TRW Chief Sees a Role in Japan’s Parts System
The United States, in an attempt to reduce its trade deficit and compete effectively with Japanese manufacturers, is trying to break up the system of exclusive relationships between Japanese auto makers and their parts suppliers.
But the Japanese system is superior to U.S. and European practices, according to Joseph T. Gorman, chairman and chief executive of TRW Inc. And TRW hopes to take part in the Japanese system of “family” relationships among companies.
Gorman told foreign correspondents in Tokyo recently that TRW has established four joint ventures with Japanese parts producers in the United States to sell Japanese auto makers seat belts, steering systems, valves and pumps for power steering.
Sales this year will amount to $100 million, he said, adding, “We will be going to two to three times that amount very quickly.”
TRW, with annual sales of $7.3 billion in the fields of space, defense, auto parts and information systems, last year sold goods and services in Japan valued at $320 million. Most of this, Gorman acknowledged, was supplied by plants that TRW operates in Japan, not the United States.
Sales in Japan will increase, he said, and he added: “An attempt to bring the (U.S.-Japan) trade imbalance down has to happen (and) will cause Japanese to buy more parts from non-family members. Suppliers with the capability to supply in the American, European and Japanese markets will be preferred.”
In negotiations focused on auto parts, as well as in the yearlong talks designed to remove structural trade barriers that ended June 26, the Bush Administration singled out the “family-like” relations between parts manufacturers and Japanese auto makers as an obstacle to sales by American manufacturers.
But Gorman praised the system, under which auto firms rely on a “lead supplier” for specific parts. He said it encourages long-term commitments, promotes trust between auto maker and supplier and enables the supplier to get involved in the development of new parts.
“The Japanese regard a supplier as a partner,” he said. As a result, suppliers are encouraged “to put in new equipment, hire the best engineers and spend money on research and development, especially if they are a supplier to Honda or Toyota,” which buy 80% of their parts from outside sources.
“I can’t and won’t criticize the system,” Gorman went on. “To the contrary, North American and European makers must develop more of a long-term relationship with their suppliers.”
In the United States, he said, the Big Three auto makers deal with four or five firms for each part procured. Each of the American parts firms has its own overhead and equipment costs, and this, he said, leads to duplicative investment.
Japan’s system is “much more likely to produce better quality parts at a lower cost,” he said.
TRW understands this, Gorman said, because of its involvement in Japan for the past 30 years.
He said expectations of a decline in the Big Three’s share of the American market make it imperative for firms such as his to secure a foothold in sales to Japanese plants in the United States.
He referred to the Big Three’s “tremendous loss” of market share in the United States in the past 15 years--a drop to 60% from 85%--and said industry analysts anticipate no change in the downward trend. Within a decade, he said, the Big Three’s share could be reduced to “50% or substantially less.”
