JATCO Eyes Global Expansion, Faces Down Strong Yen

FUJI, Japan – Takashi Hata is a man on a mission.

Ten months after taking the helm at JATCO, the main transmission supplier to Nissan and Mitsubishi, Hata is determined to make continuously variable transmissions the first choice of the company’s OEM customers.

The strategic planning is complete and a new streamlined product lineup is being put in place.

At the Tokyo Motor Show in December, JATCO unveiled the new CVT8 and CVT8 hybrid series for engines displacing from 2.0L to 3.5L.

The new standard unit, which is 10% more fuel-efficient than its predecessors, joins the supplier’s CVT7 series, also 10% more fuel-efficient, which went on sale in 2009 and covers everything below 1.6L, including 0.66L engines for Japan’s minicar segment.

“Essentially, we are emphasizing CVTs and consolidating our model lineup by size,” says Hata, who joined JATCO last spring by way of SABIC Innovative Plastics Japan and GE Plastics Japan, where he held senior management positions.

So far the smaller CVT, which features an auxiliary gearbox, has been installed in such models as the Nissan Roox, Moco and March in Japan and Micra, Juke, Tiida and Sunny overseas. In addition, the CVT has been adopted by Suzuki for its Alto and Roox-based Palette minicars and by Mitsubishi for the new Mirage.

“We aim to expand our total transmission sales to 7 million units by fiscal 2016, up by more than 40% from fiscal 2011,” he says.

And nearly 6 million units, or 85% of the fiscal 2016 total, is expected to be CVTs, up from two-thirds today. The remainder, about 1 million units, will be automatic transmissions.

To reach the fiscal 2016 target, more production capacity will be needed. An ambitious 3-year expansion focused on China, Mexico and Thailand will go a long way to meeting those needs as JATCO attempts to piggyback on Nissan’s Power 88 midterm business plan aimed at garnering 8% global market share, compared with 6.2% today.

JATCO capacity in China stands at 730,000 units, double that of a year ago, with plans to increase the total to 900,000 in 2013. The supplier’s Chinese subsidiary, JATCO (Guangzhou) Automatic Transmission, began CVT7 production in September 2009.

The Guangzhou plant supplies CVTs for 2.0L and 2.5L cars including the Teana, Sylphy, Xtrail and Qashqai assembled at nearby Dongfeng Nissan. With completion of a second line last autumn, it added the 1.5L Sunny.

Facility investment to date totals ¥16.6 billion ($216 million).

In December 2011, JATCO announced plans to build a new 7.6 billion baht ($246 million) plant in Chonburi, Thailand. When up and running in mid-2013, the facility will be able to produce 500,000 CVTs, mainly for Nissan and Mitsubishi's Thai-built vehicles and Nissan’s operations in India and Taiwan.

The Chonburi plant will further expand capacity to 700,000 units by fiscal 2016.

In Mexico, the supplier will spend an estimated $400 million over the next 12 months to increase capacity in Aguascalientes to 1.2 million units, up from 700,000 at present. Cumulative investment in the facility will reach $900 million.

Production of the CVT8 series began in Mexico in March, one month after the start of production at JATCO’s Yagi plant in Japan, and the supplier has begun exporting the unit to Nissan North America for installation in the new Altima due in June.

Next up is the new Sentra to be built by Nissan Mexicana. The model, also to be assembled in China where it will be called the Sylphy, debuted at the Beijing auto show in April and is scheduled to hit dealer showrooms this autumn.

Also this fall, JATCO Mexico will launch the CVT7 series, followed by the CVT8 Hybrid in 2013. The hybrid unit, featuring a built-in motor and two clutches, is being readied for the Altima Hybrid to be produced at Nissan North America’s plant in Smyrna, TN.

Note that JATCO Mexico will end its supply contract with Chrysler for the Jeep Compass and Patriot and Dodge Caliber. The Caliber already has been phased out in favor of the Dart sedan, and the two Jeeps eventually will be replaced by one new model.

Elsewhere, the supplier will deliver unspecified CVTs to Nissan in Brazil indirectly through Nissan Mexicana and directly to Renault Argentina. In Europe, it will supply both Nissan in the U.K. and Renault in France, Spain and Turkey.

JATCO exports to Europe are relatively small, because most vehicles produced at Nissan plants in the U.K. and Spain are equipped with manual transmissions, and it is unlikely a wholesale shift to automatic transmissions and CVTs will occur in the near future.

When JATCO completes the first stage of its expansion in 2014, it will have nearly 6 million units of global capacity, including both CVTs and automatic transmissions.

Hata warns the company’s biggest challenge is how to make money at current foreign-exchange rates. With the yen now hovering around ¥80:$1, near the highest level in Japan’s postwar history, he is concerned about the future competitiveness of the supplier's Japan operations.

“We are still heavily centered in Japan, and it isn’t easy to shift production overseas. But that’s what we must do,” he says. “Although we have no immediate plans to close any Japanese plants, we must eventually decide what constitutes an appropriate Japanese production share and adjust our domestic and overseas operations accordingly.”

JATCO operates seven plants in Japan, including its headquarters plant in Fuji.

In fiscal 2011, the supplier reported a ¥31.8 billion ($398 million) operating profit, only 9% below the previous year's high, despite the strength of the yen against the dollar, euro and other major currencies. JATCO has maintained strong profits by aggressive cost-cutting and streamlining of its product lineup. Production costs, for instance, are down 26% since fall 2008.

Topping the list of future markets under consideration are Russia, Eastern Europe and India, although Hata notes Indian drivers, like those in Western Europe, still tend to favor manual gearboxes.

“We don’t have a clear idea yet about what to do in India, even though two of our best customers, Nissan and Suzuki, are building cars there,” he says, adding that Hyundai launched an automatic transmission version of the Santa Fe cross/utility vehicle, imported from South Korea, last September.

In Russia and Eastern Europe, Hata believes it will come down to whether first-time owners follow the American preference for automatic transmissions and CVTs or the Western European penchant for manual gearboxes and dual-clutch transmissions.

Most European OEMs see dual-clutch transmissions, not CVTs, as the next stage.

Although Hata would like to increase sales to Renault, Nissan’s alliance partner, he recognizes Europe remains predominantly a diesel-engine market, heavily weighted to DCTs and manual gearboxes.

Yet he believes drivers in Eastern Europe and Russia, the region’s two fastest-growing markets, will opt for automatics and CVTs. “Within the 2-pedal (vehicle) segment, CVTs have an advantage in terms of drivability, flexibility and superior (carbon-dioxide) emissions performance,” he says.

In North America and Japan, demand remains fixed mainly on automatic transmissions. JATCO has no plans to add an 8-speed unit to its automatic lineup, which currently offers units with up to seven forward gears.

“There might be a need in the future," Hata notes, "but not at this time.”

Longer term, the supplier has set a fiscal 2018 sales target of ¥1 trillion ($13.1 billion,) up from ¥602.5 billion ($7.5 billion) in fiscal 2011. While no unit goal has been disclosed, the annual total is likely to exceed 9 million.

Will JATCO grow its current customer base? 

“Quite likely,” says Hata, but he declines to explain how or identify prospective candidates.

In addition to Nissan, Mitsubishi and Chrysler, the supplier currently delivers transmissions to Suzuki, Renault, Renault Samsung, GM Korea and Fuji Heavy Industries, maker of Subaru cars.

JATCO is considering the pros and cons of building truck transmissions outside Japan and was expected to reach a decision by spring.

At present, the supplier produces automatics for 5.6L V-8 trucks at its Fujinomiya plant west of Tokyo from which it supplies Nissan Shatai in Kyushu and Nissan’s Canton, MS, plant in the U.S.

“In an ¥80:$1 world, our options are limited,” Hata says bluntly.

– with Mack Chrysler