Toyota grows in Michigan

Company's affiliate suppliers employ close to 8,000

FOWLERVILLE -- With hillocks, groves and hedges on either side, the newest track at Aisin Seiki Co. Ltd.'s proving ground here seems like a quiet country road. But the rolling landscape was carefully arranged for a reason -- to keep vehicles conducting handling, braking and other tests hidden from view.

"It's designed so that two competing customers can come in and not be able to see each other," said Mike Benjamin, manager of operations at the proving ground.

Aisin, a $20 billion Japanese supplier partly owned by Toyota Motor Corp., will open the new three-mile oval track in January. Most of its customers will be other Aisin businesses and affiliates that also are expanding their operations, selling transmissions, brakes and other components not only to Toyota but also to Detroit's automakers.

In spite of the poor business climate, Toyota and its affiliates such as Aisin Seiki and Denso Corp. are growing in Michigan, where they have established a discreet but substantial presence and employ close to 8,000 people.

Toyota has just completed the expansion of its North American technical center in Ann Arbor, adding more than 300 jobs. Aisin plans to spend about $8.6 million to expand its technical center in Plymouth. Denso, which has two manufacturing plants in western Michigan, recently expanded a component testing facility in Southfield.

While Toyota is a relentless rival to Detroit's automakers, its parts-making affiliates have more ambiguous roles in the complex web of automotive relationships. Like the obscured vehicles on the proving ground, at times they may be competing against Detroit manufacturers, but in other instances, they are partners.

Aisin and Denso regularly appear on the annual lists of General Motors Corp.'s preferred suppliers because they deliver high quality components at a reasonable cost. Earlier this month, Chrysler LLC chose Denso as the first of its "suppliers of choice."

Toyota owns 23 percent of Denso and 22 percent of Aisin. The automaker accounts for slightly more than half of Aisin's North American sales of $3.7 billion, said Don Whitsitt, president of Aisin World Corp. of America, but "our goal is to diversify the customer mix." Aisin's second-biggest client in the region is GM.

Denso, one of the world's largest suppliers, says Toyota accounts for less than half of its sales in the region.

Sean McAlinden, chief economist at the Center for Automotive Research in Ann Arbor, says smaller U.S. suppliers that deliver parts to Denso benefit from the relationship, and not just financially. "They have taught second-tier suppliers their system, which has boosted productivity all over the state," McAlinden said.

The suppliers linked to Toyota also bring some financial stability to a sector that has been severely strained by the troubles of Detroit's automakers and a steep decline this year in U.S. auto sales.

Aisin and Denso are struggling in this environment, too. "Are we making any money? Probably not," said Whitsitt, who oversees Aisin's regional sales operations. Aisin has sustained a big drop this year in orders for truck transmissions and sunroofs for big SUVs, he said.
But the suppliers have not scaled back. Aisin is expanding its technical center so that instead of just adapting components designed in Japan for its U.S. customers, it will develop new products and designs for local clients. "It's true R&D," Whitsitt said.

The governor's pitch

The deal was sealed last week when the Michigan government offered Aisin a $1.3 million tax credit to support the expansion. "It's going to mean more jobs with high wages," Gov. Jennifer Granholm said in an interview.

In an effort to attract investment to Michigan, Granholm traveled twice to Aisin's headquarters in Kariya, in the Aichi prefecture in central Japan, to make her pitch.

"We pursued them," Granholm said. "Instead of just being victimized by globalization, we want to take advantage of globalization."

This year, globalization is taking its toll on the Japanese, too. Toyota, Aisin and Denso all expect their overall earnings to drop this year because of the weakness in the U.S. market.

Analyst Kohei Takahashi at J.P. Morgan Securities Japan Co. estimates Denso's full-year operating earnings will fall 28.5 percent to around $2.4 billion and Aisin's will drop 26 percent to about $1.3 billion. Takahashi also cut their forecasts for the two following years.

No indulging from Toyota

At the $60 million Fowlerville proving ground, formally called FT Techno of America LLC, President Mack Yuasa shrugs as he discusses the facility's profit outlook. The long-term goal is to support the growth and diversification of the Aisin companies in the region.

Aisin is a partner along with Denso in the ADVICS Co. brake system venture, which has U.S. offices in Plymouth. But otherwise the two big suppliers cooperate little in North America. In some areas, such as variable valve timing systems and certain sensors, Denso and Aisin are competitors.

And in spite of the family ties, Toyota does not coddle its affiliates. During the past year, relations between most automakers and suppliers have frayed under the added strain of soaring raw materials costs. But Whitsitt said relations with Toyota are always challenging. "

As compared with a year ago, there's no difference," he said. "They were tough then. They're tough now."

But he said Toyota is fair with suppliers and clear. "They have a fact-based way of doing business."


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