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Coverage Initiation: Commercial Vehicle Group
Value Line recently initiated coverage of Commercial Vehicle Group (CVGI) in The Value Line Investment Survey. The company designs and manufactures products, such as suspension seat systems, mirrors, and wiper systems, among others, primarily for original equipment manufactures in the commercial vehicle market. Commercial Vehicle Group started life as Trim Systems, when companies named Landmark Industries and ASC merged in 1997. The Trim Systems name was maintained through several material acquisitions until the company came public in 2004 under the current name.
Commercial Vehicle Group’s brands include KAB Seating, National Seating, Sprague Devices, Prutsman, Moto Mirror RoadWatch Road Scan ComforTEK, FlameTEK and Bostrom Seating. Its products fall into five broad categories:
The Seats and Seating Systems group designs, engineers and produces seating systems for heavy trucks in North America and commercial vehicles and agricultural industries in Europe and Asia. The company focuses on seating systems that encompass both convenience and safety features, and that come fully assembled and ready for installation by original equipment manufacturers. Although seating would seem a simple product, the company notes that its seats are the “most complex and highly specialized products” it produces.
The Electronic Wire Harnesses and Panel Assemblies group creates, effectively, the wiring behind the lights, gauges, and controls of a vehicle. These products are generally highly customized to the needs of its customers, which include commercial vehicles, tactical vehicles, heavy construction and forestry machines, and mining trucks, among others.
The Trim Systems and Components segment creates interior trim products for the cabs of commercial vehicles. Products from this group include floor panels, sleeping units, instrument panels, and storage units, among many others. These products are sold “a la carte” to truck manufacturers. The Cab Structures, Sleeper Boxes, Body Panels, and Structure Components group, meanwhile, makes parts similar to the Trim Systems and Components segment, except that the structures are generally fully assembled and ready for installation.
The Mirrors, Wipers, and Controls group makes the items that its name implies. The company’s product offerings include basic mirror systems and those that are more complex, such as heated mirrors and those that integrate such things as temperature devises. The windshield wipers the company sells are generally fully assembled and ready for installation. The controls the company sells support window lifts, door locks, and heating, ventilation, and air conditioning systems, among others.
The end markets for many of Commercial Vehicle Group’s products are highly specialized, often resulting in product runs that are highly customized, but low volume. To accommodate this, the company makes use of flexible manufacturing “cells” that allow for relatively quick changes to the production process. The raw materials the company uses range from wires to aluminum to leather to plastics. Many of the company’s supply contracts include fixed pricing without minimum purchase requirements. That said, certain inputs, such as steel and copper based products, are purchased at market prices.
Commercial Vehicle Group’s sales in 2010 were derived mainly from the heavy truck and construction markets, providing 40% and 23% of revenues, respectively. Aftermarket and original equipment service, and military sales accounted for 23% of sales combined. In 2010, PACCAR and Caterpillar each represented 12% of sales; Volvo/Mack, Navistar, and Daimler Trucks each accounted for 11% of sales; and Oshkosh represented 8%. No other customer accounted for more than 3% of sales in 2010. Still, it is worth noting that the company’s customer base is relatively concentrated, and the loss of any one customer could materially affect results. That said, the industries in which Commercial Vehicle Group generally contain only a small number of material manufacturers, making the small customer base something of an inevitable problem.
The company competes with both independent suppliers and the in-house operations of its customers in all of its product groups. Price, breadth of product, quality, development capabilities, and delivery ability, among others, are all key factors in the purchase decision of its customers. Management states that it holds leading positions, if not the number one spot, in many of the company’s product categories. A material research and development program supports the company’s position and allows it to better engineer and customize products for its customers, which often includes working with the customer’s own engineers.
Commercial Vehicle Group’s markets are largely cyclical in nature, principally because the sales of the original equipment manufacturers it supplies are cyclical. Although the company sells globally, so sales trends do not depend on just one market, European, Chinese, Australian and Mexican operations collectively contributed only about 26% of sales in 2010. Thus, the U.S. market is of paramount importance to Commercial Vehicle Group’s overall performance.
The company has historically attempted to grow by acquisition, as well as by increasing the amount of products it sells to each customer (increasing the content it provides in each vehicle). Research and development efforts have largely been in support of the latter effort. Commercial Vehicle Group has also attempted to increase its exposure to the aftermarket segment of the truck industry, as many of the components it sells, such as seats, wear out while the larger vehicle still remains functional.
Subscribers interested in Commercial Vehicle Group can monitor the company’s performance through the quarterly updates in The Value Line Investment Survey.
At the time of this article's writing, the author did not have positions in any of the companies mentioned.