ASAKA, Japan – For better or worse, and last year it was definitely for the better, TS Tech Co.’s business fortunes are inextricably linked to its group leader, Honda Motor Co. Ltd.

The auto maker’s main seating and interior-trim supplier emerged from last year’s recession, considered by economists to be the worst in 50 years, in the black, and analysts are projecting a recovery to record levels in two years.

Based in Asaka, northwest of Tokyo, TS Tech is owned 22.5% by Honda and supplies the auto maker with about 2.5 million seat sets annually, or 75% of its requirements.

Other Honda seat suppliers are Tachi-S Co. Ltd. and Johnson Controls Inc. Tachi-S has an estimated 30% share of Honda’s seating business in Japan, while JCI is TS Tech’s main competitor overseas, particularly in the U.S.

TS Tech began supplying motorcycle seats to Honda in 1955, when it was known as Teito Fuhaku Kogyo Corp. It changed its name to Tokyo Seat Co. Ltd. in 1960 and was with Honda at the beginning, when the auto maker launched its Sayama car plant in 1964.

The company opened its first overseas plant in 1977 in Lincoln, NE, two years before Honda of America Mfg. Inc. produced its first motorcycle. The Lincoln plant still makes seats for Kawasaki Motors Mfg. Corp., which now produces ATVs, instead of motorcycles, at a nearby facility.

In 1986, the supplier began producing automotive seats for Honda of America and today has plants near each of the auto maker’s North American assembly plants in Marysville and East Liberty, OH; Lincoln, AL; Greensburg, IN; Cambridge, ON, Canada; and El Salto, Mexico.

Since the mid-1990s the parts maker, which changed its name to TS Tech in 1997, has opened plants in Thailand, the Philippines, Indonesia, the U.K. and China.

Management anticipates substantial growth in vehicle demand in China and India and is expected to add capacity in those markets. It already operates seven plants in China and two in India.

An estimated 95% of TS Tech’s business is with Honda. In North America, the supplier ranks No.2 in quality behind Trim Masters Inc., a Toyota Boshoku Corp. subsidiary, according to J.D. Power & Associates.

In an interview with Ward’s, TS Tech President Toshio Komeji, who has held the top post since April 2008, says ties to Honda, with its lineup of smaller, fuel-efficient vehicles and less reliance on Japanese production, is paying dividends for the supplier. He also says TS Tech is looking to grow its emerging door-trim business.

Following is an edited transcript of that interview:

Ward’s: TS Tech reported a ¥9.6 billion ($102 million) operating profit in the fiscal year ended March 31. Even though the total is still two-thirds below fiscal-2007 peak levels, it is double your original fiscal-2009 forecast. What do you credit for your relatively positive results?

Komeji: First, we lowered personnel in line with production. As a rule, seat production tends to be labor-intensive. Thus, in normal business periods, personnel costs account for 13% of sales. This ratio had risen to 17%. So labor costs were 4% out of balance. We responded by cutting our labor force, mostly temporary workers, from around 14,800 in June 2008 to 12,500 today.

Ward’s: Did you take any other countermeasures?

Komeji: Honda canceled or delayed several new models, thus we were able to reduce our (research and development) budget slightly. We also slashed costs throughout the organization including overtime, business travel by two-thirds from budget and so on.

And we benefited from having a comparatively lower export ratio than many other (Japanese) suppliers, in part due to Honda’s export ratio being substantially lower than other Japanese OEMs.

Ward’s: Based on installed capacity, Honda’s export ratio is around 30%.

Komeji: Yes. Even so, we must reduce our export dependency by increasing local procurement and further promoting the local autonomy of our overseas subsidiaries. To the extent possible, we must try to reduce exposure to exchange-rate fluctuations.

Ward’s: And you benefited by being part of the Honda group?

Komeji: Of course.

Ward’s: Have you moved back your midterm business plan targets?

Komeji: At the start of fiscal 2008, we announced a 3-year business plan, which set sales and operating profit targets of ¥600 billion ($6.4 billion) and 6%. Six months into the undertaking, in September 2008, the Lehman Shock occurred.

We have subsequently put back those targets until fiscal 2013, two years behind our original schedule. But frankly speaking, we don’t know when sales will fully recover to previous levels (¥479.2 billion [$5.1 billion] in fiscal 2007) let alone reach our ¥600 billion target. That said, we expect profits to recover sooner.

(Analysts expect earnings to recover to near-peak levels of ¥26.2 billion ($278 million) in fiscal 2011 and operating margins of nearly 5.5% as early as fiscal 2010, ending March 31, 2011. The company's forecast is more conservative. In its fiscal-2010 earnings forecast, TS Tech is projecting a 4.8% profit margin on earnings and sales of ¥17.5 billion [$185 million] and ¥366.6 billion [$3.9 billion].)

Ward’s: Looking at the big picture, do you feel Honda is relatively better positioned among Japanese car makers because of the “right size” of its model lineup and greater overseas market presence, with assembly plants in 16 countries that account for 70% of global production?

Komeji: All Japanese car makers currently face the problems of high gas prices, lower production volumes and a strong yen, which makes it difficult for them to export from Japan.

That said, Japanese car makers have several distinct advantages. The first is small cars. They are comparatively strong in small-car technology. Next is fuel-efficient cars, another strength. And third is environmental cars, such as hybrids, where they are world leaders. Finally, Japanese car makers have a strong production presence in Asia, the world’s fastest-growing auto market.

Combined, these factors give them a competitive advantage moving forward.

And among the Japanese, Honda has committed substantial resources to environmental technology. This is a strength for Honda (and), thus, a strength for us. And as you pointed out, Honda’s export ratio is lower than other Japanese auto makers, which in the current exchange rate environment with the yen holding steady at $1=¥90 levels, is important.

For instance, Toyota (Motor Corp.) and Nissan (Motor Co. Ltd.) export 60% of their output. Mazda (Motor Corp.) and Mitsubishi (Motors Corp.’s) export ratio is more than 75%.

Ward’s: And in the next five to 10 years, most growth will come from China, India and Asia in general?

Komeji: We believe so.

Ward’s: Seats account for 84% of TS Tech’s business. Do you plan to expand into other component fields, such as trim?

Komeji: We are trying to grow our door-trim business.

Ward’s: Outside Japan, in which markets do you produce door trim?

Komeji: The only country we don’t produce door trim is the U.K. Elsewhere, we have dual seating/door-trim plants in the U.S., China, Southeast Asia and Brazil. In total, we have 23 plants in 10 countries outside Japan.

As for seating, we supply all of Honda’s global cars including the Accord, Civic, CR-V and Fit; also the Jazz in Europe.

Ward’s: Are you the sole supplier?

Komeji: In Japan we have one competitor, Tachi-S. In the U.S, Honda has three suppliers: in addition to TS Tech and Tachi-S, Johnson Controls.

Ward’s: You spend about 3% of sales on R&D. What are your priorities?

Komeji: Safety is a major theme. Last year, TS Tech’s active headrest was adopted for the Honda Insight. The system, which is designed to reduce injuries from whiplash, has also been installed on the Civic, CR-V and U.S. Accord.

We also introduced a weight sensor that controls airbag deployment based on the occupant’s weight.