Alex Molinaroli, left, Johnson Controls chairman and chief executive officer, and Shen Jianhua, Yanfeng chairman, seal the deal on their new joint venture.
In a deal that is emblematic of how the rapid growth of the auto industry in China is changing the landscape, Johnson Controls is spinning off part of its collection of automotive assets to form a new joint venture with an expanding Chinese company that will focus on automotive interiors.
JCI and Yanfeng Automotive Trim Systems Co. Ltd., a wholly owned subsidiary of Huayu Automotive Systems Co., Ltd. (HASCO), the component group of Shanghai Automotive Industry Corp. (SAIC), announced they had signed a definitive agreement forming the new venture where Yanfeng will hold a 70% stake and JCI the remaining 30%.
The noncash transaction creates the largest automotive interiors company in the world with annual revenues of approximately $7.5 billion.
“Joining our two interiors businesses is a natural extension of our already very successful existing partnership with Yanfeng in automotive seating, which has flourished over the past 15 years,” said Alex Molinaroli, Johnson Controls chairman and chief executive officer.
“It creates a strong combined company with a market leading position and a foundation for sustained global growth. This also aligns with Johnson Controls’ corporate commitment to China, which is increasingly becoming a major center for the global automotive industry.”
Big suppliers such as JCI and Huayu, like other companies in the automotive space, have proven quite capable with a diverse roster of automakers. However, the proposed spin-off does create some interesting crosscurrents in this particular case.
SAIC, HASCO’s parent company, is General Motors’ principal partner in China and as well as other parts of Asia, while JCI has been the principal supplier of interior components for Toyota’s operations.
The deal underscores how the rapid growth of the Chinese market is re-arranging the global automotive market. Major suppliers from Europe and North America now have major operations in China while Chinese suppliers are pressing hard to bring their operations up to global standards.
GM, for example, is now using Chinese companies to provide sophisticated equipment in its newest plants in China.
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The new JCI-Yangfeng joint venture will be headquartered in Shanghai where SAIC is based with global engineering, development and customer centers in the United States, Europe, China, Japan and India. The product portfolio will include instrument panels and cockpit systems, door panels and floor consoles.
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The transaction is subject to limited conditions and is expected to close in the first half of calendar year 2015.
The agreement excludes certain facilities in both Yanfeng and Johnson Controls’ existing networks. Johnson Controls will continue to operate those within its network as part of Johnson Controls’ Automotive Experience business, JCI said in a statement.
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Earlier this year, JCI sold its auto electronics business to Visteon for $265 million, seeking to reduce its reliance on the cyclical car market. Visteon, on the other hand, is looking for ways to build up its electronics business with the world’s major auto manufacturers.
JCI, however, remains the world’s largest maker of car seats. It also makes products from air-conditioning equipment to batteries, and had more than $42 billion in revenue last year.