Adient To Rely On China For Growth In The Future

Adient is the world’s largest automotive seating supplier, based on production volumes, as per HIS Automotive, with partnerships with the largest global auto manufacturers. It recently completed its spin-off from Johnson Controls (NYSE:JCI) and began trading as a separate entity on the New York Stock Exchange. The automotive industry has witnessed modest growth globally, with the growth in China production outpacing the overall growth rare, albeit at a lower rate than in prior years. While the European production has rebounded, due to recovering demand in Western Europe, and the North American production has remained strong, that in South America continues to experience contraction, as a result of varying economic, political, and social factors.

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In the future, the majority of the global growth is expected to come from China, albeit at a lower, but more sustainable rate than in the past years. A growing, and richer middle class is the primary reason for this trend. According to McKinsey research, the income of more than half of China’s urban households, calculated on a purchasing-power-parity basis, will catapult them into the upper middle class. Such a category barely existed in China in 2000. Currently, the company is the largest supplier of seats in the country, with 17 joint ventures and 60 manufacturing locations.

Adient has a dominant position in the Chinese market, with a 44% market share. The company’s early market entry, by adopting a strategic partnership approach, proved to be successful. Adient is now the largest supplier of just-in-time seating in the country, and has partnerships with all major auto groups, resulting in a broad market penetration, relative to its seating competitors. This position has given them the ability to outpace the market, further expand its share, and strengthen its leadership. This was reflected in the results for the first nine months of its FY 2016, wherein the Chinese revenues (primarily unconsolidated) increased 53% to $9.1 billion.

The current market size of the seating industry is estimated at $59.8 billion, with the Americas forming over 34% of the market, and China inching towards a quarter of the market. During the 2012-2014 period, the industry grew at a CAGR of 1.5% in the Americas and Europe, at 1% in South East Asia, Japan, and Korea, and at a massive 11.3% in China. In the future as well, the bulk of the growth is expected to come from this region. Government support for FDI (Foreign Direct Investment) in Asian countries such as China, India, Thailand, and Indonesia, has increased the attractiveness of such markets, and has shifted the focus from developed markets to such developing countries. Factors such as low production costs and economical labor has resulted in higher growth in these markets, than in the more mature markets of Europe and North America. Automotive seat manufacturers are now focusing on lightweight design, which would help in increasing the fuel efficiency of vehicles. However, cost reduction seems to be a major challenge for most manufacturers, prompting them to experiment with new and different designs and materials, as this would enhance comfort, while at the same time, curtail costs.

Adient’s competitors are trying to replicate the joint-venture model in the country, after first going in with the wholly-owned approach. Through its joint ventures, Adient plans to invest approximately $1 billion in the Asia region, primarily to drive continued growth in China. The company is targeting growth to non-Tier 1 cities, and through sales in the premium segment. It has a strong and growing position in the segment, with partnerships with Daimler, BMW, Audi, and Volvo. Furthermore, a shift seen towards the Sports Utility Vehicles (SUVs) and Multi Purpose Vehicles (MPVs) will further enhance the sales in the region. This growth in these segments can be attributed to the emergence of small SUVs, reflecting the desire for SUV-benefits, without purchasing a bigger car. In emerging economies, this shift is being paved by urban buyers, with repeat customers forming a huge chunk of the sales. MPVs, with their mix of price and utility caught the fancy of consumers in such countries. Furthermore, with the presence of larger families in developing economies, a shift towards SUVs and MPVs is taking place.

Have more questions on Johnson Controls? See the links below:

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• How Will Johnson Controls Perform In Its Fourth Quarter?
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• How Is Adient Expected To Perform In The Next Year?
• Why Has Johnson Controls’ Stock Price Appreciated 29% This Year?
• What Drivers Will Ensure Growth For Adient In The Future?
• What Is Adient’s Position In The Global Automotive Seating Market?
• How Has Adient Performed For Johnson Controls?
• How Can Increasing Interest In Energy Efficiency Help Johnson Controls?
• How Did Johnson Controls Fare In Q3 2016?
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• What Are The Prospects For Johnson Controls’ Power Solutions Business?
• What Will Be The Effect On The Segment Operating Margin As A Result Of The Johnson Controls-Tyco Merger?
• What Are The Benefits Johnson Controls Will Attain From The Tyco Merger?
• Will The U.S. Treasury Department Rules, That Killed The Pfizer-Allergan Deal, Affect Johnson Controls-Tyco Merger?
• Johnson Controls’ Earnings Beats Expectations
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• How Has Johnson Controls’ Net Sales Changed By Geographic Areas?
• How Does The Adient Spin-Off And Tyco Merger Create Value For Johnson Controls’ and Tyco’s Shareholders?

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