Europe is a puzzle for Japan

COMMENT
James B. Treece is Asia Editor of Automotive News. He is based in Tokyo

TOKYO - What to do about Europe? For Japanese auto parts suppliers, Europe is a huge challenge. For Western suppliers, however, that very challenge offers considerable opportunities.

All Japanese carmakers are losing money in Europe and are underrepresented in market share. To fix that, they will have to follow Toyota Motor Corp. and move additional production to continental Europe, relying less on exports from both Japan and from their once-friendly, now Euro-disadvantaged United Kingdom base.

The carmakers might like to bring their suppliers with them, as they did when they moved into North America. Indeed, Toyota Tsusho Corp., the trading-house arm of the Toyota group, is developing plans to build a supplier park in Eastern Europe. Parts makers then could supply Suzuki Motor Corp.'s plant in Hungary as well as Toyota's in France from there.

But it is not clear who will fill that park. Adding extra parts capacity to the glutted European market is not cost-effective. When Toyota announced a tie-up with PSA Group's Peugeot to build small cars, it was an admission that even Toyota, the most efficient manufacturer in the industry, needed help holding down its costs if it wants to have a prayer of being profitable in Europe.

Toyota may find it more advantageous to help existing Peugeot suppliers reduce costs than to bring in new suppliers whose plants would operate at less than full capacity.

One way around that, of course, is for any new Japanese supplier plant to snare business from non-Japanese carmakers in Europe, thus raising its capacity utilization. But that will not be easy.

No. 1 is unknown

The Japanese parts industry is highly fragmented, with many small players. Most are unknown in Europe. Denso Corp. recently did a survey of its name recognition, using the subscriber list from Automotive News Europe. The results were depressingly bad. How bad? Denso won't even admit how poorly its name scored. In response, however, Denso has quadrupled the size of its international public relations staff, from half of one person's time two years ago, to two full-time staffers today.

If Denso, the No. 1 Japanese supplier and one of the top four in the world, is unknown among potential European customers, how do you think No. 21 would rate?

Also, putting up a plant in continental Europe would not be easy for Japan's suppliers. The typical supplier already has a factory in Thailand, in North America and maybe in England. Many simply don't have the management depth (read: managers who speak English) to take on another overseas plant.

In at least one case in which Toyota felt a key supplier's presence in Europe was crucial, it told that company, "You build the factory and provide the technology. We will supply the managers."

It will take that sort of creative thinking to overcome the hurdles facing Japanese suppliers in Europe. In some cases, the solutions will be developed in Japan. Aisin Seiki Co., Denso, Toyota Motor, and Sumitomo Electric Industries Ltd. recently joined forces to create a brake-systems supplier. One goal: Challenge Bosch's global market leadership.

A good hand to play

In other cases, however, it will be possible for Western suppliers to step forward. Suppliers that already have capacity on the ground in Europe and strong ties to existing European carmakers have a good hand to play in lining up joint ventures or other tie-ups with Japanese suppliers that see a need to move into Europe.

The savvy Western supplier will see that opportunity in terms that go beyond Europe, moreover. For example, offering the chance to enter the European market may be the carrot that induces a Japanese company to sell a stake to a Western concern.

It may not be a majority stake, but a nonmajority controlling stake or a noncontrolling stake still may be enough to gain access to the Japanese market. And Japan, after all, is where the engineering is done for the models that Japanese companies are launching in the growing markets of Asia.

Challenges in Europe for the Japanese thus may offer opportunities in China for Western suppliers. In case you hadn't noticed, it's a global industry.

You can send e-mail to James B. Treece at

You can reach James B. Treece at jtreece@crain.com

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