Johnson Controls Inc.'s spinoff of its $22 billion seats-and-interiors unit announced last week underlines an uncomfortable truth for suppliers: Sometimes it's not enough to be No. 1.
With $17.5 billion in sales last year, JCI's seating operation easily eclipsed global rivals such as Magna International, Faurecia and Toyota Boshoku Corp.
But seats don't generate the profits that they once did, and that's due to a new trend in purchasing.
Around 2010, global automakers began placing separate orders for each major seat component — foam, motors, frame, tracks, fabric, etc. Four suppliers might produce the various components while a fifth handles final assembly.
This approach allows purchasers to drive down costs by ordering in bulk — a winning strategy if the automaker has a handful of global platforms. Some automakers even agreed to buy the same standardized components. Mercedes and BMW, for example, share the same seat frame.
Before 2010, about 80 to 90 percent of Johnson Controls' orders were for complete seat systems, according to Beda Bolzenius, JCI's Automotive Seating president. In a 2013 interview with Automotive News, Bolzenius explained the trend.
Now, about 80 to 90 percent of the company's orders are for individual components, Bolzenius said.
The global trend is clear: Automakers appear determined to find a low-cost supplier for each individual component, squeezing profits of seat makers.
This left Johnson Controls with a dilemma: The company said it had to make major r&d investments to upgrade key components such as seat frames. But the profit margins are too volatile to justify the investment, the company said in June.
JCI CEO Alex Molinaroli solved this problem last week: He's getting out of the seat business.