Once the transaction is completed, Bruce McDonald, Johnson Controls Vice Chairman and Executive Vice President, will serve as the Chairman and CEO of the new company. Beda Bolzenius will serve as President and Chief Operating Officer.
|Image courtesy Digidreamgrafix/freedigitalphotos.net.|
An editorial in IHS SupplierBusiness on Monday, July 27, was headlined, "Johnson Controls set to make long planned exit from automotive." I doubt many people in the industry could have imagined that not too long ago. After all, it was just five years ago that JCI attempted an "aggressive takeover" of Visteon's interiors and electronics business, noted SupplierBusiness, adding, "now both have diversified away from the struggling interiors part of the business."
Maybe that failed attempt to expand into automotive interiors was a good omen.
"JCI has been steadily reducing its exposure to the auto industry over the last couple of years as it focuses on other product lines: Batteries and building efficiency," said SupplierBusiness, noting that it will continue to make car batteries under its Power Solutions business.
Alex Molinaroli, Chairman and CEO of JCI, said in the company's news release that the spin-off is "a great opportunity for our Automotive Experience business to further its position as the global leader in automotive seating and interiors. At the same time, Johnson Controls will move forward with our multi-industrial strategies and make investments in our core growth platforms around buildings and energy storage."
In other words, this is a great opportunity that someone else is welcome to have. But we're out of this game!
This shift from automotive into other products for other market segments must be paying off for JCI. In April, JCI reported "net income had more than doubled year over year in the second quarter of 2015, though automotive revenue was down." That is pretty telling about one thing: Suppliers to other market segments can actually make money, something that the automotive industry never liked its suppliers to do.
As I was talking to Gerry Phillips recently about his retirement from Prism Plastics, a Tier 2 supplier to the automotive industry, he was telling me about his 30+ year career in Michigan in the automotive supplier industry. JCI was one of the companies he worked for at one time. The recent comment to PlasticsToday by Prism that the company is looking to acquire a medical molding company, shows that more automotive suppliers are seeking to diversify—many of them into the medical market, where they see a number of similarities in capability, quality and regulatory requirements.
While Prism and other molding and mold manufacturing companies continue to see opportunities in the automotive industry, the old doubts still linger among many of them about whether or not automotive can be a profitable market to serve long term. Obviously those doubts are justified for some suppliers.
SupplierBusiness noted that many of the once large and broad Tier 1 suppliers have made similar movements, citing both Delphi and Visteon as examples of companies that are becoming smaller and more focused. "In an industry that has traditionally been very horizontally integrated, certain suppliers are becoming more focused on [their] core businesses," said SupplierBusiness, adding that Delphi has "slimmed down" from more than 100 products to just 33, "looking at each product and making a decision whether to continue or close the business based on performance."
Many Tier 2 suppliers to the automotive industry, such as the mold manufacturers and molders of the thousands of plastic components that automotive consumes each year, will have to make the same decision. The industry continues to make greater demands for technology sharing, added capacity and reduced costs, which will be difficult to juggle for the smaller Tier 2 companies.