JATCO Returns to Profitability; Mulls Indian CVT Production

FUJI, JAPAN – It is hard to conceive there might be a silver lining in last year’s market crash. But there is.

A case in point is JATCO Ltd., Nissan’s Motor Co. Ltd.’s main transmission supplier. Like most large Japanese suppliers, JATCO ran up heavy losses in the nine months following the global economic crash in September 2008. But as with most Japanese parts makers, JATCO has returned to profitability.

The supplier, which saw earnings fall 85% in fiscal 2008 from the previous year’s high of ¥27.9 billion ($313 million), will report a profit for the second half of this fiscal year. If it follows group leader and largest shareholder Nissan, now projecting full-year operating profit, it will be in the black when it closes its books on March 31.

Ward’s took the opportunity to interview JATCO President and CEO Shigeo Ishida, who outlined the supplier’s current business situation, including the status of its $500 million and $44 million investments in Aguascalientes, Mexico, and Guangzhou province, China, where the supplier produces continuously variable transmissions, mostly for Nissan.

JATCO introduced its first 6-speed automatic in 2006 on the Renault Scenic and Grand Scenic, Nissan Qashqai and Mitsubishi Outlander. In December 2008, the supplier began marketing an all-new 7-speed automatic on the Nissan Fairlady Z in Japan and one month later on the export-version of the model, the 370Z.

Since then, JATCO has adopted the transmission for the Nissan Fuga sedan (sold outside Japan and in the U.S. as the Infiniti M), Skyline, Skyline Crossover and Infiniti FX and EX.

JATCO’s fiscal 2009 production target is 3.6 million transmissions, which means the supplier’s plants are operating at more than 85% of capacity. Of the total, 1.9 million, or slightly more than half, are expected to be CVTs.

Following are edited excerpts of a Ward’s interview with the 63-year-old Ishida, who assumed his current position at JATCO in 2004 after spending more than three decades at Nissan, where he rose to senior vice president overseeing global powertrain operations.

Ward’s: Is JATCO profitable again?

Ishida:Yes. And since October, the second half of the current fiscal year, we’ve been operating at more than 85% of capacity, up from 70% between April and June. Second-half fiscal 2008 (October through March) was terrible.

Ward’s: So, then, you’ve lowered your breakeven point?

Jatco has no current plans for U.S. plant, Ishida says.

Ishida:Yes. It’s now below 80%, and we’re aiming for 60% of production capacity.

Ward’s: Which is?

Ishida:4.2 million units, including both CVTs and automatic transmissions.

Ward’s: When do you expect to reach that level?

Ishida:I can’t give you an exact timetable in part because of exchange rates. But we’re close. At present, we export about half of domestic production. At the current ¥90:$1 rate, it’s not easy to be profitable.

Ward’s: So restructuring will be complete when you can be profitable at ¥90:$1

Ishida:Yes.

Ward’s: What measures did you take to lower your cost structure?

Ishida:We cut temporary workers, lowered fixed costs 15% and slashed business travel by almost half. We also trimmed our product line by eliminating many older products sold overseas in volumes of less than 50 units per year.

And in the case of our main CVT2 product for cars that produces 250 Nm (184 lb.-ft.) of torque, we reduced the number of torque converters from 85 to 28. Each torque converter consists of 500 parts. If you consider that we sell 1.1 million units annually, the scale of savings is quite significant.

Ward’s: JATCO has production facilities in Mexico and China. Your Aguascalientes plant is supplying CVTs to both the U.S. and Mexican markets. Where will you go next?

Ishida:India, which is primarily a 3-pedal, or manual-transmission market. We believe consumers will (soon) begin shifting to 2-pedal automatics.

Ward’s: Then does JATCO have plans to build a plant there?

Ishida:At the outset, we’ll supply the market through exports, then later through local production. It’s a natural progression.

Ward’s: And what about business prospects with Renault SA, which like many European car makers still puts a primary emphasis on manual gearboxes?

Related document: CVT Installation Table

Ishida:We believe Renault will gradually shift toward automatics and CVTs. In fact, JATCO already supplies Renault and Renault Samsung Motors (Inc.) in South Korea.

Ward’s: But JATCO has no manufacturing operation in Europe. Thus, do you supply Renault and Nissan Motor Mfg. (U.K.) from Japan?

Ishida:In the case of CVTs, we supply them from Mexico. Specifically, (the) Renault Scenic, Grand Scenic and Megane 3 models, along with Nissan U.K.’s Qashqai.

Ward’s: And Renault Samsung’s Koleos, QM5, SM3 and SM5 are supplied from Japan?

Ishida:Yes.

Ward’s: Does JATCO have plans to build a U.S. plant, as a substantial portion of Mexican output is for U.S.-built vehicles, including Chrysler and Jeep models?

Ishida:Our studies show the Aguascalientes operation, even factoring in higher transportation costs, is more cost-effective.

Ward’s: So long-rail transit is not an issue?

Ishida:No. A bigger issue is the need to raise Mexican content, as many JATCO Mexico (SA) suppliers are based in the U.S. and Canada (such as American Axle & Mfg. Inc.).

Ward’s: What is your Mexican content target?

Ishida:75% by 2012, up from around 44% today.

Ward’s: And what production levels do you hope to achieve?

Ishida:700,000 units in Mexico and 300,000 in China.

Ward’s: Do you have plans to produce automatic transmissions there?

Ishida:No decisions have been made yet, but I believe we’ll be able to do so when both operations (JATCO Mexico and JATCO Guangzhou) reach capacity.

Ward’s: Switching to JATCO’s 7-speed automatic for rear-wheel-drive cars, do you eventually plan to move up into 8- and 10-speed ranges?

Ishida:For the time being, no. Both from a cost and performance perspective, we feel 7-speed is best.

Ward’s: So far, the transmission has been adopted by more than a half dozen Nissan models, including the 370Z, Skyline (coupe, sedan and cross/utility vehicle) and new Fuga, which is sold overseas as the Infiniti M. Five years from now, what percentage of JATCO sales do you envision for 7-speed transmissions?

Ishida:10%, perhaps.

Ward’s: And what is the outlook for CVTs?

Ishida:We predict steady growth. Conversely, we expect to see further declines in 4-speed automatics. In the current fiscal year ending in March, slightly more than half of our sales will be CVTs.

Ward’s: So JATCO won’t be rethinking its CVT strategy in North America, as critics of the technology have suggested?

Ishida:Not at all. Our surveys indicate that U.S. consumers like the starting acceleration from the torque converter and the fuel savings.

Ward’s: But what about price?

Ishida:We’re very competitive with 6-speed automatics.

Ward’s: In the coming five-10 years, how much more can you improve fuel economy performance of both your transmission types?

Ishida:If we take the current Tiida, the car achieves fuel economy of around 20 km/L (47 mpg). Daihatsu (Motor Co. Ltd.) has displayed a concept car at the Tokyo Motor Show that achieves 30 km/L (70.5 mpg), which should be our next target for a gasoline car.

I believe the transmission’s contribution to the additional 10 km/L (23.5 mpg) would be on the order of 2.5 km/L (5.9 mpg). Let me add, however, that finding the “sweet spot” involves many different issues. Thus, I believe the question is wrong.

Ward’s: JATCO’s current upper torque level for CVTs is 350 Nm (258 lb.-ft.). Do you have plans to raise that to 450 Nm (332 lb.-ft.) or 500 Nm (368 lb.-ft.)?

Ishida:No. And the reason is that we don’t need higher torque for front-wheel-drive cars.

Ward’s: Are you planning to modify your CVTs for RWD vehicles?

Ishida:It is difficult for a “north-south” layout which is why we offer a 7-speed transmission for this segment.

Ward’s: Then you aren’t considering a CVT for pickup trucks and fullsize SUVs?

Ishida:We could if the customer wishes, but large horsepower is a selling point in this segment.

Ward’s: Will the emergence of electric vehicles, and specifically electric powertrains, adversely impact your business?

Ishida:Demand for conventional cars will continue to grow in China, Brazil and other emerging markets. So no, at least not for the foreseable future.

Ward’s: Might JATCO be spun off in the future?

Ishida:At present, there’s no merit.