Consumers In The World's Fastest-growing vehicle markets are showing increasing demand for air conditioning, including those with smart technology for buyers who can afford them and high-quality but less-expensive units for entry-level cars.

“Demand for air conditioners is growing in all regions, even northern European countries, for two main reasons,” says Hikaru Sugi, managing officer of the Thermal Systems Business Group for Denso Corp. “Summer temperatures are increasing due to global warming, and people want to drive with their windows shut because of pollution.”

In an exclusive interview with Ward's, Sugi foresees annual global demand for light-vehicle heating, ventilation and air conditioning (HVAC) systems increasing at least 20% to 10 million units in the next five years, with almost all the growth in emerging markets.

Market forecaster Global Insight Inc. is more bullish, projecting growth more than twice that fast, to 80.5 million units in 2012. Powering the surge will be the emerging markets of Asia, Eastern Europe and South America, where nearly 90% of new sales will be generated.

Sugi says five out of every six new cars and light commercial vehicles sold worldwide annually now are equipped with air conditioners.

That amounts to 58 million out of 68 million new vehicles in 2007 (excluding Australia, South Africa, most of Latin America and the Middle East).

The figure is up from 51 million out of 61 million in 2004, says Global insight, which predicts the penetration rate will expand to nearly nine out of 10 vehicles in 2012.

Denso, the industry leader with about 30% of global AC sales today, hopes to boost this share to 35% in part by developing an all-new, less-expensive system to meet the price requirements of customers in emerging markets.

Sugi is targeting cost reductions as high as 30% by standardizing production processes and commonizing both materials and high-quality core components that could be used in the U.S. or Canada, rather than resorting to cheaper substitutes from China and other industrializing countries.

“We envision two types of air conditioners: a conventional, more expensive one for cars designed for traditional markets such as Europe, North America and Japan, and another one for cars developed for emerging markets,” he says.

“One reason why air conditioners produced in Southeast Asia and other emerging markets are relatively expensive (compared to the cost of the car) is because key components must be imported from Japan or Europe.”

Manufacturing air conditioners in China or India, for example, requires a huge capital investment even though volumes are relatively small. In the case of India, Global Insight estimates only 1.6 million cars were equipped with air conditioners last year.

Denso currently manufactures HVAC components and systems in nearly 40 plants in more than a dozen countries, but that does not include all components at all HVAC assembly plants, particularly in emerging markets.

The supplier is expanding production outside Japan with new plants in Osceola, AR; and Changchun, China; both now operating at capacity. Other facilities are ramping up or under construction in Istanbul, Turkey, and Jefferson, GA, in the U.S. (a joint venture with Toyota Industries Corp.).

“Our new air conditioners will be for small cars,” says Sugi. “The assembled units will be designed to fit different models, mostly B-segment cars, but all essential components — heater, heater cores, heat exchangers, condensers, evaporators, fins and tubes, will be common.”

Basically, one size will fit all and, in the end, reduce investment in facilities and equipment.

Sugi offers additional insights into the changing nature of AC markets, including difficulties meeting non-ozone-depleting refrigerant requirements in the 27-member European Union.

Beginning in 2011, air conditioners in all new cars marketed in EU countries must use carbon-dioxide refrigerants, replacing HFC-134a, or tetrafluoroethane, currently the industry mainstay.

In Japan, North America and other world markets, HFC-152, or difluoroethane, will become the refrigerant of choice. Like HFC-134a, HFC-152a has a higher global-warming potential than CO2. But leaked into the atmosphere, it is 90% less harmful than HFC-134a.

This bifurcation poses problems for both auto makers and their air-conditioner suppliers, which like Denso would prefer a single refrigerant be used in all major automotive markets.

Sugi is resigned that Denso and other AC makers will be forced to develop and manufacture two systems until Honeywell International Inc. and DuPont Co. complete development of “global alternative refrigerant” (GAR), which may prove to be the desired single refrigerant.

No timeframe has been revealed, but Global Insight believes it may be technically ready by 2011 and commercially available several years later. Temperature controls are another unsettled area for air-conditioner makers. Sugi says the choice varies by country and auto maker, with automatic 2-zone controls gaining popularity.

For example, automatic controls are fitted in more than 60% of passenger cars in Japan and in less than half, but a growing percentage, of those in the U.S. and Europe. Almost all luxury brands, such as Mercedes-Benz, BMW and Lexus, have automatic units, whereas the percentage is almost zero for Fiat.

Sugi says the 2-zone AC systems, which cool both driver and front-seat passenger, are becoming popular in C/D segment cars in the U.S. and Japan. In Europe, they have moved down into C-segment models such as the VW Golf and Passat.

Three- and 4-zone systems currently are fitted in only expensive luxury cars, such as the Mercedes S-Class, BMW 7-Series and Lexus LS, as well as upscale passenger vans and fullsize SUVs.

The Lexus LS series, including the LS 460 and top-of-the-line LS 600h hybrid, are the first sedans in Japan equipped with 4-zone temperature controls (two front and two rear).

These Denso systems include infrared body-heat sensors and overhead-mounted air diffusers that bring cabin temperature to appropriate levels 50% faster than before. They are optional for the LS and standard on the LX 570.

Coming next on the technology front are more-advanced neural-network, or smart controls that reflect the temperature, humidity and airflow preferences of the driver and front passenger.

They already are installed on most Toyota Motor Corp. cars, either standard or optional, as well as on many major luxury brands, including Cadillac and Jaguar.“The eventual target is for some sort of non-linear, or self-learning, automatic air conditioner,” says Sugi. “A computer learns your choice of temperature and adjusts accordingly.”

Although Denso tested the new technology in a vehicle last summer, it probably won't be introduced for another five years and then only in the most upscale vehicles.

While Toyota continues to be Denso's main AC customer, accounting for nearly half of all sales, the supplier's extended and expanding customer list includes such brands as Audi, BMW, Chrysler, Fiat, Ford, General Motors, Honda, Jaguar, Mercedes and others.

Sugi sees a bright future for his group, with more opportunities than problems. Continued growth in sales, which totaled ¥1.14 trillion ($11.4 billion) in fiscal 2007 (ended March 31), represented 31.5% of Denso's business on unit sales estimated at more than 17 million.

“We must further reduce weight to reduce fuel consumption, but the major thrust of our future cost reduction activities will be to standardize processes and components and combine the latter,” he says. “For example, incorporating an engine-and-cooling module into a single unit will lead to both size and cost reductions.”

Denso introduced a new multi-cooler in the U.S. for the '07 Chrysler Pacifica to replace an air-cool type oil cooler and AC condenser. By combining the two units into a module, weight was cut 20% and cost was reduced, as well. The only other AC producer to make this breakthrough is Valeo SA, Sugi says.

In summer 2000, Denso introduced a new single fin cooling module on the Toyota Prius hybrid-electric vehicle, integrating the car's radiator and condenser.

In 2002, the company added the electric fan and carrier to make a front-end module for a Daihatsu Copen and several years later installed another module for Mitsubishi Motors Corp.'s “i” minicar.

The surge in demand for HEVs is another challenge, and opportunity, for Denso as they require electric compressors. The company currently supplies some 70% of electric compressors to major auto makers and expects demand to grow.

Sugi says HEVs presently require up to 280 volts, but Honda Motor Co. Ltd. will cut that in half on its upcoming '09 compact hybrid.

Anxious to get that contract, Denso is working with Sumitomo Wiring Industries Ltd. to develop and market the larger inverters and wiring required.

Denso will be ready as well for mini-electric vehicles powered by lithium-ion batteries that several auto makers, including Toyota, Mitsubishi, Nissan Motor Co. Ltd. and Fuji Heavy Industries Ltd. are working on.

Global AC Demand for Cars & Light Commercial Vehicles

2012 forecast (penetration) 2007 Sales 2004 Sales
North America 15.7 million (99%) 14.7 million (95%) 15.5 million (93%)
Western Europe 16.9 million (91%) 14.2 million (90%) 14.0 million (85%)
Eastern Europe 7.7 million (63%) 3.0 million (50%) 1.2 million (31%)
Asia 3 6.5 million (90%) 24.6 million (89%) 19 million (88%)
South America
(Brazil & Argentina only)
3.8 million (54%) 1.5 million (50%) 1.0 million (45%)
Total 80.6 million (88%) 58.0 million (85%) 50.7 million (83%)
** Does not include the Middle East, most of South America, Australia and South Africa. Source: Global Insight Inc.