Industry observers have told Leatherbiz that the decision by automotive leather supplier GST AutoLeather to file for bankruptcy protection has come as “no surprise”.
The company has historically been owned by venture capital firms and had a business model based on monetising assets, with light investment of capital, and the aim has been to grow revenues rather than focus on profits.
Another observation is that, in contrast to a number of its direct competitors, the prevailing perception at GST itself has been that the company is an automotive parts supplier that happens to use leather as a substrate. Competitors such as Eagle Ottawa, Bader, Hokuyo, Boxmark and so on, are leather manufacturers first who service a client base comprising automotive original equipment manufacturers (OEMs). The point industry commentators have made with regard to this difference is that it may indicate a lack of true appreciation at GST for the complexities of the leather value chain.
That is not all. GST was sold to Advantage Partners in April 2008 for more than USD300 million in what industry commentators have referred to as “a highly leveraged deal”. This burdened the operating company with a substantial amount of debt. Trading conditions during 2008 and 2009 were further complicated by the devastating tsunami in Japan that affected Toyota, GST’s biggest customer. And as the global recession worsened so GST was forced to cut back on production, which obviously impacted its financial position. The later acquisition of Seton substantially increased GST’s debt, left it with something of a “sprawling” global footprint and made it difficult for the company to fund investment in new machinery at its plants.
The observers we have spoken to have said they believe there are prospective buyers for GST AutoLeather, with a seat supplier aiming to rival Lear Corporation possibly the most serious prospect.