Takata air bag crisis hands Autoliv chance to go big in Japan

Ashimori Industry Co

11/11/2015 06:00

(Repeats story, with no changes) 
    By Johannes Hellstrom 
    STOCKHOLM, Nov 10 (Reuters) - Swedish car safety equipment 
maker Autoliv  ALV.N  could capitalise on the crisis engulfing 
its rival Takata Corp  7312.T  by finally extending its global 
leadership to the one major auto hub it has been unable to 
dominate - Japan. 
    Autoliv is the world's top maker of equipment such as air 
bags and seat belts, but it has struggled to break the ties 
between Japanese carmakers and main supplier Takata in a country 
where the "keiretsu" corporate culture sees businesses closely 
bound together in relationships cultivated over decades. 
    The ground has shifted, however; a string of Japanese 
carmakers have ditched Takata's air bag inflators in recent days 
after U.S. regulators said they used a chemical that they 
suspect causes the bag to explode with too much force, spraying 
metal shards into the car.  ID:nL3N131168     
    Takata is the only supplier to use the volatile chemical -  
ammonium nitrate - in its inflators, which have been linked to 
eight deaths and have led to the recall of more than 40 million 
cars worldwide. 
    Its rejection by carmakers including its main customer Honda 
Motor Co  7267.T , Toyota Motor Corp  7203.T  and Nissan Motor 
Co  7201.T , could reshape the auto safety business in Japan, 
where it has been the biggest player for years. 
    "What is sensational here is that Honda, where Takata has 
been the supplier par excellence, is saying they won't buy 
(inflators) from Takata in future," said a source with decades 
of experience in the car safety industry. 
    "These are two companies that have grown up together, it 
would be like Volvo saying this to Autoliv." 
    The Swedish company is already on the move.   
    Autoliv is investing around 1 percent of sales this year, 
about $90 million, most of which it expects to eventually recoup 
from customers, in boosting capacity to replace the Takata 
inflators in models subject to recalls. 
    The company expects to deliver up to 20 million replacement 
units, mainly to Honda, most of them this year and next.  
    "Autoliv's opportunity to take market share has never been 
as good as it is right now due to what is happening to Takata," 
said Handelsbanken Capital Markets analyst Hampus Engellau. 
    The company has already seen new business coming its way, 
with its global share of new orders for frontal airbags hitting 
50 percent over the past two quarters, compared with about 30 
percent previously.  
    But it could face hurdles such as rapidly ramping up output 
without jeopardising quality, and assuaging carmaker concerns it 
will become too powerful, with too much control over pricing. 
     
    POLE POSITION     
    Autoliv's 2014 market share in so-called passive safety 
equipment is around 20 percent in Japan but roughly twice that 
in Europe and North America and more than 35 percent in the rest 
of Asia, company data showed. Its air bags business, including 
steering wheels, passive safety electronics and inflators, 
accounted for about two-thirds of overall sales. 
    Takata was the second-biggest global player last year, 
followed by German-U.S. firm ZF TRW - formerly TRW Automotive - 
with other companies including Toyoda Gosei  7282.T , Nihon 
Plast  7291.T , Ashimori  3526.T  and Daicel  4202.T . 
    Takata said last week it would phase out ammonium nitrate in 
all its inflators by the end of 2018, but analysts say the brand 
could remain tainted for long after that.  urn:newsml:reuters.com:*:nL1N12Y2G5 
    The potential scale of the opportunity for its rivals is 
huge - Valient Market Research expects Takata's market share for 
inflators will drop to 5 percent in 2020, from 22 percent in 
2014.  
    Replacing Takata's air bags and inflators in models already 
in production, but not subject to the past year's wave of 
recalls, is likely to be prohibitively expensive for carmakers. 
    The bigger opportunity may lie a few years ahead, in 
supplying equipment for new models - with Autoliv in pole 
position, because it is the global industry giant and has 
managed to build up its No.2 position in Japan over the past two 
decades through acquisitions of smaller local suppliers. 
    "After companies have had such trouble with Takata, they 
really want things to work this time," said DNB analyst Christer 
Magnergard. "In that situation, they are more likely to move to 
a safer option than an untested player."  
    Expanding production capacity for equipment such as airbags 
is cheap compared with other manufacturing industries, the 
industry source said. 
    "If you have local production running, as Autoliv has in 
Japan, and the volumes are not too big you just add a few shifts 
or install a new assembly unit in the existing plant," the 
source added. 
    "If that is not enough, you expand the factory building, and 
that doesn't cost much. It is really just adding floor space, a 
roof and a bit of heating or cooling." 
    Valient CEO Scott Upham, who has worked at Takata and TRW, 
said spare capacity at Autoliv's Chinese plants could also be 
tapped to meet demand. 
    But the Takata crisis highlights the potential hazards 
facing suppliers. As Autoliv ramps up volumes, it must retain 
its standards, said Mathias Leijon at Nordea Investment 
Management, which owns a 5 percent Autoliv stake.     
    "They must safeguard quality across the production chain. 
That is the challenge here."  
 
 (Additional reporting by Helena Soderpalm; Writing by Niklas 
Pollard; Editing by Alistair Scrutton and Pravin Char) 
 ((Niklas.Pollard@thomsonreuters.com; +46 70721 1110; Reuters 
Messaging: niklas.pollard.reuters.com@reuters.net)) 
 
Keywords: AUTOS TAKATA/AUTOLIV