It's good news, bad news for the airbag industry.
The good news is that automakers envision a huge expansion in airbag applications. That will mean big opportunities for sales of products that are only now coming off the drawing boards.
The bad news is that the supplier industry in general is changing in a way that could rapidly relegate airbag makers to a role of commodity producers.
The past five years of mergers and industry reshuffling have dramatically reordered the airbag segment's player roster. At a time when airbags are becoming more sophisticated and more integrated into the other systems of the auto, it increasingly is the larger module integrators - not the airbag producers - who will determine how the technology will work.
According to Providata Inc., an Ann Arbor, Mich., consulting firm that tracks the airbag segment, annual airbag applications will double over the next five years. This year, Providata estimates, the global auto industry will install just less than 95 million bags. In 2005, volume will rise to more than 180 million bags worldwide, according to Providata.
Airbag production is growing rapidly. In just the past two years, world production rose from under 70 million bags a year to the expected 94.7 million this year. That sort of growth once reflected the installation of bags into vehicles that previously had no bags. But the situation is now different. Most of the world's vehicles already have driver-side bags, and the expected growth in passenger-side bags should be modest for the next five years.
Instead, the dynamic growth projections come from the proliferation of additional bags. For example, in 1998, there were no 'curtain bags' in use. By 2005, annual installation of curtain bags should reach 27.8 million units, Providata estimates. There will also be growth in rear-seat bags, knee bags and foot bags.
As a point of contrast, Western Europe's automakers installed passenger-side airbags in about 42 percent of its vehicles in 1998. That installation rate is expected to rise into the 80 percent range near the end of this decade, Providata forecasts. In the Asia-Pacific region, where passenger-side bags have about the same level of installation as in Western Europe, the decade is forecast to close in the 75 percent range.
Side-impact bags could be in one-third of all Asian-market vehicles by 2002, up from just 8 percent in 1998. And knee bags are planned for about one out of every 10 European-market vehicles in 2004, compared with just one out of 100 in 1998.
As this rush of new products takes place, airbag producers are stepping back from their Tier 1 status. By 2005, Providata suggests, 'most Asian, European and North American airbag module and electronics suppliers will participate within a modular integrator process.'
That shift to Tier 2 or even Tier 3 status will force producers to drive down costs in order to compete for their place in various component modules. To do that, Providata predicts, airbag suppliers will move more production to lower-cost regions such as Southeast Asia.
The question of the hour is: Who will take the role of Tier 1 supplier, overseeing the airbag products?
In the mid-to-late 1990s, the industry saw the linkup of steering wheel suppliers, airbag producers, and companies that produced inflators, sensors, materials and plastics. More recently, some major players are changing their market position. Delphi Automotive Systems Corp. has increased its bag production capacity. Breed Technologies Inc. is in Chapter 11 and entertaining suitors. And major interior suppliers such as Lear Corp. are forming alliances with bag-technology suppliers.
Delphi itself is considering an integrated, vehicle-wide approach to safety components, which would put airbag suppliers onto the same level as the various parts makers they have recently been acquiring.
Similarly, Johnson Controls Inc. and Lear are taking a larger view of their potential roles as systems integrators. Lear is working on a project to provide the entire interior of a Ford Motor Co. vehicle.