Honeywell CEO eyes improvement at auto parts unit

NEW YORK (Reuters) - Honeywell International Inc. (HON.N: Quote, Profile, Research, Stock Buzz) said on Tuesday it would look to boost growth over the next three years at its lagging auto parts business, rather than selling off the unit.

Honeywell Chief Executive David Cote, speaking at the Reuters Manufacturing and Transportation Summit in New York, conceded the conglomerate's slow-growing, consumer-oriented auto parts business did not fit the company's mandate to compete in high-growth markets.

But he said he was content to give management of the operation several years to improve performance.

Honeywell's transportation systems business comprises two main segments: a fast-growing turbocharger business and consumer-oriented aftermarket business focused on products such as filters, brakes, sparkplugs and anti-freeze.

Demand for more fuel efficient automobiles and the growing acceptance of diesel-engine cars is continuing to drive sales of turbochargers, but the consumer products group business is facing slower growth, Cote said.

"That's going to continue to be a slow growth market," Cote said. "It is a stable performer, (but) it does not fit the profile of great positioned businesses in good industries."

Cote, who has divested other slow-growth businesses across Honeywell's portfolio, said he was willing to give the consumer products group's management team a chance to boost growth.

"I'm bullish about what I think they can get done in the next three years and I'm willing to let them take a run at it," said Cote.

"I suppose we could say nothing's for sale or everything is for sale at the right price," he said, noting that it would be hard to say no to a hypothetical buyer, who would offer a premium for the unit such as 14 times earnings before interest, tax, depreciation and amortization.

Spurred on by strong demand of turbochargers in Europe, the segment experienced robust growth in 2003 and 2004, posting at least 15 percent sales growth before slower gains last year.

Cote said he expected continued strong turbocharger demand despite a trend toward smaller engines in Europe that cost Honeywell sales in the second half of 2005.

"The trend toward more turbo chargers is going to continue to grow," said Cote. "If you start to look at '07, '08 and beyond, the turbocharger business is going to continue to be just terrific."

Honeywell controls more than half of the turbocharger market it shares with BorgWarner Inc. (BWA.N: Quote, Profile, Research, Stock Buzz), Mitsubishi Heavy Industries Ltd (7011.T: Quote, Profile, Research, Stock Buzz) and Ishikawajima-Harima Heavy Industries Co. Ltd. (7013.T: Quote, Profile, Research, Stock Buzz)

Part of the increase in turbocharger sales will come from the wider adoption of diesel engines in the U.S, Cote said. Nearly every diesel engine comes equipped with a turbocharger to enhance performance and fuel efficiency.

They power most commercial vehicles and are popular in passenger vehicles in Europe, but in no other major market.

Diesel cars are still fighting a perception problem in the U.S. where models introduced two decades ago developed an unfavorable reputation for being unreliable and dirty.

"Part of what they have to get away from is that 20-year perception of the diesel," said Cote. "We all remember the guys who bought the diesel cars and we all wondered 'what the hell are they doing?'"