Denso May Suffer First Loss in U.S.

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

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

Denso's fiscal year ends March 31, and the supplier has downgraded its earnings forecast due to the appreciating yen and declining auto sales.

Globally, Denso expects 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. 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. will remain intact.

“The current situation is very tough, but we will make all efforts to achieve a profit,” Maruyama tells Ward's. “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. cuts 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. “Currently we have to make more lean production.”

So the supplier is stepping up kaizen activities across North America. “With the current situation, we (are trying) to revise all of our activities again to minimize our costs,” he says.

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 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 costs.

At the Detroit auto show, Denso promoted new safety and eco-friendly products, including a 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 producing 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 application because of requirements to resist heat and withstand corrosive agents such as rock salt.

The new tank is seven times more resistant to calcium chloride and can be produced at lower cost.

Denso also introduces 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.

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