Toyota Key Supplier Aisin Seiki Sets Goals for Global Growth

TOKYO – Japan’s Aisin Seiki unveiled its latest business plan earlier this year and now is laying the groundwork to reach its 2020 targets.

The plan, called Vision 2020, sets a sales target of ¥3.3 trillion ($42 billion), with business outside Japan growing to 50% from an estimated 40% today. Most of the growth will be seen in China, India, Brazil and Indonesia.

The supplier, No.2 in the Toyota affiliated group behind Denso, has yet to disclose future targets for operating profit margin and return on investment. Its peak earnings year, in fiscal 2007 before the global recession, was 6.5%.

This year's target is 8% on projected sales of ¥2.5 trillion ($31.9 billion), despite the yen holding steady at more than $1:¥80 levels for 10 of the past 13 months. Denso, which reported sales of ¥3.2 trillion ($40.3 billion) in the most recent fiscal year, also hopes to achieve an 8% operating margin in fiscal 2016 on projected sales of ¥4 trillion ($51 billion).

"The basic idea is to produce near our car maker customers," says Aisin Seiki President Fumio Fujimori in an interview here.

Aisin’s main customer, Toyota, still accounts for 64% of the supplier’s business and step by step is expanding its production base outside Japan.

Aisin Seiki opened a technical center in China last September and in December took a first step toward building a supply base in northern India with the establishment of Aisin Automotive Haryana. The operation initially will be involved in marketing Aisin components and systems, including braking systems, and eventually in design and manufacture.

In 2013, Aisin Automotive Karnataka will begin production of unspecified components in Nasapur, a suburb of Bangalore in southern India.

Meanwhile, ADVICS, the group's braking and chassis system supplier, is scheduled to begin production of brake components at plants in Rohtak, a suburb of New Dehli in Haryana state, and Narasapura in Karnataka.

In Brazil, Aisin Seiki will produce pressed parts for door frames and seats late this year at a new facility in Itu, Sao Paolo, and will join with Toyota's main car-seating supplier, Toyota Boshoku, to make seats and engine components in Sorocaba, Sao Paulo.

In China, Aisin AW plans to open two automatic transmission plants by the end of 2014 with combined capacity of 640,000 units, which will include 240,000 4-speed gearboxes in Suzhou, Jiangsu province, and 400,000 6-speed units in Tianjin.

When both factories are fully up and running, the supplier will have 760,000 units of capacity in China including an older plant in Tianjin.

Aisin AW produced 5.6 million automatic transmissions in 2011, including 350,000 continuously variable transmissions. The supplier, the largest and most profitable of 170 Aisin Seiki group companies, reported sales and earnings of ¥915.1 billion ($11.4 billion) and ¥60 billion ($750 million) in fiscal 2011, accounting for 40% of group sales and 50% of group earnings during the year.

Elsewhere in China, Aisin Seiki began sunroof production in March at a joint-venture plant in Wuxi, Jiangsu province, and in December it will open a ¥3.4 billion ($43 million) electronic controller and sensor plant in Foshan, Guangdong province.

Controllers produced in Foshan will be incorporated in braking systems and sunroofs and, in the case of brake-system applications, will complement a newly formed ADVICS subsidiary, ADVICS Yunfu Automotive Parts, which is scheduled to make brake boosters and calipers from December 2013. ADVICS currently has three plants in China.

In January, Aisin Takaoka plans to open a brake disc plant in Tianjin. Management has yet to disclose facility plans beyond 2014, although capital expenditures, assuming the supplier meets its yearly sales targets, are likely to exceed ¥200 billion ($2.6 billion), of which a growing but unspecified percentage will be made in overseas markets.

In addition to expanding operations outside Japan, Aisin Seiki is putting an emphasis on higher-valued systems and components. Example: a 6-speed hybrid transmission for trucks and buses.

The unit was displayed at the 2011 Tokyo Motor Show and in May at the 2012 Automotive Engineering Exhibition in Yokohama.

Aisin AW, which introduced the world's first 8-speed automatic transmission in 2006, delivers hybrid transmissions to Toyota for the Crown and Lexus GS450h hybrids and to Ford for its Fusion and Lincoln MKZ hybrids.

Fujimori envisions greater collaboration between group companies in the telematics and safety fields, another strategic area. One example is a new safety system linking a vehicle’s braking and navigation systems. Partners in the development include Aisin Seiki, Aisin AW and ADVICS.

In fiscal 2011, Aisin AW produced 1.5 million navigation systems.

Fujimori says he is optimistic about Aisin’s future. He estimates global vehicle demand will grow to nearly 100 million units by the end of the decade, up 25% from 2011’s level, and wants Aisin to be so indispensable that it keeps pace with or even exceeds industry growth.

In the context of being able to operate profitably under any market condition, he points to the company's recent history of recovering from the global recession of 2008-2009 and, again, from the massive earthquake and tsunami that struck off the coast of northeastern Japan in March 2011.

Through a combination of slashing fixed costs and streamlining operations immediately after the market crashed four years ago, the supplier returned to profitable operations in less than six months by spring 2009.

Six months later, Aisin AW, by expanding in-house production of components including gear parts, succeeded in boosting its operating margin to nearly 10%. It currently stands at nearly 8%.

In fiscal 2011, just three months after the earthquake that resulted in a calendar first-quarter operating loss, the supplier was back making money.

For the full fiscal year, which Fujimori characterizes as the “most challenging” in the Japanese auto industry's history as both suppliers and auto makers were hit doubly by the earthquake and record strong yen, the company posted a ¥121.8 billion ($1.5 billion) profit.

Acknowledging the impossibility of predicting the worst recession in more than half a century or the worst natural disaster in nearly 90 years, there is one constant in Fujimori’s world view: “Toyota will remain our main customer,” he says.