Prepare for a rapidly changing transmission-sourcing environment, says Kenichi Sasaki, chairman and CEO of Japan's Jatco TransTechnology Ltd. Mr. Sasaki says an evolving business model for transmission manufacturing and production - combined with sweeping technical innovations that eventually will see transmissions supplied to OEMs as "modules" - will shift the investment for transmission design and production out of automakers' hands.

Mr. Sasaki says that ever-increasing research and development costs are driving automakers to relieve themselves of the burden of developing capital-intensive components like automatic transmissions. He says that the "very long development period and large investment in production facilities" for automatic transmissions, in particular, makes it inevitable that OEMs will seek higher levels of outsourcing.

"For automobile manufacturers," he continues, "in-house production of automatic transmissions is becoming a larger financial burden in view of return on net assets."

This, of course, coincides with explosive worldwide growth for automatic transmission fitment. Installation rates in the U.S. already are in excess of 85% and are expanding in other "mature" markets such as Europe and Asia, regions that once heavily favored fuel-saving manual transmissions. Mr. Sasaki's company forecasts that between 1998 and 2003, automatic transmission installations will rise by 3.3 million units in Europe and Asia alone.

These factors, believes Mr. Sasaki, will encourage auto-makers to outsource high-investment automatic transmission development and production to specialists like Jatco. And as hybrid-powered vehicles begin to meaningfully penetrate the market, their transmissions will integrate several different powertrain functions, effectively turning the transmission into a key multi-functional component. At that point, Mr. Sasaki envisions transmission suppliers providing transmission "modules" that provide not only transmission of drive, but also engine power-assist, regenerative braking and energy management functions.

More sophisticated automatic transmissions are coming, too, says Mr. Sasaki, because he believes the industry is "entering a period of technical innovation" to deal with demands for increased fuel economy and better performance and comfort.

In particular, Mr. Sasaki points to the continuously variable transmission (CVT) as an enabler that answers all the requirements of future automatic transmissions.

Last year, Jatco, through Nissan Motor Co. Ltd., introduced a new, highly sophisticated "toroidal" CVT. Until now, CVTs have transmitted drive via a steel link-encased belt, which can handle only limited amounts of engine torque, meaning CVTs could be fitted only to small-displacement engines with middling power. But the torodial CVT employs unique metal "rollers" able to transmit much greater drive torque, expanding the possibility of CVT fitment for larger vehicles with more powerful engines.

Mr. Sasaki adds that Jatco will sell 200,000 CVTs in Japan this year and that he expects the technology-loving Japanese market to eventually see 100% fitment of CVTs for automatic-transmission front-drive vehicles. He expects the U.S. to follow.