Johnson Controls to build 10 more seating plants in China
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Johnson Controls Inc. plans to build 10 more auto seating plants in China over the next five years as part of a long-term strategy that calls for continued growth in China and slow expansion in the North American market to offset expected slowdowns in Europe.
Speaking during a meeting with investors today, JCI CEO Steve Roell said he remains “bullish” on China.
“We think it will continue to prosper, though not as fast as it has been,” he said.
The supplier generates $5 billion in business in China now with 56 plants between its wholly-owned operations and joint ventures. Roell said it believes it supplies 45 percent of the seats in China.
Although the Chinese auto industry has slowed, it is still the largest growth potential among global markets, he said. He did not discuss any details for those new sites.
“Ninety-nine percent of what we do in China stays in China or in Southeast Asia,” he said. “We did not go to China for labor arbitrage, we went to participate in the local market.”
Analysts with Baird Equity Research said in a written report on JCI’s outlook that it sees Johnson Controls “outpacing the market due to meaningful China exposure.”
JCI has also invested in additional capacity to produce individual components for seating, including more capability for metal parts. Roell said that reflects changes within the auto industry in which automakers are now opting to sometimes award contracts for individual parts, rather than the complete seat.
“They’re directing the trim, the foam the metal,” he said.
The company also developed a leadership team that could work with automakers to sell and source those individual parts in addition to complete programs.
“Now we can compete with foam, with cut-and-sew, with metals,” Roell said.
Business restructuring
In 2012, JCI developed a separate business unit for its electronics and auto interiors group -- separating it from seating -- to reflect the different dynamics of those two groups. Bill Jackson is president of electronics and interiors while Beda Bolzenius, formerly president of the Automotive Experience unit, is president of seating.
The change comes because interiors and electronics is more capital intensive than seating and interiors are more likely to see changes during a mid-cycle upgrade to an existing vehicle line than seating, Roell said.
JCI has an automotive backlog of $3.7 billion in business for 2013 to 2015, which is about even with its previous backlog for the 2012 to 2014 time period. For 2013, it expects its seating business to gain 2 percent over 2012, reflecting growth in North America and China.
European issues
Europe stands as a “major headwind” in JCI’s forecast, however.
“We could talk about Europe all day, but I think all of you know about Europe,” he said. “We look at Europe and believe it’s going to take some time. In our case, when we look at the duration (of a downturn) we decided there was nothing we could point at that would see it come back in 2013 or 2014.”
Roell said the company expects European production could decrease by double digit percentages in 2013. That will not only impact JCI’s production, it will likely bring unexpected disruptions throughout the supply base as small suppliers shut down, leading to parts issues for others.
JCI, based in suburban Milwaukee, ranks No. 7 on the Automotive News list of the top 100 global suppliers with worldwide sales to automakers of $21.28 billion during its 2011 fiscal year.
You can reach Rhoda Miel at rmiel@crain.com.
