The need for megasuppliers is growing as automakers seek to produce their vehicles in multiple locations around the world. This trend played a part in the formation of Yanfeng Automotive Interiors, the U.S.-Chinese joint venture that is now the world's largest supplier of automotive interiors with annual sales of $8.5 billion.
YFAI was created last July when Yanfeng Automotive Trim Systems joined with the vehicle interiors arm of Glendale, Wis.-based Johnson Controls Inc. YFAI CEO Johannes Roters explained why consolidation will continue during a recent interview with PN's sister publication Automotive News Europe managing editor Douglas A. Bolduc.
Q: Is the recent formation of Yanfeng Automotive Interiors an example of the growing need for suppliers to become even bigger and more global?
Roters: I think consolidation will continue to happen. Why? Because of the growth that has taken place since I started my automotive career in 1982, especially in Asia. It simply happened. Asia, including China, is the biggest automotive market, and the other mature markets are very solid and had good 2015 sales numbers as well.
Q: What role have the automakers played in accelerating the supplier consolidation trend?
Roters: Look at Daimler and the Mercedes C class. They produce this car in China, Germany, the U.S. and South Africa. They need to guarantee the same quality everywhere. That means you need suppliers that can respond globally. The interior business is very (capital expenditures) intensive. You need a certain size to generate enough cash so you can make this investment, set up the footprint and connect to different regions. You also need global standards in place so that you can deliver the expected quality to the customer in the same way around the globe.
Q: Will there be more consolidation, especially in the interiors sector?
Roters: Yanfeng and Johnson Controls took a first step. Johnson Controls is very strong in America and Europe while Yanfeng is very strong in China. Moving them together creates a strong global player in the different regions. This is a good answer. We have three to four global [interiors] players now that can handle global demands. Further consolidation will go on. There is no doubt about this.
Q: A number of midsized suppliers have been purchased by larger companies such as Johnson Controls, Magna International, Faurecia and Grupo Antolin. One reason was that those smaller suppliers didn't have the money to go global. Is a decision like that purely based on finances?
Roters: It's not only money. What is also very important is the need to have a global organization. The questions that are asked are: How do I manage my business in China? How do I manage my business in the U.S.? It is a huge challenge. To buy an asset, a machine, is easy, but to run the machine [outside your home market] is a different story. You need the right people and the right processes as well as the same values, same understanding, same mission and same vision.
Q: What is Yanfeng doing to cut the weight of its components to help automakers reduce CO2 from new vehicles?
Roters: The biggest opportunity for us is to take weight out. It is one of our main themes for innovation. One way is by combining materials. For example, we take polypropylene glass fiber material and combine it with other products. From this hybrid we can create stiffness and the strength while having a thinner, lighter wall of thickness. We aim to keep cost down and cost is weight. If you can take material out and deliver the same function, that is perfect. This is what we need.
Q: Have massive recalls such as the one Takata has faced caused suppliers to take an even closer look at their standards and processes?
Roters: Quality is a must and a given for a global industry. The platform strategies creating this dynamic mean that if something goes wrong then it doesn't touch just one car it touches a lot of cars. As a supplier it is absolutely mandatory to have strong global processes in place. We have what we call our "business operating system" where we have clearly written down how our factories should work and how our quality setup is. This is driven globally. The plant teams around the world have to execute this.
Q: What role do top executives play here?
Roters: The buy-in from leadership must come because to accept a process is a leadership responsibility. To deviate from a process is a leadership mistake. The leadership is the driver for this and for this we have to make absolutely sure global standards and global processes are a No. 1 priority.