Ever since Americans began their love affair with Japanese cars four decades ago, General Motors (GM), Ford, (F) and Chrysler (DCX) have seen their share of the U.S. market tumble. Now those same automakers are starting a romance with a different Japanese industry -- parts manufacturing -- adding to the woes of troubled U.S. suppliers such as Delphi (DPHIQ), Tower Automotive (TWRAQ), and Lear (LEA).
Although Japanese component makers remain largely committed to their home-country partners, growing interest from U.S. manufacturers is boosting sales and profits. All told, Japanese suppliers last year sold $26 billion worth of products in the U.S., giving them about a quarter of the market, brokerage Nikko Citigroup Ltd. estimates. Toyota Motor Corp (TM). affiliate Aisin Seiki Co. saw its North American sales grow 37%, to $2.4 billion, last year, with nearly $1.1 billion of that going to companies other than Toyota. At Denso Corp. (DNZQY), another Toyota ally, American sales grew 19%, to $5.9 billion, in the year ended in March. That helped Denso post record earnings of $1.5 billion, compared with the $2 billion operating loss Delphi expects this fiscal year. "We're not fixated on size," says Denso President Koichi Fukaya. "But we feel our business opportunities are increasing."
Denso is clearly the leader. It has 23 U.S. factories, and all three Detroit automakers buy heaters, air conditioners, fuel injection systems, and other components from the company. Denso's sales to GM have doubled in the past five years; today 40% of its North American business comes from non-Japanese carmakers. In April, Bo Andersson, GM's global vice-president of purchasing, named Denso the company's top vendor. The outfit was "our best supplier based on timely delivery, quality, and warranty costs," Andersson says.
Other Japanese parts makers are trying to follow in Denso's tire tracks. Showa Corp. has plants in Ohio and Canada that make shock absorbers, power steering systems, and other components for Hondas manufactured in the U.S. In January, though, the company started selling propeller shafts to DaimlerChrysler for use in the Dodge Caliber SUV. (DC X) Now Showa is aiming to wean itself further from Honda Motor Co. (HMC), which currently accounts for 80% of its business. "We're keen to expand sales with the Big Three," says Shigeru Handa, a manager at Showa.
Part of the reason for the success of Denso and its peers is a change of attitude in Detroit. In years past, the Big Three simply drew up specifications for components and then gave business to the parts maker with the cheapest price. Today, GM is working more closely with suppliers during the development process, and Ford and Chrysler are starting to head in the same direction.
Still, for all the growth, Japanese automakers will likely remain the top priority for these suppliers. For one thing, Japanese manufacturers are continuing to ramp up North American production as quickly as Detroit scales back. And relations with affiliates are deeper than those with the Big Three: Last August, Ford groused that Aisin Seiki favored Toyota when supplying scarce hybrid transmission systems.
The Japanese are continuing to press their advantage. Just as hefty profits let Japan's carmakers take the lead in safety and environmental technologies, Denso and the others are devoting more money to their own research to stay ahead of the game. "They have excellent product development," says Jeffrey K. Liker, a professor of industrial and operations engineering at the University of Michigan. "My belief is that they are better than their American competition."
By Ian Rowley, with David Welch in Detroit and Hiroko Tashiro in Tokyo