Consolidated Financial Statements
- ↑ ALV 2007 10-K Exhibit 13: 2007 in Summary
- ↑ MEPS STEEL PRODUCT PRICE LEVELS ACROSS 2007 - 2008
- ↑ MEPS STEEL PRODUCT PRICE LEVELS ACROSS 2007 - 2008
- ↑ ALC 2007 10-K Exhibit 13: Cost Control
- ↑ Edmunds: NHTSA Mandates Side Airbag Protection in All Passenger Cars
- ↑ ALV 2007 10-K Exhibit 13: Note 19 to Consolidated Financial Statements
- ↑ ALV 10-K Risk Factors: Our business could be materially and adversely affected if we lost any of our largest customers
- ↑ EUR to USD Exchange Rates
- ↑ EUR-USD Exchange Rates
- ↑ USD-JPY Exchange Rates
- ↑ ALV 2007 10-K Exhibit 13 Non-U.S. GAAP Performance Measures: Components in Sales Increase/Decrease
- ↑ Google Finance: TRW
- ↑ Business Week 7312.T
- ↑ Google Finance: Key Safety Systems, Inc.
- ↑ Monthly Average Graph (American Dollar, Japanese Yen) 2008
- ↑ Monthly Average Graph (American Dollar, Japanese Yen) 2008
- ↑ ALV 2007 Annual Report: Customers, pg 15
- ↑ ALV 2007 Annual Report: Customers, pg 15
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