Japan’s Aisin Maintains Low Profile While Growing Global Supplier Business

DETROIT – If ever there was a company that deliberately flew under the radar screen, it’s Japan’s ubiquitous Aisin Seiki Co. Ltd.

The country’s third most-profitable parts maker – second largest in Toyota Motor Corp.’s keiretsu group, with nearly 150 associated companies and subsidiaries – slowly but surely has built a $24.6 billion global business that includes $3.7 billion annual revenues in North America, without fanfare or attracting much attention.

“We make automatic transmissions; body, engine and brake components; doorframes; sun roofs; castings and electronics; everything Aisin makes in Japan except manual transmissions,” says Don Whitsitt, president of Plymouth, MI-based Aisin World Corp. of America and a former General Motors Corp. executive.

In fact, Whitsitt’s holding company for the 30 Aisin group subsidiaries in North America is a microcosm of Aisin Seiki’s global business, with two main functions.

One is control of all North American business operations, including finance, sales, logistics, human resources and application engineering. The other is oversight of manufacturing in the company’s 24 North American plants with nearly 10,000 employees, 15% of the Aisin global total.

“We function somewhat autonomously from Japan,” says Whitsitt. “We control our North American operations but report to Japan.”

Aisin AI’s most advanced manual transmission used in Porsche 911.

As examples, he cites Aisin AW Co. Ltd., the automatic transmission specialist, and Aisin AI Co. Ltd., which makes manual transmissions. “Aisin Seiki doesn’t decide how they should run their businesses,” he says.

The decentralization is practical and has paid off. The Aisin Seiki Group makes 10,000 different products and ranks first in the automotive world in automatic transmissions, second in manual transmissions and third or fourth in braking systems.

“Bumper to bumper, we are the closest thing to a car maker without being a car maker,” says Whitsitt. “We almost always have two component sources for everything: one in-house, the other outside. By producing in-house, even in small volumes, we are better able to understand the problems of our suppliers.”

The company’s latest technologies aren’t always sold to Toyota. Aisin AI’s most advanced manual transmission is used in the Porsche 911. Although Aisin AW’s 8-speed automatic transmission debuted in the Lexus 460, its first venture into 6-speed automatic transmissions was with European auto makers.

Transmissions are an Aisin Seiki specialty. AW North Carolina Inc., a subsidiary of Aisin AW, makes 5-speed and 6-speed gearboxes for the fullsize Tundra pickup and Sequoia SUV produced at Toyota’s Indiana and Texas plants. It also supplies 5-speed units for the small Tacoma pickup and is Toyota’s only North American supplier of automatic transmissions, delivering more than 400,000 last year.

Additionally, the North Carolina subsidiary supplies castings to Toyota Motor Mfg. West Virginia Inc., while Aisin AW delivers front-wheel-drive transmissions, made in Japan, to GM, Ford Motor Co., Chrysler LLC and Toyota.

“We expect Aisin AW to substantially grow that business,” says Whitsett, while noting a decision has yet to be made on whether the 8-year-old operation will make automatic transmissions for FWD cars.

Aisin subsidiary AW North Carolina makes 5- and 6-speed gearboxes for fullsize Tundra pickups and Sequoia SUVs.

“Going into the FWD field is a big strategic decision,” he says. “At present, we have no plans to produce them in the U.S., but I would never say never about future plans. It has a great deal to do with the plans of our car maker customers.”

Whitsitt believes Aisin AW’s growing lineup of continuously variable transmissions might make sense in certain small applications in North America but will never reach the popularity levels in Japan, where so much of the driving is slow speed, stop-and-go. He sees the greatest growth potential in step transmissions, particularly 6-speed units.

“Fuel-saving drives transmission development,” Whitsitt says. “Because of new friction materials, lubricants and computers, we can now make much leaner, simpler gear trains that previously were not acceptable to electronic controllers in terms of noise, vibration and harshness.

“So as long as we can match the sweet spot in the curve with gear ratios and provide a smooth system seamless to the driver, the 6-speed segment will continue to grow.”

However, auto makers must have good reasons for switching to a new system, and such factors as driver acceptability, warranty implications and increased costs must be carefully considered by a supplier, he warns.

About 75% of Aisin group products sold last year in North America were produced there, and this percentage will increase as group companies continue to expand the U.S. manufacture of all major products.

For example, a 250,000-sq.-ft. (76,200-sq.-m) expansion of the Clinton, TN, die-casting plant was completed in 2007 and new doorframe plants in Stockton, CA, and Woodstock, ON, Canada, were dedicated this year.

Now in the planning stage are increases in the output of electronics, mainly to support internal requirements, and the production of sunroofs as panoramic types become more popular.

Advics Mfg. Ohio Inc., a subsidiary of Advics Co. Ltd., the group’s braking-system specialist, began production of electronic stability control systems this year at its Lebanon, OH, plant and expects to boost North American sales to $1 billion in 2010, up from $300 million in 2006.

As the industry’s leader, Aisin Seiki has a reputation as a major innovator. At April’s Society of Automotive Engineers’ World Congress in Detroit and May’s Japan Society of Automotive Engineers’ Exhibition and Congress, the company displayed a number of new systems.

Among these were a 3-stage variable discharge oil pump; a 4-wheel-drive hybrid transmission installed in the Lexus LS600h; a medium torque capacity, FWD 6-speed automatic transmission; a high-torque capacity, RWD 6-speed unit; and the RWD 8-speed transmission in the LS460.

Other Aisin Seiki technologies include the Advics electronic stability control modulator; a pre-crash intelligent head restraint; an advanced Aisin AW DVD navigation system; and a driving monitoring system first installed on the new Toyota Crown, which warns drivers when they look away from the road for an extended period.

More than two-thirds of Aisin’s North American investments have been made since the start of the decade and more is inevitable, despite the current automotive industry environment with suppliers scoured by the soaring cost of steel, aluminum and other raw materials.

Not counting expansions of older facilities in Canada, the U.S. and Mexico, the supplier has spent nearly $300 million in new production capacity since 2000.

Whitsitt is both bullish about the future and a realist about the present. Asked how cost increases are impacting Aisin World’s bottom line, he makes a choking sound to emphasize the difficulty of passing them onto customers. In addition to Toyota, which owns 22.2% of the parent company, these include GM, Ford, Chrysler and Honda of America Mfg. Inc.

Yet, despite cost pressures and the strong yen, Aisin World saw operating margins increase 2.7% in fiscal 2007, from 2.1% the previous year. This compares to 6.7% and 5.5%, margins respectively, the parent company enjoyed globally.

Whitsitt predicts more than 20% growth for Aisin in North American sales to $4.5 billion annually in the next five years, while cautioning that expanding capacity to meet growth is “a big capex decision, involving discussions with customers.

“We don’t want to be a banker,” he says. “We want to take the exchange rate risk out of our operations by doing business in the currency we sell in and investing in the currency we sell in.”