Johnson Controls Inc. plans to invest more than $100 million by 2000 to step up its seat assembly and plastic trim operations in South America.
JCI had two plants in South America at the beginning of 1997, but will have 13 by fall of 1998. They includes six new manufacturing facilities, plus five existing operations as part of a new joint venture.
The joint venture is with Inversora Bejaly C.A., a Venezuela-based company located near Valencia. The partners will make injection molded interior trim parts, urethane foam seat pads and seat frames. The five joint-venture plants had been operated by Autaca C.A., an Inversora Bejaly subsidiary.
The total investment represents one of the boldest moves yet by an automotive interior supplier to stake a major position in South America. Several Big Three and European automakers have already established automotive-assembly strongholds in that developing region.
``It's a smart move that I think will give [JCI] a real competitive edge in South America,'' said Dennis Virag, managing director of Automotive Consulting Group Inc. of Ann Arbor, Mich. ``How long that lasts is the question. I believe we're going to see the next wave of acquisitions in the auto industry coming from South America.''
JCI wants to ride the early wave of growth by setting up shop there now, said Jeff Steiner, spokesman for JCI's Plymouth, Mich.-based automotive operation.
The company projects that the auto market in Brazil and Argentina will grow by 66 percent during the next five years, compared to flatter growth numbers in both North America and Europe over that period.
In three years, the parts producer plans to make seat systems and interior products for close to 1 million vehicles in South America — about one-third of the expected number of vehicles produced there by 2000.
Doing that will bulge the supplier's share of the interiors market in South America from about 10 percent today to nearly half the market by the turn of the century, Steiner said.
``We're positioning ourselves as the largest interior supplier in South America,'' Steiner said. ``The doors are open now, and we plan to crank up the volume and set up a strong supply base while the opportunity exists.''
Other interior suppliers might disagree with JCI's market assessment. Southfield, Mich.-based Lear Corp., a fierce competitor, already has two facilities in Argentina, three in Brazil and one in Venezuela, said Bert Serre, Lear vice president for corporate relations.
``We'll let the OEMs decide who has the capabilities to support them and who will be the market leader in South America,'' Serre said.
Still, JCI could be setting the pitch for the upcoming battle. The company plans to grow its plastics interior trim business alongside its already-strong seat operations. Lear, while a market leader in seats, does not currently make interior trim parts in South America, Serre said.
As part of the joint venture, JCI is injection molding plastic headliners and overhead systems, interior side pillars, garnish trays, and other interior parts, Steiner said. The plants also mold door panels and make complete seat systems. The venture, which began in July, operates under the name 3-A Johnson Controls Andina.
The five plants primarily serve Big Three automakers in the northern part of South America, including Venezuela, Ecuador and Colombia. Three of the plants, all located in Valencia, Venezuela, are primarily interior-trim and seat molding facilities. Another Valencia facility makes urethane seat foam pads, while the fifth plant, located in Las Tejerias, Venezuela, produces metal seat frames.
JCI has been tied to Inversora Bejaly's Autaca subsidiary since 1995, when the supplier signed a technical assistance agreement to provide engineering services and products to Autaca.
The size of the plants and number of presses was not disclosed by JCI, nor were ownership terms of the joint venture. Officials with the South American firm could not be reached late last week.
JCI is considering expanding its interior trim operations even more. The company, which owns interior-trim producer Prince Automotive of Holland, Mich., might open new plants in other South American countries after it finishes a current round of consumer research.
``We're now evaluating business opportunities for Prince to make interior components through the infrastructure we have in place,'' Steiner said. ``Our long-term intention is to be the complete interiors leader in South America. We could make another announcement within the next year.''
In addition, JCI plans to open four plants by the end of this year in Brazil and Argentina to make seat components. The seat-assembly plants will be located in Rosario, Argentina, and SÃo Jose dos Campos and Santo Andre, Brazil, with a seat trim cover plant based in Pouso Alegre, Brazil.
Next spring, the supplier will open another seat-assembly plant in Cordoba, Argentina, to supply products for the Chrysler Jeep Cherokee and Grand Cherokee sport utility vehicles. In November 1998, the 13th JCI plant in South America is scheduled to open in SÃo Jose dos Pinhais, Brazil, to provide seat assemblies for two Volkswagen models and Audi AG's A3 cars.
The company also is working with a number of South American molders that provide seat parts. JCI serves in a mentoring role to help those companies provide the parts quality needed, Steiner said.
The moves by JCI are part of its two-pronged business strategy to reach out to both South America and Asia. Last year, the company signed joint-venture agreements to make parts with companies in China and India and technical assistance agreements in other Asian countries.
In August 1996, the company also acquired the Alderson division of Tutt Bryant Industries Ltd. of Melbourne, Australia, a maker of plastic molded headliners, interior trim and insulator systems.
South America is expected to provide JCI with some dramatic growth — as well as some unpredictable mood swings, said industry consultant Virag.
``In any developing country where the currency is not as stable as the dollar, growth could be quite cyclical,'' Virag said. ``In Mexico, you've had 80 percent growth some years, and the bottom falling out of the market in other years. Those wide swings are to be expected, but the market could still be quite good for suppliers.''
JCI's Automotive Systems Group recorded $6.3 billion in sales during the 1996 fiscal year.