While Key Safety Systems has lost CEO Jason Luo to Ford Motor Co., Luo has left the suburban Detroit airbag supplier poised to double its size.
Key Safety expects to complete the purchase this month of Japan's Takata Corp. for $1.59 billion — a deal that will transform Key Safety into the world's No. 2 airbag maker behind Autoliv Inc.
On June 26, Key Safety announced a deal to acquire Takata's assets. On Aug. 23, Ford announced that Luo will become CEO of Ford China.
In an interview at the end of August, Luo, 51, said most major issues have been resolved in the Takata acquisition, and Key Safety has the support of Takata's 15 automotive customers.
"We have targeted signing a purchase agreement by early September" with the deal closing early next year, he said. "The team resolved remaining issues with customers and Takata last week."
The purchase agreement will tie up several loose threads at Key Safety as Luo joins Ford China.
Luo, who has managed Key Safety for a decade and steered the supplier through the 2008-09 economic crisis, said a Ford recruiter approached him in the summer of 2016. Luo ?accepted the offer early this year, but told Ford he wanted to complete the Takata deal before leaving Key Safety.
Airbags and seat belts made at both Key Safety and Takata use plastics in a variety of key parts, including housings.
He had expected to announce the Takata acquisition in March, but the Japanese airbag maker's financial liabilities complicated negotiations.
In July, Luo tendered his resignation to Key Safety's board of directors.
The new job allows Luo, a Chinese-born engineer who has lived in the United States for three decades, to return to Shanghai to be near his aging parents.
Key Safety has hired an outside firm to help recruit a new CEO. In the meantime, Key Safety Director Yuxin Tang will run the company with help from a transition committee of Key Safety executives.
As announced, Key Safety plans to acquire Takata's seat belt factories, research and development operations and work force — but not its legal liabilities or the plants that produce the failure-prone inflators that led to the largest automotive recall in history.
The company will establish an Asian headquarters in Tokyo and it will keep all manufacturing plants in Japan open.
Takata's plant managers and regional executives will be offered positions, but Takata will not retain its global headquarters.
Key Safety is expected to focus on two primary global rivals: Autoliv and ZF.
Loose threads
There is some unfinished business for Luo's successor. Key Safety must name an international production chief — a critical assignment, given Takata's costly quality lapses.
Key Safety's new chief also must figure out whether to boost production to replace Takata's defective airbag inflators.
Takata's ammonium nitrate inflators sometimes explode when activated, spewing metal shards into the passenger cabin, resulting in the recall. They have been linked to at least 18 deaths worldwide. Eventually, the recall is expected to cover 125 million inflators.
Luo said Key Safety's acquisition of Takata won't affect Takata's timetable for replacing the inflators. In July, Reuters reported that Takata will wind down its airbag business in 2020 after making replacement inflators for the recall.
Key Safety does not make replacement inflators for Takata customers, Luo said.
Key Safety is moving ahead with plans to double inflator production to 60 million a year, but that output is for its own customers. The next CEO must decide whether to start producing replacements, Luo said.
Another loose thread involves Takata's financial liabilities. In January, the company agreed to pay $975 million compensation to automakers and consumers, but the company still faces numerous liability lawsuits.
Active safety
While those lawsuits could complicate life, they don't represent a financial threat to Key Safety.
Takata's U.S. subsidiary sought Chapter 11 bankruptcy protection in June, and Key Safety will not inherit Takata's liabilities. That leaves Key Safety free to focus on its two global rivals: Autoliv Inc. and ZF Friedrichshafen.
Once the acquisition is complete, Key Safety will have more than 60,000 global employees plus $7 billion in annual sales.
Only two airbag makers, Autoliv and ZF, can rival Key Safety's size. On the other hand, those two companies have invested heavily in active safety — that is, collision avoidance and self-driving vehicles.
Key Safety is a newcomer to the fast-growing market. The company has developed 360-degree camera vision for vehicles, and it plans to market Takata's in-cabin driver monitoring system.
But the company won't try to match its rivals' portfolios of cameras, radar, lidar, control units and software, Luo said. Instead, it will focus on what it does best: protecting passengers from injury.
If a vehicle's sensors determine that an accident is unavoidable, for example, the vehicle could activate airbags before the impact. That would be especially useful for side-impact collisions that can't be dampened by a vehicle's crush zone, Luo said.
"For the future, we will focus on anything that is safety-related," he said. "Once you know an accident is going to happen, you have more time to react. So the [airbags and seat belts] will perform much, much better."
Luo said Key Safety also may get help from its corporate parent, Chinese electronics giant Ningbo Joyson Electronic Corp. Ningbo Joyson also owns a stake in Preh GmbH, a German supplier of sensors and electronic control units. Preh's German research center could prove useful in future development work.
Now that the Takata deal is wrapping up, Luo said he hasn't scheduled any time off to clear his head before joining Ford, with plans to begin work just days after flying to Shanghai on Sept. 2.
Said Luo: "I'll store my luggage and jump in."
