TOKYO – The oldest company in the Toyota conglomerate, older than Toyota Motor itself, is positioning itself to be one of the group’s crown jewels in perpetuity.
Toyota Boshoku, the automaker’s interiors specialist, expects to report a ¥63 billion ($580 million) profit in fiscal 2017 on near-record sales of ¥1.3 trillion ($12 billion).
Although operating margin will fall from the prior year’s record level, from 5.3% to 4.7%, the supplier in its midterm business plan has committed to achieving a sustainable profit of more than 5% and a 10% return on equity from fiscal 2020 onwards. The 3-year plan was announced in November 2016.
Yoshimasa Ishii, Toyota Boshoku’s president, tells WardsAuto it is his job “to start streamlining the organization and strengthen our competitive advantage and management foundation. We didn’t want to devise a midterm plan that merely contained numbers. We purposely added the word ‘implementation.’”
Ishii, who served as president of Toyota Financial Services before assuming the presidency in June 2015, declared the supplier’s management structure could not keep pace with the growth of its business since October 2004, when Toyota engineered a merger of three group companies –Toyoda Boshoku (Toyoda spelled with a ‘d’), seating supplier Takanichi and the seating division of Araco.
At the time, Toyoda Boshoku was a relatively obscure supplier of textile products for car interiors with sales of ¥118.5 billion ($1.1 billion). In fiscal 2005, the first year after the merger, the scale of the supplier’s business grew sevenfold to ¥877.6 billion ($8.1 billion) with operating profits soaring to ¥33.8 billion ($311 million), only to fall to ¥14.1 billion ($130 million) in fiscal 2008 during the recession.
Since then, earnings and sales have grown steadily, but erratically.
“By offering greater value throughout our product line, we expect to see a steady increase from fiscal 2019 to ¥70 billion ($645 million),” Ishii says.
“While we organized the company into three business groups – seating, interior and exterior plastic and textile components including door trim, and unit components such as intake manifolds and cylinder-head covers – we grew too rapidly. We were too busy trying to fill orders from Toyota to put in place a management structure to optimize earnings. That’s what we’re doing now.”
Among Ishii’s priorities:
- Establishing a collaborative structure involving the supplier’s main operating regions – the Americas, Europe, China, Southeast Asia and Japan. As an example, an Indian affiliate, Toyota Boshoku Relan India, operates as a design center for both U.S. and Japanese operations.
- Becoming more of a full-system supplier of car interiors, integrating temperature and air-quality controls, lighting, voice-recognition and safety technologies along with new materials for seats and trim. Worth noting: Toyota Boshoku designed every aspect of the interior of the new Lexus LS sedan, including seats that can be adjusted 28 different ways to optimize occupant body and comfort preferences.
- Expediting decision-making and strengthening corporate governance. Toyota Boshoku in June increased the number of outside directors from two to four while reducing total directors from 12 to 10.
- Growing its business in the hybrid, electric-vehicle and hydrogen fuel-cell vehicle fields. Ishii says the supplier eventually plans to mass-produce motor cores, separators, stack manifolds and ion exchangers.
- Standardizing production processes at its nearly 100 plants in 27 countries. Ten years ago, the supplier operated 60 plants in 20 countries. Recent additions include a seat cover plant in Laos, a joint venture with Autoneum Holding and Nihon Tokushu Toryo, both leaders in the soundproofing field, and a technical center in Silicon Valley to research autonomous driving and future interiors.
- Using camera technology and introducing 3-D sewing to address a shortage of skilled line workers. It already has introduced 2-D sewing.
- Further integrating seat-assembly processes. Toyota Boshoku is transferring seat-track and lower-arm assembly formerly conducted by Aisin Seiki and Shiroki to its Sanage plant. The supplier will follow suit in July at Toyota Boshoku Kyushu, then transfer production of seat tracks and lower arms to its plants in Princeton, IN, and Woodstock, ON, Canada, by 2020. It also is working to bring motors and gears in-house from Aisin and Shiroki.
- Promoting digital engineering with a goal of reducing development man-hours 30%.
Toyota Boshoku also plans to raise R&D spending to ¥42 billion ($387 million) from fiscal 2018, up from ¥38.3 billion ($353 million) in fiscal 2017.
Little known outside Japan, Toyota Boshoku was founded as a spinner of cotton cloth in 1918. It predates by eight years Toyota Automatic Loom Works (subsequently renamed Toyota Industries in English), from which Toyota Motor was born, making it the first Toyota company.
The operation was dissolved during World War II, then reborn in 1950 with a new name, Minsei Spinning. It reclaimed its original name, Toyoda Boshoku, in 1967. Shortly before the completion of Toyota’s “CCC21” cost-reduction program in fiscal 2005, Toyota brokered the Toyoda Boshoku-Takanichi-Araco merger.
Araco’s vehicle-assembly business, which included the Toyota Land Cruiser and the first generation of the Lexus LX-series SUVs, was transferred to Toyota Auto Body, another group company, while both Araco and Takanichi formally disappeared as corporate entities.
Meanwhile, Toyota raised, then lowered its equity stake in the supplier along with changing its name to Toyota Boshoku (Toyota spelled with a ‘t’). Its current equity stake is 39.25%.