TOKYO – Blunt words about the automotive world pepper the comments of Delphi Corp.'s first and only Japanese Board of Directors member, a veteran "car guy" who comfortably straddles two cultures.

Shoichiro Irimajiri

In an exclusive interview with Ward’s, Shoichiro Irimajiri one-time protege of Honda Motor Co. Ltd. founder Shoichiro Honda, second President of Honda of America Mfg. Inc., later President of Honda R&D Co. in Japan, and more recently president of Sega Enterprises – believes in straight talk whatever the subject, from ranking world auto makers and evaluating Chinese strengths to identifying Delphi shortcomings and assessing shifts in global production.

Currently an industry consultant and a non-voting member of Delphi's board of directors since spring 2001, Irimajiri believes China and Mexico still are unproven territories for auto makers.

"Mexico should have a great future compared to the U.S. because of cheaper costs, yet progress has been slower than anticipated 10 years ago,” he says.

"In part because of United Auto Worker union restrictions, almost all final assembly is still done by American workers. That is one excuse. Yet, all the Japanese transplants except Nissan Motor Co. Ltd. still are sitting in the United States because they lack confidence in the quality of Mexican manufactures."

He adds, "We don't know how good the Chinese are (in auto manufacturing) because no one has yet introduced serious mass production there."

According to Irimajiri, Honda capitalized on its motorcycle manufacturing experience when it began producing cars in China and professes confidence that quality is at the same level as for vehicles produced in the U.S. – yet he notes "Honda delayed plans to import Chinese-built motorcycles into Japan early this year because of quality concerns."

Delphi's Energen starter/alternator system

However, he does not think Japan's auto makers will experience the same fate as Sony Corp., Matsushita Corp. and other Japanese producers of consumer electronics, all of which are losing out to Chinese manufacturers.

"Electronics assembly is simpler. It is easier to transfer processes and equipment to China," he says, adding, "this is not so for cars, which are among the world's most complex machines."

Consequently, Irimajiri sees China as less of a threat than Toyota Motor Corp. executives do. "It's clear that production of simple dies – for frames and inner panels – will move to China. But dies for the outer panels are complicated and require a combination of technical capability and craftsmanship and cannot be made so easily," he says. (see related story:Toyota Targets Next Step in Efficiency with Eye on China)

Looking at the global players, the 62-year-old executive identifies the strongest companies as Toyota, Honda, Volkswagen AG and BMW AG – all auto makers that are focused on product and advanced technology. He contends Toyota and Honda have few visible weaknesses, despite their operations in Europe, where combined losses over the last two years ballooned to more than $1 billion.

In Irimajiri's opinion, Europe poses special problems for Japanese auto makers because consumer mindsets there counter to the U.S. and Japan, where vehicle owners willingly pay for constant improvements in performance and specifications.

"This approach doesn't pay off in Europe, where consumers resist paying more for new features and upgrades,” he says. “This, in turn, contributes to a longer product cycle – eight years for BMW compared to four years for Honda and Toyota — and makes it more difficult for Japanese auto makers to recoup their European investments."

"One of Toyota's major concerns is how quickly and well they can spread the ‘Toyota way’ of manufacturing and doing business internationally,” he says. “They have proven that their way works in the U.S., but since it requires the dispatch of so many Japanese engineers and managers, they don't think they can speed globalization.

"This clearly differs from the General Motors Corp. and Ford Motor Co. approach, which is to build a manufacturing plant, train local employees and put them to work. The expectation is different. Toyota cannot afford to make products abroad inferior to those made in Japan. Honda feels the same way."

Irimajiri feels Nissan, with broadening ties to Renault SA (which now holds a 44.4% equity stake in the No.3 Japanese auto maker, up from 36.8%), is becoming a semi-European company. "If the best parts of the Japanese and European ways can be mixed, Nissan will be a great success. But their tech center people are struggling to control foreign parts suppliers and the danger, of course, is mixing the worst from each."

He is pessimistic about American producers. "U.S. cars are becoming ‘white goods,’ standard transportation boxes. I am sad to say that Lincoln and Cadillac are losing their footprint in the luxury car market. BMW, Mercedes, Acura, Lexus, Infiniti and Jaguar now dominate the field." And as the quality of vehicles built in Korea and China improves, Irimajiri believes U.S. auto makers will find it more difficult to compete at the bottom end of the market as well.

The gap in powertrains is even more pronounced. "Although U.S. car makers have basic technology, it takes them far too long to introduce it. Toyota, Honda and BMW are much quicker," says Irimajiri, who sees American auto makers giving up some of their autonomy in powertrains. He cites two examples: GM will purchase 90,000 V-6 Ultra-Low Emissions Vehicle (ULEV)-compliant engines annually from Honda beginning in 2003, and Ford will buy the hybrid system for the ‘03 Explorer from Toyota-affiliate Aisin AW.

Irimajiri warns that parts suppliers tend to follow OEMs – and GM and Ford are not pushing Delphi or Visteon Corp. to introduce new technologies faster. Although he says Delphi has a treasure trove of new and innovative technologies – "our greatest strength" – he pulls no punches in criticizing his adopted company. He is point man on a plan to win more business from Japanese OEMs and says bluntly, "We call it Project Mount Everest because it's going to be so difficult. And we're still at Base Camp."

What inspired Mount Everest was the disturbing realization that Delphi, spun off from GM in May 1999, was slipping with Japanese OEMS. In 2001, worldwide sales to them declined by $20 million to $857 million, although Delphi registered 10% growth with non-GM group companies such as Ford, DaimlerChrysler AG, Volkswagen and Renault. Compounding the problem was the fact that Delphi quality tended to be substantially poorer than that of Japanese competitors and unacceptable to Japanese auto makers.

Delphi's reject rate was 100 parts per million in 2000, according to industry sources. Management subsequently cut that in half, to 50 ppm last year and is reportedly targeting 35 ppm for 2002. Although the trendline is moving in the right direction, Delphi's reject rate remains high compared with Japanese suppliers, in particular those employed by Toyota and Honda, which are believed to deliver fewer than 15 defective parts per million.

The good news: Delphi has widened its lead over former Ford subsidiary Visteon, spun off in June 2000, which reportedly still has a reject rate of around 200 ppm. The bad news, says Irimajiri: "We still have a long way to go to match Denso Corp., our main benchmark and toughest competitor – more so even than Robert Bosch GmbH."

Delphi's Project Mount Everest is designed to address this quality gap – and ultimately secure more business with Japanese auto makers. "To accomplish our objectives, we must control the manufacturing processes of Tier II and Tier III suppliers," he says. "Delphi currently outsources components to almost 5,000 manufacturing companies worldwide, based on bidding; this is too many to control. In the next five years, I believe we must switch to a system more like Toyota and Honda, reducing the number of Tier II and Tier III suppliers to fewer than 1,000."

Irimajiri reserves his last blunt remarks for alternative power sources. "Fuel cells are 20 years away,” he says. “Gasoline stations will not disappear in 20 or 30 years. Hydrogen (refueling stations) will not be universally available in 20 or 30 years. Two companies, Toyota and Honda, are the most advanced in the world, with the most realistic alternatives – improving IC engines and combining electric with gasoline or diesel power in hybrids."