NEW YORK (TheStreet) -- The last decade or two has been tough on auto-parts suppliers, as abundant vehicle assembly capacity worldwide has given automakers an upper hand in price negotiations, squeezing margins to the breaking point.
The announcement by Johnson Controls (JCI) on Wednesday to explore "strategic options" for withdrawing from its automotive businesses represented an admission by the company that it has lost out -- lately in its seating business -- to auto parts competitors like Lear (LEA), a maker of vehicle-seating systems.
Besides sticking to businesses in which the company can be a "global leader," Alex Molinari, CEO, said in a statement that Johnson Controls will be seeking $2 billion of cost savings through 2020. Molinari didn't wait for an activist investor to buy a stake and pressure the company to change.
About 40% of Johnson Controls' $22 billion in annual revenue is tied to its automotive seating business, which could fetch $9 billion based on its revenue and profit. The company accounts for about a third of the world's automotive seating revenue, along with Lear, Faurecia and Toyota Boshoku (TDBOF)
Johnson Controls shares rose 5% on the announcement, as investors cheered the fact the company has come to terms with giving up on a losing hand, namely a fruitless pursuit of automotive profit. The stock fell 1.1% in afternoon trading on Thursday. Lear stock, a potential beneficiary if Johnson Controls' seating business poses less competition, rose on the news.