Autoliv has opened a new airbag inflator plant in Shanghai, its ninth manufacturing facility in China and its sixth inflator plant worldwide.

The new factory will supply Asia, including South Korea and Japan.

In a statement Autoliv said its strategy is to have manufacturing and engineering resources close to its customers, and to have a substantial portion of its manufacturing base in low-labour-cost countries. Currently, the company has more than 40% of its employees in such countries.

To date, Autoliv has manufactured only labour-intensive products such as seatbelts, steering wheels and airbags in low-cost countries. However, it recently opened a plant in China for safety electronics, which - like airbag inflators - are relatively capital-intensive products. The new Chinese investments therefore represent an expansion in Autoliv's use of low-cost country production.

There are two main reasons for this. Currently, Autoliv imports airbag inflators for Asian markets from the US. This has been efficient as long as the volumes have been small. However, local production will eliminate import duties, reduce shipment costs from the US and increase the possibility of just-in-time deliveries. In addition, as a side benefit, manufacturing space could be released in the US for other products.

Secondly, in response to the inherent pricing pressure in the automotive industry, Autoliv is committed to increase its sourcing in low-cost countries. Before the end of the decade, the company expects to source 50% of its purchasing value in these countries, compared to less than 15% in 2004, when this strategy was adopted. The new inflator plant in China could contribute to this strategy by finding and more importantly training Chinese suppliers so they can meet the special quality standards required of components in automotive safety products. These suppliers could then also be used by Autoliv's inflator plants in other countries.

Capital expenditures will total US$50m for the current expansion phase, which is expected to meet Autoliv's capacity needs for airbag inflators for the next few years. The plant will then have more than 500 employees and raise the supplier's global production capacity for airbag inflators by 20% to close to 100m annually. Most of the inflators manufactured in China will be used in Autoliv's own airbags but 5-10% are expected to be sold to other airbag assembling companies.

Airbag customers will include Nissan, Mazda, Hyundai and General Motors as well as several Chinese vehicle manufacturers including Brilliance and Chagan.

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