Henniges grows in China, battles supply chain, labor shortages

Three years.

That's all the time that Henniges Automotive Inc. needs to put the last pieces in place to achieve a key milestone in China's automotive market.

"Our goal is to become the No. 1 market leader in all of China in the sealing space," Henniges CEO Larry Williams told Rubber News. "We have been growing substantially over the last several years as we have been penetrating the new, electric-vehicle manufacturers, so we are in the top five. There is not a lot of distance between one and five, currently. We believe we can get there in the next three years."

Henniges March 1 took a big step toward that aim with the establishment of a joint venture that not only widens Henniges' footprint in the country, but also deepens its relationship with Chinese auto makers by expanding its customer base and product offerings.

For the JV, Henniges is partnering with auto components maker Guizhou Guihang Automotive Components Co. Ltd. The agreement combines Henniges' Chinese operations with those of Guizhou Hongyang Sealing Parts Co. Ltd. and Shanghai Hongyang Sealing Parts Co. Ltd.—subsidiaries of Guizhou Hongyang Automotive Components that serve the automotive sealing market.

The JV will operate under the name Henniges (China) Sealing Systems Co. Ltd. and bring together six total manufacturing facilities.

Ahead of the joint venture, Henniges — which has a technical center and regional headquarters in Beijing — operated four plants in China: in Tianjin, Tieling, Suzhou and Chengdu.

Williams noted that the four plants represent fewer production locations than in recent years, the direct result of consolidation efforts that Henniges undertook around 2020. And while the decision reduced the number of manufacturing plants, the move streamlined operations and made better use of technical resources, positioning Henniges to pursue its goal of becoming the No. 1 producer of auto sealing in China.

"The old model in China was to have small factories close to the OEMs," Williams said. "As they have improved their infrastructure in China, it has given us the ability to truck product farther, so it has given us the ability to consolidate into larger facilities."

Even with its larger manufacturing operations and ability to serve greater portions of the country, there was one area where Henniges didn't feel it was making enough headway: southern China.

The JV with Guihang changes that.

Henniges, under the joint venture, now operates within Guihang facilities in Guizhou and Shanghai. Combined with the customer base Guihang already had established with OEMs in the southern part of China, the additional capacity and plant locations offered an immediate boost to Henniges and the JV.

"There are OEMs in the south that, because we don't have a production facility near them, we don't have business with them," Williams said. "So this gives us the ability to serve additional customers than what we typically would or historically have."

According to Henniges, Guihang's sealing operations supply original equipment manufacturers SAIC, JMC, SGMW and DFCV.

"This [JV] gives us the ability to introduce Henniges products into the Guihang customer base. It also allows us, Henniges, to get into some of the lower-end customers through the Guihang cost model," Williams said. "So it gives us the ability (to leverage) a lot of the synergies that are on the market side. We get exposed to customers on both sides."

Henniges knows a thing or two about establishing itself as a leading producer of sealings products within a given region. The Auburn Hills, Mich.-based company claims to be the largest sealing supplier in North America — a title it worked hard to secure. The company uses both rubber and plastics in its products.

According to Rubber News' most recent rankings, Henniges is the 24th largest rubber product maker in North America with sales of around $564 million. Globally, the sealing maker ranks 27th among non-tire rubber products manufacturers with sales in the $910 million range.

Establishing and maintaining a leadership position in sealing means bridging the gap between the auto industry's internal-combustion-engine present and its next-generation, electric-vehicle future. Turns out, that's a space where Henniges has found success, building relationships with well-established OEM titans as well as up-and-coming vehicle makers.

Henniges' early partnership with Tesla allowed the company to gain credibility within the e-mobility space. That credibility has helped in North America and now is helping to expand opportunities in China, Williams said.

"Tesla has been a successful story for us," Williams said. "We are positioning ourselves with the traditional OEMs as they convert to electric vehicles to make sure we are on most platforms. And I don't see any other market having the opportunity to grow as rapidly as we do in China, especially in the current economic climate that we are in, with the semi-chip shortages and COVID."

It's been a rocky go for the automotive industry in recent years. Auto suppliers are navigating tricky terrain, one marred by skyrocketing materials prices, labor shortages and supply chain entanglements. OEMs, wrestling with the same issues, have been forced to curb production due to COVID-19 outbreaks or parts shortages—namely the lack of needed microchips, but Russia's brutal attacks on Ukraine have led to shortages of other parts such as wire harnesses.

In Europe particularly, the war has forced temporary closures of auto plants as parts come up short in the midst of supply line roadblocks. These unexpected OEM shutdowns, in turn, force Henniges to react in real time, pressing pause on its own supply chain and production.

"The semi-chip shortage, in many ways, is more difficult to manage than the COVID shutdowns because the COVID shutdowns were more predictable vs. with the chip shortage where we get last-minute notices from customers that they are going to shut some of their plants down," Williams said.

At this point, Henniges is taking a week-to-week planning approach to manufacturing to ensure that it can properly balance inventory, supply and finances. Often, doing so means enacting temporary layoffs.

"Unfortunately, the biggest impact is on our people," Williams said. "We have to do temporary layoffs when we don't have production requirements."

Managing supply chain prices isn't easy either, particularly now that the war in Ukraine has severely impacted crude oil prices.

"We are very heavily dependent on oil. So as the price of oil increases or decreases, our raw material prices increase or decrease along with them," Williams said. "I think everybody that follows the market can see what is happening with the price of crude oil. ... As the price of crude oil goes up, our raw material prices go up substantially. We are trying to stay on top of that and mitigate that as best we can."

Then there's the labor shortage. It's an issue that Williams said isn't limited to North America. Globally, it's difficult to find the labor needed to manufacture needed products. And long term, that's the most pressing issue Henniges faces.

"If the market does miraculously (recover)—if they get enough semi-chips and COVID disappears and the war is over, and the OEMs start to ramp up to their full capacity—it is going to be difficult to get enough people to run production," Williams said.

Each of the challenges faced by the auto industry—and by extension, Henniges—aren't isolated. In many ways, the challenges are connected. For Henniges particularly, Russia's war on Ukraine and the labor shortage are starting to converge.

The seal maker doesn't operate any plants in Ukraine or Russia, but it does have a pair of manufacturing sites in neighboring countries. As the war continues and the situation becomes more volatile, it's going to be harder to fill jobs.

"In Europe, we have a plant in Poland and a plant in the Czech Republic," Williams said. "We are (employing) people from Ukraine, and unfortunately, now with the war, a lot of males are getting called home to go and fight in the war.

"We are starting to see in Poland that the government is calling up males to get them trained in the event that the war expands into Poland. So right now, it is very volatile. We are trying to recruit and trying to retain our talent as best we can."

And that's easier said than done, especially as parts shortages and pandemic-related issues continue to dim the possibility of routine vehicle—and parts—manufacturing, at least in the near future.

"Obviously when you have up-and-down production and you have to lay people off, it is hard to retain people," Williams said. "... I don't know that we are doing anything unique, but we are trying to be as creative as we can and treat our people with a lot of respect."