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.

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. 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.

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.