Adient begins life as world's No. 1 seat maker

Today, Oct. 31, the largest automotive supplier nobody ever heard of is to start business.

That would be the $17 billion Adient, which is to launch on the New York Stock Exchange as a newly independent company and the world's No. 1 automotive seat maker.

Adient is the new name for the seating business of Johnson Controls Inc. Freed from its industrial conglomerate parent in a spinoff, Adient wants to use leaner operations and tax breaks to assert its primacy in seating for a new era of automaking.

It retains 34 percent of the global seating market. But competitors such as Faurecia, Lear Corp. and Magna International Inc. have moved aggressively for a piece of that amid the uncertainty that has hung over JCI's automotive businesses since CEO Alex Molinaroli decided to bail out of the cyclical automotive business and concentrate on JCI's building controls systems and batteries.

"We made up half the revenue and a third of the profits of that company," says Byron Foster, Adient executive vice president, speaking of automotive's share of JCI, where he has worked 19 years. As Molinaroli took over in late 2013, "he made it pretty clear he had a different vision for JCI. We've been in front of customers the whole time through that transition as to what they should expect."

Those automaker customers should expect a new company focused on seats and not forced to compete for the resources of the big industrial parent company.

Under JCI, capital investment was constrained during the previous couple of years, averaging $3 billion to $3.5 billion per year. Now the shackles are off, Foster says.

"We booked $5 billion in sales the last fiscal year. We're projecting we'll have another strong year in fiscal 2017.

"We'll be focused on growth," Foster says.

Adient was created as a result of a convoluted series of events that transformed JCI.

When Molinaroli became CEO, he moved to separate the company from its major automotive businesses, including interiors and seats. JCI's automotive arm had grown in diversity, ranging from seat structures to headliners, instrument clusters, door panels and consoles.

JCI first spun off the interiors business into a joint venture, Yanfeng Automotive Interiors, in 2014, with JCI retaining a 30 percent interest. Then came JCI's merger this year with global fire alarm and security company Tyco International, during which JCI's headquarters moved to Cork, Ireland, from Milwaukee. That move became part of a political firestorm over American companies moving abroad to get lower tax rates.

Adient, the liberated seating company, will be headquartered in Dublin, Ireland, where it will have a 10 to 12 percent corporate tax rate, resulting in about $150 million in annual "tax synergies," Foster says.

Some competitors have charged that Adient's tax break gives it an unfair pricing advantage.

But Foster says: "I wouldn't say it's a price play. It is a cash flow benefit. In our business we have to be competitive on all fronts," and take advantage of its status as a "truly global company."

The tax advantage will help the company to pay down its debt and invest more, he says.

Like its competitors, Adient has big plans to become a major player in the burgeoning autonomous vehicle seating arena.

Says Foster: "As we think about the future of interiors, and new environments such as autonomous come on line, we think the interior space is ripe for redefinition."

That means working in close cooperation with its new partner, Yanfeng Automotive Interiors. Yanfeng, of Shanghai, makes door panels, instrument panels and consoles. Adient inherits JCI's 30 percent stake in Yanfeng.

The two companies will display separate concept vehicles outlining their visions of an autonomous vehicle future in January at the Detroit auto show.

"We're like first cousins," Foster says of Yanfeng. "I think that's going to create a pretty unique set of opportunities for both companies."

One area where Adient won't follow its competitors: so-called wellness seats. Lear, Magna and Faurecia have announced initiatives to create seats that measure biometric feedback and adjust to make occupants healthier. Foster says that won't be a priority for Adient.

"If I look at where we're placing some of our innovation, I can't sit here and tell you that turning the seat into a health care product is one we're placing any bets on. That's not what our customers are asking us to help them with," he says.

Adient's separation from JCI was not painless. The new company was saddled with $3.5 billion in debt to fund a $3 billion cash payout to JCI. Bruce McDonald, Adient CEO, has said the new company has a debt load of 1.9 times earnings before interest, tax, depreciation and amortization. He expects to whittle that ratio to 1-to-1 within three years.

Competitors see that leverage as an opportunity to reach for Adient business.

Matthew Simoncini, CEO of Lear Corp., one of Adient's main rivals, has been critical of the new company. He has said Lear expects that the "irrational, unsustainable price quotes coming out of Johnsons" will have no impact on Lear.

Speaking in a recent interview, Simoncini said: "Whenever there is uncertainty, that's usually bad for a supplier. When a competitor's future is uncertain, or highly leveraged, that is usually a benefit to a stronger company. I can't wait until Adient comes out. I want to compete with them head to head."

With projected consolidated revenues of $17 billion in this fiscal year, Adient would be about No. 11 on the Automotive News list of top 100 global suppliers, just behind Lear and ahead of Valeo. When it was still JCI, it finished No. 9 on the list with worldwide parts sales to automakers of $20.07 billion in fiscal 2015.

Adient will operate 230 locations in 33 countries with about 75,000 employees. Adient has said it will deliver 25 million seating systems used on 330 vehicle nameplates around the world.

The new company is counting on its leading market position in China, where it had $7 billion in unconsolidated revenues. Adient is counting on its non-North American revenues -- 70 percent of the total -- to help it weather a possible North American downturn. The company is particularly dominant in China.

Though "Adient" is a new name, don't expect an avalanche of ads to promote it.

Says Foster: "You'll see a little bit more publicity advertising around the Adient brand as we launch. The industry knows us. The industry has caught on to our story very quickly."