Published on July 8, 2014

Japanese auto suppliers grow through acquisitions

By David Sedgwick and Hans Greimel, Crain News Service

DETROIT (July 8, 2014) — Prodded by a stagnant home market and fast-moving rivals, Japanese automotive suppliers are buying up foreign companies to gain quick access to new technology, customers and markets.

At least three major Japanese suppliers—Denso Corp., Toyoda Gosei Co. and Tokai Rubber Industries—have made acquisitions in recent months.

It’s a brave new world for some Japanese suppliers, which traditionally have favored in-house product development. Acquisitions previously were viewed as attempts to buy market share, often with short-term benefits.

In early June, Denso snapped up Ease Simulation Inc., a telematics startup near Pittsburgh that provides remote vehicle diagnostics for commercial fleet owners.

That deal followed Denso’s acquisition in September 2013 of a 50-percent stake in Adasens Automotive GmbH, a German developer of image-recognition technology that allows onboard cameras to identify road obstacles.

Denso—No. 2 on a list of the Top 100 global suppliers compiled by Automotive News, a sister publication of Tire Business—appears to be taking the trend a step further by channeling Silicon Valley’s do-it-now ethos.

On May 29, the company announced plans to beef up its think tank in Silicon Valley to “aggressively pursue investments” in startups and entrepreneurs.

Denso said its Silicon Valley operation will focus on cybersecurity, big data and autonomous driving—all major growth industries as auto makers race to improve their collision avoidance technology.

The Japanese megasupplier is trying to keep pace with foreign rivals such as Robert Bosch GmbH, Continental A.G. and Delphi Automotive, each of which has opened an office in Silicon Valley.

Japanese suppliers long have favored in-house growth. But homegrown expertise takes time in fields such as vehicle diagnostics, collision avoidance and infotainment. Acquisitions and licensing are popular tactics for companies that need to improve their technology quickly, said Egil Juliussen, an analyst for the consulting firm IHS Automotive.

Auto makers and suppliers “must become more proficient to manage software and update it,” Mr. Juliussen said. “There will be new skills required.”

Ease, a 14-employee startup near Pittsburgh, has a cloud-based database that covers 90 percent of vehicles on the road. The Ease acquisition could enable Denso to enter the realm of remote vehicle diagnostics for commercial fleet owners and dealerships.

“We’re talking to a number of different companies,” said Richard Shiozaki, a Denso senior vice president. “We are not only here to sell products but to offer services, and telematics fits right in with our growth plan.”

While dealer diagnostics looks like a profitable niche, collision avoidance could be a huge revenue generator for Denso and other megasuppliers.

Denso, like its German rivals, has developed a broad array of technology—such as radar, lidar, vision sensors, lane-keeping assist and adaptive cruise control—that are needed for collision avoidance.

The company is developing a vehicle-to-vehicle communication system to help prevent collisions at intersections.

Bargain hunting

While Denso pursues high-tech acquisitions, Toyoda Gosei went bargain hunting in the workaday world of weatherstripping.

On May 20, the company said that it had acquired the assets of the German rubber supplier Meteor, which had declared insolvency two years earlier.

Toyoda Gosei, No. 29 on Automotive News’ list of top global suppliers, will use the Meteor acquisition to expand its business with customers such as Daimler A.G., BMW A.G. and Audi.

Hiroki Fukui, vice president of North American purchasing and administration, said Toyoda Gosei has a sense of urgency to expand its portfolio of customers.

“We have a very good position with Japanese auto makers, but our business with European auto makers is very small,” Mr. Fukui said. “We have to expand our business with them radically and drastically.”

Tripling sales

As their home market stagnates, Japanese auto makers are setting up assembly plants overseas. Their suppliers are following them into new markets—and seeking new customers, too.

Consider Tokai Rubber Industries, a supplier of rubber anti-vibration parts and hoses that ranks 77th on Automotive News’ list of the top 100 global suppliers.

In 2011, the company announced plans to triple global sales over the next decade. Since then, Tokai Rubber has expanded to 74 sites in 24 countries, up from 43 sites in 11 countries.

In its 2013 annual report, Tokai Rubber—which will change its name to Sumitomo Riko Co. Ltd., effective Oct. 1—said it would expand in Europe and South America “by vigorously conducting mergers and acquisitions in order to strengthen its global supply chain.”

Early last year, Tokai Rubber bought Italian hose maker Dytech-Dynamic Fluid Technologies S.p.A.

Then it acquired Germany’s Anvis Group GmbH and Produflex Minas Industria de Borrachas of Brazil.

Japanese suppliers aren’t abandoning their home market or their traditional customers. But the pace of technological innovation has given them a sense of urgency.

“We keep finding more and more unique applications” for telematics technology, said Denso’s Mr. Shiozaki.

“There is huge growth potential,” he said.

This report appeared on the website of Automotive News, a Detroit-based sister publication of Tire Business.

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