TOKYO — For all their size and success, Japanese auto suppliers that rocketed to global dominance on the coattails of their No. 1 customer, Toyota Motor Corp., face a perilous new reality.
Pressured by a shrinking home market and a sugar daddy looking further afield, Toyota-affiliated suppliers such as Denso Corp. and Aisin Seiki Co. are racing to diversify their customer bases or risk decline.
And it's not just Toyota parts makers.
Across the board, Japanese suppliers are struggling to adjust to a new business reality that threatens to undermine the country's keiretsu system of tightknit cooperation between carmakers and their favorite-son suppliers.
Blame the unraveling on an immutable truth: Japan's carmakers have stopped expanding at home. Now, they are channeling new investment into overseas assembly plants, and Japanese suppliers that want a piece of the action are obliged to do the same.
But not all Japanese suppliers are big enough to do so. And those that are — even giant, longtime Toyota suppliers — bump against a harsh reality that sales are anything but guaranteed.
"In Japan, we can rely on Toyota very much. But if it's outside of Japan, except for maybe Indonesia or Thailand, Toyota's market share is still quite low and not so stable," says Tadashi Arashima, president of Toyoda Gosei Co., a Toyota-affiliated supplier that makes hourglass-shaped grilles for Lexus as well as steering wheels, airbags and sealing and interior components with extensive plastic production globally.
"We have to have a broader customer base."
Big turning point'
The problem is especially acute for suppliers in which Toyota owns significant stakes, which include four of the world's top 30 suppliers.
In 2012, Toyota R&D chief Mitsuhisa Kato rocked their world with a new product development push prioritizing common parts.
The shift, which underpins a new platform called Toyota New Global Architecture set to debut in 2015, requires suppliers that can deliver millions of identical parts, from Kentucky to Kenya.
"This is a big turning point for Toyota," he said at the time.
Mass commonization puts pressure on supply chains and profit margins because carmakers expect it to drive down parts prices.
The challenge goes beyond Toyota. Nissan Motor Corp. is rolling out a modular platform that also promises to potentially upend the traditional supplier network. And Honda Motor Co. is overhauling its product development to revolve around six global manufacturing centers.
They will rely as much as possible on locally sourced parts.
Japanese automakers' moves are partly a direct result of five years of export-crushing exchange rates. With the Japanese yen hitting all-time highs against such foreign currencies as the dollar after the global financial crisis, Japanese carmakers rushed to shield themselves from exchange rate losses by building factories overseas.
When Japanese carmakers set up shop in new markets such as Mexico or India, they will give a first look to local suppliers and global non-Japanese giants already there.
And American and European suppliers may be well established in places their Japanese rivals don't even have a toehold.
The new approach is breaking old bonds of loyalty.
Toyota Boshoku Corp., which used to coast on its locked-up seat-making business for its biggest shareholder, Toyota, learned the hard way. When the Camry sedan was redesigned in 2011, it lost the contract to U.S. rival Johnson Controls.
The message to suppliers was clear: Broaden your customer base.
Survival at stake
Aisin, the Toyota-affiliated maker of transmissions, brakes, engine components and chassis systems, aims to do just that.
"The profile of our customer base is changing," Aisin Executive Vice President Toshiyuki Mizushima said. "We cannot survive if we just stick to our conventional business style."
Yet change comes slowly, even for a global giant such as Aisin, which ranks No. 5 on Automotive News' list of the top 100 global auto parts suppliers.
Sales to the Toyota Group accounted for a whopping 65 percent of Aisin's revenue two years ago and 64.4 percent last year. Aisin expects Toyota's share to edge downward to 63.1 percent this year.
In North America, it's even more lopsided. Toyota accounts for more than 80 percent of Aisin's sales. By 2020, Mizushima wants non-Toyota customers to chip in 30 to 35 percent of the supplier's total revenue from North and South America combined.
But international megasuppliers will be stiff competition.
Take German supplier Robert Bosch GmbH, the world's biggest parts maker. It aims to double its Asia-Pacific sales by 2020, largely by expanding sales to Japanese automakers.
Sales to Japanese automakers will climb 10 percent this year, predicts Bosch Japan President Herbert Hemming. That would outpace the 3 to 5 percent overall growth Bosch predicts for 2014.
Bosch expects the fastest growth with Japanese carmakers to come in emerging markets. The company can use its international factories to win business from traditional Japanese suppliers that lack the same overseas reach.
The race to commonize parts puts Bosch on carmakers' lists.
Udo Wolz, executive vice president for technology at Bosch Japan, cited one example in which Bosch consolidated the supply of 80 windshield wiper types to just 10 for one manufacturer.
He declined to name that customer.
Read the full story at Automotive News.
