Despite much merger, acquisition and joint ventures, the automotive interiors market remains fragmented
Seats and dashboards/cockpits are the two largest segments of the interiors market, both in terms of component size and value. Historically these components have been supplied by a mixture of in-house and independent suppliers, while in recent years the sector has seen a constant process of supply side restructuring.
The largest suppliers have grown as much through acquisition as through organic growth, while the remaining smaller companies have focused on specific component or technology areas; meanwhile, the vehicle companies have largely stopped producing interior parts, although VW (with its Sitech seats subsidiary), Mercedes and BMW continue to some seats for their German plants. However, despite much merger, acquisition and joint venture activity, the interiors market remains quite fragmented with a bewildering number of suppliers, especially at Tier 2 and 3 levels. Many have an international presence, but despite the increasing globalisation of components supply, country or regional specialists remain. For example, Bharat Seating and Krishna Maruti are important seating suppliers in India, with no presence outside.
Such companies remain focused on their home markets, as have most Chinese companies, at least until recently: a significant example of Chinese companies moving beyond China is Yanfeng which has taken a majority stake in JCI’s interiors business. Meanwhile, in another case of continued sectoral restructuring, JCI has separated its seating operations into a new company, Adient. A further example of this restructuring is Magna selling its interiors business to Antolin, while retaining seat production.
Regional markets, not a global sectorSeat supply is concentrated among just a few suppliers in each major region and because different suppliers operate in each major region, when looked at globally, the seating market remains fragmented; JCI (or rather Adient) has approximately one-third of the global market for seats, significantly more than any other supplier worldwide. In Europe, more than three-quarters of the seat market is accounted for by Faurecia, JCI and Lear, with the balance accounted for by in-house seat production at BMW, Mercedes and Volkswagen, the Japanese suppliers Toyota Boshoku and TS Tech, plus Dymos of Korea which has some (but not all) of the seat business at Hyundai-Kia (Magna in Europe supplies seats mainly to the commercial vehicle segment, not cars).
In North America, JCI, Lear and Magna dominate, with the rest of the market accounted for by Faurecia and Japanese suppliers’ local operations. In Japan, Fuji Seat, Tachi-S, Toyota Boshoku and TS Tech are the key suppliers, along with a number of companies which operate in Japan only, as well as JCI/Adient, which acquired Ikeda-Bussan in 2000 and which gives the company its greater global presence than competitors.
The Renault Espace front seat with perforated leather for seat-back air-con
These companies’ joint ventures in China supply the Chinese operations of their European, Japanese and US customers, while in India a number of independent seat companies still operate. However, as Indian production by European and Japanese car companies increases, the major seat companies will likely take a greater interest in this market. Indian seat supply, by contrast, still comes largely from local companies, such as Bharat Seating and Krishna Maruti, the latter partly owned by Maruti and Suzuki of Japan.
Increased vertical integration in seatsSeats are complex assemblies, with a large number of the companies in a finished seat traditionally coming from Tier 2 and 3 suppliers, many of which operate on a national basis. As pressures on margins have intensified, the seat companies have increased their level of vertical integration in order to retain control over costs and margins. This trend was first evident in 2010 when JCI acquired seat mechanisms suppliers Keiper and Hammerstein; more recently, in 2015 Lear acquired leather supplier, Eagle Ottawa. Even so, several Tier 2 suppliers still exist, for example the German frame company Brose which is actually a preferred supplier to several vehicle companies, notably JLR for whom it makes seat frames in a new £35m factory in Coventry, delivering the frames to JLR’s Tier 1 seat assembler.
A key aspect of seating is the seat foam which has an interesting supply structure; in Europe, Faurecia and JCI have tended to make most of their foam needs themselves, as well as sourcing from independent suppliers, such as Woodbridge, Fehrer (now part of Aunde), or Copo which operates in Spain and Brazil; there are also small foam specialists in Europe such as GIC of Romania which mainly supplies Renault and Dacia. In Europe, Lear used to outsource almost all of its foam needs, whereas in North America, it has always produced most of its foam requirements. The company has, however, recently changed tack and opened a seat foam facility in the north-east of England, mainly to supply JLR and Nissan. Independent foam suppliers have not given up on this market however; for example, Bridgestone, best known as a major tyre company, is also a seat foam supplier; in late 2015 it announced it would open a plant in New York State to supply a variety of US customers from late 2017 onwards.
Cutting emissions key to environmental improvementOne of the key issues in foam production has been the development of foams with reduced emissions of volatile organic compounds (VOCs). JCI announced its latest offering in this regard earlier this year; its latest reduced-emissions polyurethane foam has, the company claims, cut 90% of the VOCs generated in the production process compared to a decade ago. Production of this foam is already underway in both Europe and China, with plans to launch it in the US in the near future. Faurecia has also made strides in this area.
Sewing seat covers – in-house or outsource?Another area of seat production which has seen a rise in the level of vertical integration is in the cut and sew operations for seat covers; in the past, this work was subcontracted to independent suppliers, increasingly in low-cost locations, in Eastern Europe or Asia. Interestingly, and in spite of the labour-intensive and costly nature of this process, bringing the process in-house is in favour again; good evidence for this came in November 2015 when Magna opened a factory in Allende, Coahuila in Mexico; this will become one of its main cut and sew operations in North America.
Significant developments among suppliers in ChinaThe major seat companies are increasingly active in China. For example, Magna is opening a new plant here to supply Volvo with seats for a small crossover, the first vehicle to made off the new Volvo-Geely CMA (compact modular architecture) platform; another supplier expanding in China is the foam make Woodbridge which, in early 2016, announced a joint venture with Guangzhou to make foam for seat cushions, headrests and armrests. This is being developed to support Guangzhou’s planned increased in production from 1.9m to 3m vehicles a year by 2020.
Chinese companies in the seating and interiors segments have tended to grow via JVs, in line with Chinese government rules. One such example is the 50:50 joint venture between Magna and Chongqing Hongli Zhixin which set up initially to supply Ford Changan. Hongli Zhixin is bringing its own foam, trim and seat structure operations into this JV, with Magna contributing the seat assembly know-how and market access to Ford. On a global scale, the most important move by the Chinese in the interiors segment as a whole is possibly the 70% stake taken by Yanfeng in the non-seat interior business of JCI, a development which gives the Chinese company access to significant developed market business, such as supply to the Volkswagen factory at Chattanooga, Tennessee and to Fiat’s Serbian plant.
Cost cutting by changing production locationTo maintain cost competitiveness, Faurecia has moved some seat component production out of France. During 2015, it closed a seat frame factory in France, and another in the US. It closed these plants while confirming a new R&D centre for seat covers and foams in Mexico and the expansion of foam production at two factories in Poland. Before closing the US frame plant, it softened the blow to its US operations with new seat assembly plants in Kentucky and Missouri. In China meanwhile, it wants to planning to double its business by 2018, something it will do mainly through JVs with the component divisions of the Chinese vehicle companies Changan and Dongfeng. A new company, Dongfeng Faurecia Automotive, was established in 2015, with its first contract with Dongfeng Peugeot Citroen Automobile in Chengdu.
Increasing vertical integration, expanding global footprintFollowing the 2008-09 recession, Lear has invested over US$350m in new or expanding existing factories, adding more than 20 new facilities (including some non-seat operations). This has taken place alongside the development of common seat structures which it offers to several vehicle companies with comparably-sized vehicles, rather than developing individual seat structures for each company – interestingly Renault-Nissan has done this in reverse, developing a seat structure for it CMF platform which can be modified for use across differently sized vehicles in more than one segment (as discussed below).
As well as opening new plants, Lear has made a number of important acquisitions, notably of a leading leather supplier Eagle Ottawa. Lear also acquired the JCI factory in Spain (which makes seats for Ford’s Valencia factory) following the award of a seat supply contract from Ford. In the UK, it opened its first foam plant in 2011, but such has been the rising demand from UK vehicle plants, especially Nissan and Jaguar Land Rover, that capacity there has been doubled from 300,000 to 600,000 seat sets a year. Another important aspect of Lear’s new factory openings is the rising level of vertical integration; as well as new foam factories in the UK, Lear has opened two seat cover cut and sew plants in Gostivar, Macedonia and Iasi, Romania.
Lightweight seatsCutting weight from seat frames has assumed increased significance in recent years as engineers have looked for every opportunity to save a few grammes, or more, in every part of the car. Thin wall seating, achieved mainly with thin foam, and lightweight frames, using magnesium, composites or lightweight steels are very much in vogue. However, most of these new materials and technologies remain too expensive for volume production at this stage. At the 2015 Detroit Motor Show, Faurecia showed its “Lightweight and Roomy” seat which weighed just over 2.3kgs less than its current production seat in the C-segment; as well as saving weight, the finished product is slimmer, adding juts over 3cms of space in the rear.
The reduced weight was achieved through using a combination of conventional and high-strength, lightweight steels, as well as thermoplastics, producing what the company calls the world’s first hybrid generic seat frame. The original stimulus for this seat came from Renault’s EOLAB concept car which was shown at the 2014 Paris motor show which achieved a weight reduction of just over 4kgs. From the 2014 concept, the seat has been transformed into the CMF seat and frame mentioned above.
The CMF seats are made by Faurecia and feature frames which weigh just 12kgs, which Faurecia claims is a 20% improvement on older designs. They are used on the Nissan Qashqai, Rogue and X-Trail and also the Renault Espace, Megane and Talisman. The weight saving is 2.3kgs per seat, of which 1.6kgs came from using thinner side members and risers, made from high performance steel; 700 grammes were saved in the mechanisms, while another 300 grammes were saved through using an improved foam formula which reduces foam density. In addition, the foam used is a TDI material which emits as much as 20 times fewer VOCs than conventional TDI foams – the new product, developed in conjunction with Dow, is amine-free, which Faurecia claims is an industry first. Production of this new foam is carried out in France, with Faurecia expecting to roll its production out globally in the next few years.
Equipment suppliers play a key role in production efficiencyMachinery suppliers play a critical role in cost-effective and high quality seat production; while seat cover sewing operations have, in the main, moved to low-cost locations, to cope with rising labour costs, improvement in automation have allowed the cutting element to remain in traditional locations. Lectra is one of the most significant suppliers of cutting machinery, supplying a range of automated cutters for companies such as Mario Levi, an Italian leather supplier. Using Lectra’s Versalis machines, Mario Levi has improved productivity by as much as 20% and also achieved an increase in hide yield, namely how much usable leather it can get from each hide, by 4%.
Another leather cutter, ECA, also uses Versalis systems from Lectra, generating 80% hide use efficiency, compared to 60% from traditional die cutters Lectra machines have also made a significant difference to the cut and sew operations of the Japanese seat supplier, Tachi-S, in its Mexican plant. Here improvements in the use of Lectra machines allowed the plant to increase machine efficiency from 56% to 72% and almost double the number of seat set covers which it could produce, from 550 to 1000 a day. A key aspect of this process has been optimising the cutting of fabric pieces from a large roll, reducing the gap between each cut piece by 3 mms, a switch which reduced overall fabric consumption by 3%.
Cockpits, dashboards and door panelsThe once uncomplicated market of dashboards (essentially just a large injection moulding) has been transformed in recent years into the rather more complex supply of assembled cockpits. Complete cockpits include electronics, displays, airbags, HVAC and much more, typically delivered in one large assembly. Normally this would be from a just-in-time, sequencing facility located close to the vehicle plant, although on occasion, the supplier concerned can actually have its final cockpit assembly operations within the plant’s perimeter. In this business, the key to success resides in efficient supply chain logistics, more than purely in minimising manufacturing costs. In addition, most of the value-added in a complete cockpit comes from infotainment systems, digital displays and related electronics, rather than the large plastic moulding of the dashboard itself.
In the main, cockpit suppliers have no direct experience of such technologies and have to work with suppliers from outside their traditional milieu but without full control of the costs involved and choice of suppliers. To a large extent this explains why companies like Magna and JCI have come to regard cockpit assembly as a much less attractive area in which to operate than the old world of dashboard moulding; as a result they have chosen to exit the sector. Their replacements, Antolin and Yanfeng, will face the same challenge of achieving acceptable financial returns. That said, while Magna and JCI have exited from non-seat interiors, their French competitor, Faurecia, is staying in the sector. Two Faurecia plants outside France exemplify especially well the company’s activities here.
In the UK, at Fradley in the West Midlands, the company makes instrument panels and door panels for Land Rover especially. The plant is vertically integrated with capabilities in injection moulding, foaming (for the soft feel of the top of the dashboard), covering, laser cutting, welding and vacuum processes. The factory supplies door panels to JLR’s PLA (Premium Lightweight Architecture) vehicles, notably the Range Rover and Range Rover Sport, and a variety of components for the cockpit for other Land Rover models, notably Discovery. Meanwhile, in the southern hemisphere, at Uitenhage in South Africa, Faurecia supplies dashboards, door panels and a range of interior plastic parts for the Volkswagen Polo. Here the company has installed a slush-skin line, which includes robotic flame surface treatment, automated foam dispensing and moulding machines and ultra-sonic vibration welding machines.
This investment in leading-edge manufacturing technology, comparable to anything which the company has in its European plants, has transformed this area of its business in South Africa. Previously Faurecia either imported, at not inconsiderable expense given the weight and size of the parts, fully assembled instrument panels, or a series of sub-assemblies for local final assembly. Instead its South African plant now uses the same manufacturing equipment as its plants in developed markets, a true sign of the standardisation of production processes globally.