Magna International has been steadily growing in Asia since the mid-1990s and today has almost 17,700 employees at 48 manufacturing locations and 26 product development, engineering and sales offices. To find out more about the supplier’s presence and market strengths in Asia, Matthew Beecham met with Frank O’Brien, Executive VP for Magna’s business in Asia while on a visit to Magna’s North American headquarters in Detroit.
Could you sum up Magna’s current representation in China in terms of footprint, facilities, and employee numbers?
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We’ve had a lot of changes in the past year because of the sale of our interiors business, which reduced the number of plants, and then we had the acquisition of Getrag, which numbers-wise more or less replaced interiors. We also had a joint venture formed with a stampings company in Chongqing, which in English is called Star Q. We took our body and chassis plant in Chonqing and put that into the joint venture with three of the Star Q plants, so it’s a four-plant joint venture. With that we’ve had a number of things under construction that will open this year, so our total number of manufacturing facilities by within a year or so will be 39; 31 are in operation right now and the other ones will gradually come on-stream during the year.
In addition to that, Magna has a strong engineering business in China and we have five different engineering locations; we started off in China, engineering-wise, modifying European vehicles to suit Chinese requirements. In Changchun, for example, we have 70-80 people who take programmes designed in Europe and then modify the interior and/or exterior as necessary to Chinese tastes.
Could you give us an example of a modification?
About 7 or 8 years ago, a large percentage of the market was chauffeur driven or owner in the back seat vehicles. That basically meant there was a higher level of comfort in the rear than for the driver, so it wasn’t that necessary to have that nice an instrument panel or creature comforts for the two front seats. Obviously that’s the reverse of the situation in Europe and North America, so a lot more went into making the rear compartment more comfortable and entertainment features went into the back rather than the front. That’s changed a lot as the self-driven market share has increased, so our role has changed dramatically in that regard. So now it’s more a question of whether you change a hard surface feel in the front to a softer one.
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By GlobalDataTo what extent do tastes differ within China?
Well, I’m sure the OEMs and suppliers would all like to know, but I don’t think there’s enough data there yet. First of all you still have a huge first-owner population, and to accurately talk about trends in any region you have to have several years of ownership of a vehicle, because people are figuring out what they like. So typically when you’re a first owner you really don’t know until the second vehicle that you prefer something. When you test drive a vehicle as a first time buyer, it’s not going to tell you that much about your tastes; you really need to own a vehicle for a couple of years. So much information is really not yet available, other than the typical urban/rural preferences – and that’s more a functionality separation than one of taste.
How is Magna currently performing as a business in Asia, specifically China? Where is the growth coming from?
What we’ve been doing is basically populating our product portfolio in China for the last, I would say aggressively for the past 8 years. So one-by-one we expanded the groups, and we still have some good opportunities, so the more recent growth has been really through expanding our product portfolio for higher tech items as the market has matured. Once upon a time, even up to 10 years ago you still had the very old Jetta model for example for Volkswagen dominating market share, a very old design with very low technology. Now technology is introduced on vehicles simultaneously to the rest of the world, and in some cases ahead. So we’ve grown in the Cosma area in stampings, we’ve grown substantially in hot stamping, we’ve got hot stamping now in several facilities, we’ve also got aluminium die casting which has only become a phenomenon in the established markets very recently. We already have substantial aluminium die casting in China, so we’re growing very well in those two areas in addition to the regular cold stamping, but higher tech stuff has given us good opportunities to grow faster than the market.
As powertrains have changed and become more sophisticated we’ve grown in the powertrain area, we continue to see that growing; it’s highly capital intensive obviously, but the market returns are worth it.
Electronics, cameras, driver assist are also starting to grow significantly.
We’ve decided to have a three-pronged approach to manufacturing for cameras, because they’re relatively small, allowing easy shipping so Michigan production covers the Americas, in Europe we’ve got a couple of facilities – Germany and Italy – that dominate that market, and then we have China for Asia.
To what extent has the ongoing market slowdown in China affected Magna’s business and growth prospects?
Well first of all, the definition of slowdown is interesting because last year was 6.9% GDP growth. So it’s a relative slowdown. What we saw last year was no 12 month calendar slowdown at all in automotive production, and in fact some good growth for Magna because of additional business. There was a midyear downturn after the Shanghai stock market shock in July, but the government offered incentives to car buyers in the September timeframe and growth was quite substantial in the last quarter, which brought the year basically back to plan, and our plan was for strong growth, so we had a good year.
We have seen some big merger and acquisition deals in the supplier industry recently, alongside strategies to consolidate or specialise operations. Do you see Magna being part of this trend?
On a general basis there’s a number of things happening. The global OEMs are consolidating suppliers, so that’s one trend. Another one is that many of the Chinese suppliers are going through what normally occurs in business, the first generation entrepreneur is now wanting to cash out, or a group of entrepreneurs is wanting to cash out. When I became involved in China first, most companies were owned by communes, and eventually the less interested members of the commune sold to the more entrepreneurial, and so you ended up with a small number of strong guys who lifted the business up. They have had a sort of backlog: many of them want to go public, but because the government has put a moratorium twice in the last couple of years on IPOs to prevent the stock market overheating, applications for IPOs have all been backed up, so the alternative is to sell to somebody else.
So that’s the second trend, and then the third one is obviously many of the large Chinese suppliers, many of whom are subsidiaries of the OEMs, have substantial capital, and so they’re buying technology, buying firms, particularly in Germany where it’s much easier to buy a family-owned company , and other countries in Europe obviously. So you’ve got the three different trends going on, and from a Magna standpoint obviously we’re continuing to look at opportunities as they arise.
Transmissions have been built in-house by OEMs for generations but gradually now being outsourced to suppliers. To what extent will Magna’s acquisition of transmission maker Getrag help you expand more rapidly in China?
The remainder of this interview is available on just-auto’s Global light vehicle transmissions and clutches market- forecasts to 2030
