the strategy of japanese auto parts companies in brazil

The strategy of Japanese auto parts companies in Brazil

26 March 2013

Takio Karasawa

Contents

Automobiles around the world and in Brazil

• Automobile production in Brazil and in major nations in 2012 • Automobile production versus sales in Brazil and in seven major nations • Automotive industry trends in Brazil and in seven major nations • 2012 sales rankings of automakers in seven major nations and in Brazil • Automaker sales strategy considerations: Newly emerging and advanced nations • Brazil’s automotive industry – Past and Present • The appeal of Brazil to auto parts companies

Observations

Nissin Kogyo – An overview • Nissin Kogyo and Nissin Brake Do Brasil company overview pages 1 ～3

Strategy of Japanese auto parts companies

• Characteristics of Japanese auto parts companies • The future of Japanese auto parts companies • Brazil strategy of Japanese auto parts companies

2012 Automobile Production in Brazil and in Major Nations

• Brazil had 3.34 million units, down 1.9% from 2011. Production is 7th in the world. The decline was influenced by the discontinuation of a sales tax reduction incentive.

• In the USA, local production was encouraged by a lowered value of the dollar. Domestic production exceeded 9 million units for the first time.

• China has the highest production in the world, but the 19.3 million unit figure represents a slowed growth of 4.7%. Problems with Japan and friction with export destination nations were factors.

• Production in Japan increased as domestic demand rebounded after the earthquake disaster. Exports to the USA and elsewhere also increased. The 9.94 million units is 18.3% higher than 2011.

• Germany’s domestic production grew greatly in 2011, but it was hit in 2012 by the EU recession, and with sales growing in North America and in emerging nations, local production was accelerated. Domestic production fell greatly to 5.39 million units , down 15.6% from 2011.

• India held steady, while production in Thailand rebounded to 2.45 million units (up 65.5%) after the flood disaster in 2011. Mexico was affected by a temporary lull in exports due to Brazilian restrictions on total automobile volume. The 2.76 million unit figure was 2.9% higher than in 2011.

In the current automobile industry, it is my opinion that production trends and automobile policies in these eight nations are affecting the rest of the world.

Automobile production versus sales in Brazil and 7 major nations

• Nations where domestic sales match or exceed production Brazil, USA, China

• Nations where production exceeds domestic sales Japan, Germany, India, Thailand, Mexico

• Nations where significant changes occurred in the last year Brazil: Sales down due to import restrictions from Mexico, etc., and discontinuation of sales

tax reduction incentives, etc. Japan: Sales and production up due to recovery from earthquake disaster, growth of the mini

car market, strong automobile sales in North America, etc. Germany: Domestic sales significantly down and production down due to uncertain EU financial

and economic climate continuing to reduce consumption. Thailand: Production up significantly due to recovery from the previous year’s flood disaster and

due to strong automobile sales in North America, Asia, etc.

USA EV expansion policy on hold. To ensure profitability, automakers are importing more vehicles (from Canada, Mexico, and home countries (for foreign based automakers)). High functions such as safety sensing and fuel economy enhancement expanding.

China Government policy to expand Chinese national auto production encourages production and sales. Working on environmental and energy saving needs. Vehicle exports face hurdles of safety and environmental standards that vary from nation to nation.

Brazil Government policy is to favor national auto production and protect the auto industry. Sales reduced due to restrictions on imports from Mexico and an end to price reduction measures. Growth in demand expected in anticipation of huge events such as the Olympics.

Japan Exporting vehicles as a major automobile exporting nation, but overseas localized production is accelerating to ensure profitability and avoid domestic production risks (earthquake disaster experience, automobile taxes, energy, labor relations, etc.)

Germany Major automobile exporting nation. Planning to further expand exports with support coming from government policy, but the European debt crisis is shrinking the domestic market. To ensure profitability, the share of localized production is growing.

India Local production encouraged for auto industry. Suzuki, Hyundai and many automakers from Europe, USA and Japan are in India and have expansion plans. European and American makers are increasingly buying up companies. Diesel vehicles are expanding. Going from small to mid-size cars and SUVs.

Thailand A global production hub for the auto industry (AFTA and export tariff incentives). With mutual complementary sourcing within Asia and expanded exports to the Americas, production is growing from 2.45 million units to over 3 million.

Mexico Policy favoring free trade for automobiles and auto parts is making Mexico a major automobile exporter

Automotive industry trends in Brazil and in seven major nations

The automobile industry is growing as sales, exports and domestic demand grow. Volume may even exceed 100 million units by 2020.

2012 sales rankings of automakers in 7 major nations and Brazil

• World’s top seller: TOYOTA group (making many kinds of vehicles). Brazil: FIAT (focused on small cars) • Models popular in North America and China are popular in the world. In Brazil small cars are popular moving toward mid-sized and luxury cars.

2012 Automaker Sales Rankings (World) Rank Maker Sales Cars (K ) L.Y.R Popular car model

1 TOYOTA Group 9748 123% Corolla、Camry、Prius 2 GM Group 9288 103% Silverado、Malibu、Cobalt 3 VW Group 9070 111% Jetta、Golf、 4 Renault ・Nissan Group 8101 101% Ultima、March 5 Hyundai Group 7120 109% Sonata、Elantra 6 FORD Group 5668 100% F150、Fusion、Focus 7 FIAT ・Chrysler Group 4209 108% Ram、Jeep、300C 8 HONDA 3817 119% Accord、Civic、CR‐V 9 Peugeot ・Citroen Group 2960 84% DS4、508

10 SUZUKI .（2500） ― Swift、GrandVitara

2012 Automaker Sales Rankings (Brazil) Rank Maker Sales Cars (K) L.Y.R Popular car model

1 FIAT 838 111% Uno、Strada、Fox 2 VW 768 110% Gol、Amarok 3 GM 642 102% Astra、Corsa 4 FORD 323 103% Ka、Fiesta 5 Renault 241 124% Duster、Sandero、Logan 6 HONDA 134 145% CIVIC、Fit、City 7 TOYOTA 113 115% Etios、Corolla 8 Hyundai 108 94% HB20、HB20X 9 Nissan 104 156% March、Versa、Tiida

10 Citroen 74 83% C3、DS3、C4

Automaker sales strategy considerations: Emerging and advanced nations

• Small cars dominate current production and sales strategies for Brazil, but the market is gradually growing for mid-sized and larger vehicles.

• In addition to production for domestic demand in Brazil, exports to North and South America and elsewhere will grow from now on.

Advanced nations

• High fuel prices

• Growing interest in

environment

• Nuclear families, Urbanization

Toward cars with personality

• HEV and EV sales

• Small electric mobility

development

Changes in automobile concepts and basic forms

• Aim for new market development and automobile

replacement purchases

Emerging nations • Can protect from rain and wind • Level of safety is high • Can carry baggage • Cheap, affordable price

Emerging nations in the past • 1-ton pickups, Small sedans Emerging nations now • Small sedans Mid-size sedans,

RVs

Low-price vehicles, Asia cars, Domestic maker vehicles

• Aim for new market expansion and new buyers

• 2012 ~ 2020

15% of total market

• 15M vehicles in

Japan, EU and NA

out of 100M total in

2020

• 2012 ~ 2020

40% of total market

• 40M vehicles in

China, India, and

ASEAN out of 100M

total in 2020

Automotive

What about Brazil?

Brazil’s automotive industry – Past and Present

Past

• 1950s government policies to replace imports Restrict/prohibit automobile imports. Develop a domestic supply chain.

• With priority given to government-managed nationalization of production, it appears that the introduction of new technologies fell behind.

• Import tariffs raised the cost of major components and system components, making prices uncompetitive in the world.

Present

• European and American automakers (FIAT, VW, GM, Ford, Renault, etc.) have 80% market share.

• Consumer spending is rising with a population of 190 million, increases in GDP and household income, and mega-events such as Olympics and World Cup Soccer.

• Generous protective measures by the government result in high profit margins for automakers (this is appealing).

• Japanese and Korean companies are investing more, and Chinese companies are entering the market.

The appeal of Brazil to auto parts companies

• Major automakers of the world (US, Europe, Japan, Korea, China) are expanding production and making new investments

• The government has a policy to develop the automotive industry

• The auto parts industry is a 3 trillion yen market and expected to grow to 5 trillion yen Developments among overseas-based auto parts companies

• Continental plans to double production by 2015

• Dana and Magna have bought local companies to strengthen production capacity in Brazil

• Seven Korean parts companies such as Dymos, Mobis and THN have entered Brazil

• Twenty Chinese suppliers are being invited to follow Chery Automobile into Brazil Concerns

• Labor protection policy, poor infrastructure, high costs (compared to Mexico and Argentina)

The appeal of Brazil to auto parts companies

Contents



Observations




Observations: Thoughts on manufacturing in the world today

National differences as observed in manual work

Example: USA

Only go as far as fingers reach. Fingers won’t reach. Make it so they can’t go in Don’t make in the USA

Follow rules and attempt to achieve leveling Think of manufacturing work by volume. Parts that can be produced in mass quantities are cheap.

Free competition promotes technical advancements (R&D), but don’t make in the USA (High costs, Product liability, and other risks)

Examples: Germany, Japan

Use tweezers or tools where fingers can’t go If nobody else can do it, consider it competitive (know-how)

Procedures change, Speed and quality emphasized Think of manufacturing work in terms of cycle time Tells the world that special technology is needed (hegemony, exclusive right)

Example: China

Don’t know how to put finger in. Copy something that exists Imitate or transcribe (alternative thinking)

Don’t know procedures, Can’t explore or investigate (Researchers don’t grow. They leave too soon.)

Buy technology or commercial rights or work with a company that has technology or commercial rights

How about Brazil?

Observations: Automobile engineering standards / International Standards

United Nations ↓ U.N. Economic Commission for Europe ↓ World Forum for Harmonization of Vehicle Regulations (UK/ECE/WP29)

• Noise (GRB) • Pollution and energy (GRPE) • Lighting and light-signaling (GRE) • Brakes and running gear (GRRF) • General safety provisions (GRSG) • Passive safety (GRSP)

U.N. Agreement on the mutual recognition of approval for automotive equipments (1958 agreement) 58 signatory nations

Japan Automobile Standards Internationalization Center (JASIC) U.S. self-certification of automotive standards (international) EU/ECE ↓ 1998 agreement on Global Technical Regulations -- Harmonization of technical standards that don’t include mutual certification

Nations that control automobile specifications and laws will control automobiles!

Contents



Observations




■ Share of parts made in-house

Examples:

ABS/ESC: Motor, Solenoid, Plastic, Coil, Pump, Free cutting steel

Calipers: Cast Iron Body & Bracket, Forgings, Bleeder, Boot, Pad

M/C&M/P: Aluminum, Plastic, Rubber, Stampings

R&D grasps part specs, Production Engineering grasps mfg cost

■ Complementary sourcing within the Nissin group

Thai plant Japan plant, US plant, China plant, Brazil plant, India plant

China plant Japan plant, US plant, Thai plant, Brazil plant

US plant China plant, Brazil plant, Thai plant

Brazil plant Thai plant, US plant

■ Use of local industry

Rather than making everything in-house, buy 30~70% from suppliers = Improve procurement capabilities

Joint development with companies near Ueda head office, In-house production at overseas affiliates

Nissin Kogyo’s Procurement Strategy

Contents



Observations




■ Characteristics of Japanese Auto Parts Companies 1) A vehicle needs more than 30,000 components from 300 or 400 companies

• Major components (1) Engine body, Valve train, Fuel system, Air intake & exhaust system,

Lubrication & cooling system, Electrical system (2) Power train (3) Steering system, Suspension system, Brake system (4) Wheel & tire system (5) Exterior parts, Interior parts (6) Electronic parts (7) Supplies

2) Affiliation with a specific automaker (20 ~ 60% share of ownership)

• Affiliations (examples) (1) Toyota: Denso, Aisin Seiki, Toyota Industries, Toyota Auto Body,

Toyota Boshoku, JTEKT, Toyoda Gosei, Tokai Rika, etc.

(2) Honda: Yachiyo Industry, Keihin, Showa, Musashi Seimitsu Industry, Nissin Kogyo, Yutaka Giken, etc.

Characteristics of Japanese auto parts companies

• With the subprime loan crisis, the Great East Japan Earthquake, and the Thai flood disaster, the priority over the last three years were to recover with minimal investment and leaner operations in order to turn a profit.

■ Japanese auto parts companies are beginning to invest again for new growth

strategies focused on emerging nations and the environment.

New regional strategies

Japan: Update to high efficiency production lines North America: Recover market, Resume investing Europe: Reduce investment Asia, Central & South America: Highest priority regions for investments Other: Adapt to inroads made by automakers

Regional roles of R&D

Japan: Develop advanced technology and highly efficient production technology Europe: Develop technology for the latest environment & safety regulations Asia: Develop models for emerging nations that reflect local needs

The future of Japanese auto parts companies

Brazil strategy of Japanese auto part companies

Learn from companies experienced in doing business in Brazil

• Get orders from European and American automakers

• Build new business relationships with European and local suppliers (joint venture, collaboration)

• Emergency nation quality, low cost parts, know-how to lower quality levels appropriately

Answers from an international perspective

• Continue to maintain global quality and best quality

• Have the courage to leave if there is really no prospect for profitability now or in the future

• As automobile markets go in two directions in the near future, choose development and manufacturing in the direction where value can be found with the company’s products.

High added value: Safety sensing, integrated controls, eco-friendly

High volume production: Small vehicles for emerging nations

As long as automobiles have specifications, standards, warranties, we need to keep doing the right thing.

Enhanced technical capabilities Technology, analysis, quality, verification / Discovery and development of attractive products Systems, units, combinations, adjustments, details, fine-tuning / Comfortable, easy, fun

the strategy of japanese auto parts companies in brazil

Documents