Johnson Controls and Yanfeng form the world’s largest auto interiors company

According to a recent Financial Times article, there are now 16 major car manufacturers that sell more than 1m vehicles a year. However, those cars are built from parts supplied by just 10 major component makers which mean that cars are sharing more parts.

As the automotive industry expands into new markets, these car-makers’ need for suppliers to follow them and build their own factories in places such as China and Brazil has meant only the largest and most cash-rich component makers have survived.

In an interesting move, Johnson Controls, an automotive supplier based in the US, is realigning its overall strategy to instead reduce its reliance on the automotive industry and increase investment in products that help manage energy use in buildings. As part of this focus away from the automotive industry, over the weekend, the company announced it and an affiliate of Yangeng Automotive Trim Systems will form a joint venture. The new company would be among the world’s largest auto interiors company with anticipated annual sales of $7.5bn. Yanfeng is an affiliate of Huayu Automotive Systems Co. Ltd. and China’s largest car maker, Shanghai Automotive Industry Corp., a longtime customer and partner of Johnson Controls.

The agreement will give Yanfeng Automotive Trim Systems a 70% stake in the globally focused auto parts company, supplying instrument panels, door panels and a variety of other car interior components and will include employees from both Yanfeng and Johnson Controls.

According to a Wall Street Journal, the Chinese auto market passed the US market in terms of vehicle sales beginning in 2009, with 22m vehicles sold there in 2013 compared with 16m in the US. Unsurprisingly China has become significant for Johnson Controls, generating $8bn in sales for the company in 2013.

This latest move does not necessarily mean Johnson Controls is pulling out of the automotive industry altogether. True, it plans to sell its automotive electronics business but it will continue to sell car seats and batteries.

As more cars are sharing more and more parts, this latest joint venture is seen as a consolidation of sorts among automotive parts suppliers as they differentiate from among each other in the global automotive industry. As these changes take hold, supply chains will shift and the need for parts management and replenishment will necessitate changes in growing auto markets such as China and Brazil as well as in mature markets of Europe and the US.