The other 30 percent would be assembled from components

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Alex Molinaroli Johnson Controls Inc., the world’s biggest producer of automotive seats, is looking for a wayoutof that business. Huh? What? Why?With annual sales of $22 billion, JCI’s seating and interior trim units have achieved economies of scale that rivals can’t match. But the auto industry goes through boom-and-bust cycles that can wreak havoc on a company’s cash flow. And the seat business needs serious capital investment to maintain growth.Moreover, automakers have quietly transformed the way they buy seats — driving down costs and leaving seat makers with modest profit margins.The auto industry always has been cyclical, of course, but conventional wisdom has it that top dogs make good money. An exit by the world’s biggest automotive seat maker may force the industry to rethink that assumption.Last week, JCI CEO Alex Molinaroli said he would explore “strategic options” for the company’s $17.5 billion seat operation and also its $4.5 billion interiors unit, which was repackaged last year as a joint venture. In plain English, they’re for sale.JCI is based in Milwaukeewith its automotive experience business based in Plymouth Township.In an interview withAutomotive News,Molinaroli cited those boom-and-bust cycles and the need for capital investment.Molinaroli prefers to invest in nonautomotive ventures. The seat unit “competes well in the businesses it is in,” Molinaroli said. “To continue to be a leader, they need a source of capital.”Although he didn’t say so, Molinaroli could have cited a third reason for bailing out: The profit margin on a seat is nothing to brag about.In recent years, the seating business has been transformed. Automakers now prefer to make bulk purchases of individual parts. Different suppliers deliver the cushion foam, recliners, seat tracks or frames, while yet another supplier handles final assembly.Automakers thus enjoy lower prices kmerksemsc , but it also ensures that seat makers won’t have much money left over to invest in new products.”Seats are capital-intensive,” said an industry insider, who asked not to be identified because he does business with seat makers. “If you start laser welding, or switch from a simple, cheap steel to dual-phase steel, you’ve got to constantly reinvent your manufacturing processes.”Tight marginsA decade ago, automakers bought 70 percent of their seats by ordering the complete product from one supplier. The other 30 percent would be assembled from components purchased from a variety of vendors.Now, those percentages have reversed, said Byron Foster, group vice president of global operations for JCI’s seating business.Automakers began to use standardized components — such as the same type of foam, seat track or frame — in all their vehicles. And in some cases, different automakers will agree to use the same part.For example, Mercedes-Benz and BMW use a common seat frame developed by Johnson Controls.That approach has reduced the cost of seats, and Johnson Controls can produce individual parts in bulk if that’s what customers want, Foster said. In fact, the company is a top global supplier of foam, metal parts and cut-and-sew products — not just complete seats.”We have the expertise” to design complete seats, Foster said. “But we also saw the trend to component sourcing, and we can do that as well.”But problems arise when it comes time to redesign key metal parts such as seat frames. As automakers save money by ordering individual components, suppliers’ r




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