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June 10, 2015 02:00 AM

Johnson Controls to explore spinoff of its auto business

David Sedgwick
AUTOMOTIVE NEWS
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    Johnson Controls Inc.
    Johnson Controls Inc. debuted this concept interior at the North American International Auto Show in January, showing its capabilities in seating and trim.

    Johnson Controls Inc. said it is "exploring strategic options" for its automotive business — the first step in the possible sale or spinoff of its seat business.

    CEO Alex Molinaroli, in a statement today, said the company “had no specific timetable for the completion of the strategic review, which includes a full range of strategic options for the automotive business.”

    If JCI does sell its seating business, it will likely get a good price. The company already has sold or spun off its interior components operations, which suffered from tight margins and numerous competitors.

    The Glendale, Wis.-based company's remaining seating unit is No. 1 in the segment. Its auto business has annual sales of about $23 billion.

    The company said it will retain its battery business and also its non-automotive operations, which produce heating, ventilating and air conditioning for homes and buildings.

    In a telephone interview today with Automotive News, Molinaroli cited two major reasons for the proposed spin-off. First, the auto industry is extremely cyclical — with boom-and-bust cycles that can play havoc with a company's cash flow.

    “The cyclicality is not something that we particularly like, and it drives some of our decisions,” Molinaroli said.

    Second, the seating business will require a big capital investment that Johnson Controls is not willing to make, Molinaroli said. The seating unit “competes well and does well,” he said. “To continue to be a leader, they will need a source of capital.”

    Molinaroli said he may sell or spin off his seat business in chunks, or as a single unit. He added that no deal is imminent.

    “I don't even think that it's even possible to happen this year,” he said. “It's not something that can happen overnight.”

    Earlier this year, JCI finalized an agreement to shift its interior trim business to a new joint venture, Yanfeng Automotive Interiors. JCI will hold a minority stake in the JV — 30 percent — with Chinese auto supplier Yanfeng Automotive Trim Systems Co. Ltd. holding the majority share.

    Automotive News is a sister publication of Plastics News.

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