Joint venture expects profits from start

JCI interiors finds solid ground in China

Joint venture expects profits from start

Molinaroli: Eye on dividends
Related Topics

Johnson Controls Inc. isn't ready to write off the auto industry's much-maligned interiors segment.

True, the world's largest seat-maker announced Sunday, May 18 that it will spin off its interiors unit, which produces door panels, consoles and instrument panels.

But instead of simply selling it, JCI will form a 30-70 joint venture with China's Yanfeng Automotive Trim Systems Co. to oversee a business expected to generate global revenues of $7.5 billion a year. JCI is contributing $3 billion in assets under the noncash agreement.

In effect, the deal allows Johnson Controls CEO Alex Molinaroli to have his cake and eat it, too.

The company will remove its interiors unit from its income statement, since the revenue from its new partnership will be unconsolidated. That will mollify investors who weren't happy with the interiors unit's relatively thin profits.

Yet the new partnership will allow Johnson Controls to grab a bigger share of China's fast-growing automotive market.

Johnson Controls' battery and seat divisions -- which dominate their respective global segments -- already have made big investments in China.

The new joint venture also will have a significant niche in China, and Molinaroli believes it will be profitable from the outset, with an estimated net income of 6 percent of revenue.

"We don't plan to put any more cash into this business," Molinaroli told Automotive News. "We plan to get dividends out of it."

To understand Molinaroli's confidence, it helps to know more about Yanfeng.

Yanfeng is owned by the in-house supplier to Shanghai Automotive Industry Corp., China's largest state-owned automaker. Since SAIC has partnerships with General Motors and Volkswagen, Yanfeng has access to China's biggest automakers.

Moreover, Yanfeng inherited the product expertise and global reach of its former partner, Visteon Corp., which sold its 50 percent stake in Yanfeng last August.

So Yanfeng has a portfolio of global customers, plus a well-equipped r&d center in Shanghai. And that's why Molinaroli won't have to invest to make this venture competitive.

With an estimated market share of 15 percent, Yanfeng can market itself as a global player in interior trim, Molinaroli says. And in China, Yanfeng can offer its services as a supplier of complete interiors.

Johnson Controls tried and failed when it cast itself as a one-stop shop in North America. But China is different, Molinaroli says.

China's domestic automakers are scrambling to make their products competitive with foreign brands. Those companies are likely to be receptive if Yanfeng offers to produce a vehicle's instrument panels, door panels, cockpit systems, floor consoles and overhead consoles.

At least, that's the theory.

You can reach David Sedgwick at dsedgwick@crain.com.


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