DETROIT – When the going gets tough, the Japanese turn to kaizen.

The principle of continuous improvement has been rooting out waste and inefficiency in Japanese manufacturing facilities worldwide for years, but the philosophy gains importance as supplier Denso Corp. faces the prospect of losing money in the heavily challenged U.S. market for the first time on an annual basis.

Denso’s fiscal year ends March 31, and last month the supplier downgraded its earnings forecast due to the appreciating yen, declining auto sales in vital markets and slumping consumer spending worldwide.

Globally, Japan’s largest auto supplier anticipates global sales of ¥3.3 trillion ($36.7 billion) for the current fiscal year, compared with ¥4 trillion ($44.7 billion) year-ago, an 18% drop.

Likewise, income is expected to fall from ¥244 billion ($2.7 billion) for the prior fiscal year to ¥10 billion ($111 million) this year. Earlier in 2008, Denso projected annual income of ¥101 billion ($1.1 billion) on sales of ¥3.6 trillion ($40.6 billion).

Denso does not break out earnings by region, but Harry Maruyama, president and CEO of Denso International America, says he cannot ensure the profit streak for the U.S. operations will remain intact.

“The current situation is very tough, but we will make all efforts to achieve a profit,” Maruyama tells Ward’s at this week’s North American International Auto show here. “We are trying to do better.”

Still, he expects 2009 will be a more difficult year than 2008 for Denso in North America. As its key customer (and part owner) Toyota Motor Corp. scales back vehicle production, Denso is following suit.

Workers at the supplier’s 25 North American plants are taking fewer overtime shifts, “and sometimes we have to reduce our temporary workers,” Maruyama says. “We have enough confidence in the North American market, but currently we have to make more lean production.”

So the supplier is stepping up kaizen activities across North America. “We’ve been doing it for a long time,” Maruyama says. “But with the current situation, we (are trying) to revise all of our activities again to minimize our costs.”

The downturn, he adds, is “a very good opportunity for us to revise our processes. This is our basic philosophy.”

For example, Denso is looking at logistics for additional efficiency. Shipping routes are being reconsidered to optimize component deliveries, and the company is in talks with OEM customers to standardize shipping containers.

In some cases, different plants belonging to the same OEM customer require unique shipping containers. “This issue we have to discuss with our customer,” he says.

So far, those talks have gone well. Some customers are changing their minds about packaging as a way to reduce their own costs. “If we can expect a win-win cost reduction, in this case they can accept the proposal,” Maruyama says.

Despite the current downturn, he sees vehicle sales rebounding because automobiles are part of the American culture. “The car is a kind of mandatory tool. I think demand is here,” he says.

At its auto show display here, for the first time located on the ground level of Cobo Center rather than its previous spot in the lower-level Michigan Hall, Denso is promoting several new safety, environmentally friendly and powertrain products intended to help boost consumer demand.

“If the end user is willing to buy that kind of new technology, this will push the market,” Maruyama says.

Among the products is a new radiator tank made with 40% plant-derived resin. Denso developed the renewably sourced Zytel nylon, derived from castor oil, with the help of DuPont Kabushiki Kaisha.

Denso begins mass production of the tank, positioned on the top and bottom of the radiator, this spring for vehicles sold worldwide. Conventional plastics were not well-suited for the radiator application because of requirements to resist heat and withstand corrosive agents such as rock salt in cold-weather climates.

The new tank is seven times more resistant to calcium chloride and can be produced at lower cost, compared with conventional components.

Denso also introduces here a new air-conditioning unit for compact cars that is 20% smaller, 12% lighter and consumes 14% less power than traditional AC systems. It already is available on Toyota’s iQ A-segment car in Europe and Japan.

The result is better fuel economy and more legroom for the front passenger, says Hiromi Tokuda, Denso executive vice president.

On the engine front, Tokuda sees direct-injection gasoline systems fast penetrating the North American market and accruing significant market-share gains after 2010. Toyota is Denso’s sole customer for DIG systems, but Tokuda says the supplier is in talks with other auto makers, as well.

For diesel engines, Denso remains a top supplier of common-rail systems, which have driven vast gains in diesel market share across Europe. Its new 2,000-bar (29,000-psi) fuel-injection system recently debuted on passenger cars in Europe, and the mileage-boosting technology works with both piezo and less-expensive solenoid injectors.