Bloomberg News

Toyota Airbag Cuts Create Opening for Overseas Suppliers: Cars

June 10, 2013

Toyota Supplier Shift Widens Opening for Overseas Makers

A visitor looks at a cut-away model of a Toyota Auris Hybrid automobile, produced by Toyota Motor Corp. on the second day of the Paris Motor Show in Paris, France. Toyota is winnowing the number of parts it uses and increasing common components across models. Photographer: Jason Alden/Bloomberg

Toyota Motor Corp. (7203) has decided it no longer needs 50 kinds of airbags to protect drivers’ knees. Ten, the company says, ought to suffice.

In one of President Akio Toyoda’s biggest initiatives since taking over in 2009, the carmaker is winnowing the number of parts it uses and increasing common components across models. The plan will cut both the time and cost for creating new models by as much as 30 percent, according to estimates from Toyota. The automaker had about $9.6 billion in auto research and development expenses in fiscal year 2012, according to data compiled by Bloomberg.

International component makers such as Johnson Controls Inc. (JCI:US), Robert Bosch GmbH and TRW Automotive Holdings Corp. (TRW:US), as well as Denso Corp., 31 percent owned by Toyota and the carmaker’s largest supplier, are betting Toyoda’s campaign will help them win contracts currently held by smaller Japanese companies.

“This should mean more opportunities for global mega-suppliers” with worldwide capacity and design expertise, said Masahiro Akita, an analyst with Credit Suisse in Tokyo.

Johnson Controls, the world’s biggest maker of seats and batteries for cars, says it’s opening a 3.5 billion yen ($35 million) testing center in Yokohama, outside Tokyo, in October as it expects growing sales. Toyota doesn’t rank among Johnson’s three biggest customers, data compiled by Bloomberg show.

Hip Height

In the past, Toyota focused on developing custom parts. It needed 50 types of knee-level airbags because seats for various models had different profiles. By standardizing “hip heights,” as the automaker calls it, across models, Toyota says it can reduce knee airbag variants by 80 percent.

As of last year, the automaker had slashed radiators to 21 models from about 100, according to Shinichi Sasaki, Toyota’s global purchasing chief. And the company is reducing the number of cylinder sizes in its engines to six from more than 18 by 2016, the Nikkan Kogyo newspaper reported June 4. Toyota declined to comment on the report.

“From now on, Toyota will seek the compatibility of certain parts it uses with standard parts used by many automakers globally,” the company said in a statement outlining its Toyota New Global Architecture, or TNGA, in March.

Toyoda’s goal should make the company less vulnerable to supply disruptions by using parts from the largest manufacturers that can be substituted globally. The March 11, 2011, earthquake and tsunami in Japan forced Toyoda to confront the complexity and risks of relying on thousands of suppliers, sub-contractors and sub-subcontractors making customized parts.

The earthquake “really made us to look into our supply chain in great detail and see certain weaknesses there and look into things that needed to be fixed,” said Toyota spokesman Dion Corbett.

Continental Growth

In part because of Toyota’s initiative, the automotive unit of Continental AG aims to almost double the share of revenue it gets from Asia to 30 percent by 2015. The company says it plans to hire 100 workers in Japan, bringing its total in the country to more than 1,000.

“Toyota, like other carmakers, wants companies that are capable of providing the same product across very different manufacturing environments,” said Christoph Hagedorn, president of Continental Automotive Corp.’s Japan unit. “This is a very positive trend for us.”

Japanese carmakers’ shift toward the largest global suppliers will probably hurt smaller parts makers and sub-contractors in the carmaker’s network, said Dean Enjo, auto parts analyst at CLSA Asia Pacific Markets.

Slovenian Supplier

“You can’t expect a family-run supplier solely depending on a single automaker group to compete with mega-suppliers like Bosch or Denso under these new standardization programs,” Enjo said.

The world’s largest listed autoparts makers are already outperforming their smaller peers this year. Shares of the biggest 10 percent by sales had a median gain of 17 percent, versus the median 4.3 percent loss for the smallest 10 percent, data compiled by Bloomberg on 680 partsmakers worldwide show.

Toyota climbed by the most in two years today, jumping 8.6 percent as of the close in Tokyo trading.

Cimos D.D., a Slovenian parts supplier with annual revenue of about $600 million, says smaller companies can compete with the global giants by working together. Cimos has partnerships with companies that manufacture in India, China, Korea and South America, which complements the Slovenian group’s factories in Europe and Russia.

“The way for us to fight back is to form alliances with companies with similar knowledge and portfolio of products,” said Vedran Mocibob, manager of Cimos’s chassis and car body business.

Unintended Acceleration

Mocibob spoke in Tokyo at a reception for the Japan Auto Parts Industries Association. He was in Japan to seek opportunities to boost business ties with Japanese carmakers including Toyota, which now contribute less than 1 percent of his company’s revenue.

For Toyota, the shift increases the risk of multimillion-vehicle recalls, said Hiroshi Ataka, an analyst at researcher IHS Automotive in Tokyo. Faulty brakes used in multiple models, for instance, would require a recall of far more vehicles than a problem with brakes found simply in, say, the Corolla or Prius. Toyota recalled more than 10 million vehicles in 2009 and 2010 after reports of unintended acceleration.

Toyota, which overtook General Motors Co. (GM:US) and Volkswagen AG (VOW) as the world’s biggest carmaker by volume, has said the change is needed to maintain competitiveness as it aims to become the first company to make 10 million cars a year.

Global Growth

TNGA also allows Toyota engineers around the world to collaborate even when working on separate vehicles. By creating more components such as entire window assemblies that can be used on various models, the company says engineers and designers can spend more time on things most consumers are more interested in, such as the body and interior.

Toyota has said its first cars built using TNGA will come in 2015, but hasn’t specified which models. Credit Suisse says it will be a revamped Prius hybrid. Toyota declined to confirm that.

TRW, the world’s biggest vehicle-safety equipment maker, says it expects to see gains from Toyota’s initiative. TRW, based in Livonia, Michigan, says it’s hiring engineers and technicians in Japan as orders there increase.

Overseas suppliers “have strong research and development capabilities and are good at making product proposals to customers from a long-term view,” said Satoshi Nagashima, senior partner at Roland Berger Strategy Consultants. “For foreign mega-suppliers, this is a good opportunity.”

To contact the reporters on this story: Ma Jie in Tokyo at jma124@bloomberg.net; Masatsugu Horie in Osaka at mhorie3@bloomberg.net

To contact the editor responsible for this story: Young-Sam Cho at ycho2@bloomberg.net


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Companies Mentioned

  • JCI
    (Johnson Controls Inc)
    • $44.0 USD
    • -0.39
    • -0.89%
  • TRW
    (TRW Automotive Holdings Corp)
    • $101.25 USD
    • -0.34
    • -0.34%
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