August 27, 2010 Rapid Expansion

Volume 13 | Issue 3

Already established as Brazil’s biggest maker of airbag modules, Takata Petri now has a once-in-a-lifetime business opportunity: recent changes in its country’s vehicle safety rules will enable the company to make a giant leap in production capacity to meet demand, Jeffrey Matthews reports.

Takata Petri SA makes airbag modules, seat belts, steering wheels and other safety-related motor vehicle parts for South American manufacturers. The company maintains its leadership position with the majority of the airbag module market share, positioning it to benefit from new laws that mandate front airbags. In 2014, all new vehicles sold in Brazil and Argentina will require airbags.

The company is 100-percent owned by the U.S. subsidiary of the multinational, Japan-based Takata enterprise. The group has more than 32,000 employees and operates 45 factories in 16 countries. Customers include the world’s largest car and truck manufacturers including General Motors, Ford, Daimler, BMW, Volkswagen, Honda and Toyota.

The Brazilian unit sells to local manufacturers as well as to Argentine automakers. The new airbag law, enacted in both countries, will take effect in gradual fashion, starting this year. Gradual implementation provides automakers and airbag producers enough leeway to prepare for the anticipated increased demand in modules.

INCREASING CAPACITY
The Brazilian unit currently has production capacity to manufacture 1.5 million modules a year, and it plans to increase that by a multiple of four by the beginning of 2014, says Airton Evangelista, the company’s industrial, commercial and engineering director. “We’ve already started our investment plan,” he says. “To reach that level, we’re starting to buy new machinery, and we’ve developed a timeline to buy more equipment which will increase our capacity. Every year, we’re increasing capacity, and we’re looking to reach the plan of six million modules.”

The new law will require that eight percent of vehicles sold in Brazil and Argentina this year will have two front seat airbags – one for the driver and one for the passenger, obviously. Last year, more than 20 percent of vehicles sold had the safety devices, so it won’t be a stretch to reach the targeted level, says Evangelista.

Looking ahead, the requirement will rise to 15 percent of vehicles sold next year. In 2012, the figure will double (30 percent). The level will double again in 2013 (60 percent). Finally, by 2014, the level tops at 100 percent.

All of this is good news for Takata. The company’s plan is to install more production each year, which will add to its capacity and enable it to hit the six-million-unit planned to 2014. At the same time, the company will be flexible enough to add more capacity if and when needed.

If Takata maintains its leadership position of the market share (and the market continues growing in line with estimates) the company will need to use most of that capacity by 2014. Last year, Brazilian automakers manufactured 3.3 million vehicles while Argentine counterparts manufactured another half million. Takata estimates that total production in both countries (and it’s supported by independent market analysts in this estimation) will rise to about five million in 2014.

Ten million airbags will be needed to satisfy new regulations. “The Brazilian market is growing strongly now, so we think the market can easily reach that level of auto production,” Evangelista says. “Our plan is that we’ll reach six million modules per year in 2014, a level which can easily be increased. It will depend on the contracts we sign over the next few years. And if we see demand, we’ll simply add more capacity.”

BUT WAIT, THERE’S MORE
Takata’s plan to quadruple capacity by 2014 is ambitious, but the company also intends to add production of other components for airbags in Brazil over the same period.

An airbag consists of the bag itself, an inflator module, the housing for the entire airbag module, and the cover of the airbag, which is the only part visible to the driver.

Takata has three factories in Brazil: one in Jundiai (near Sao Paulo), one in Minas Gerais state, and one in Santa Catarina state. The Jundiai plant is where the airbag modules are assembled using imported bags and inflators along with housings, structural components and covers produced in Brazil. The Santa Catarina plant makes webbing for seat belts. The Minas Gerais factory produces steering wheels and other components for local vehicle factories.

The company has started an investment plan that will bring production of the bags and the inflator modules to Brazil. The bags are made from yarn that Takata buys from suppliers, which the company then uses to make the fabric that is cut, sewn and folded – processes that will be added to the plant in Santa Catarina, which will then ship the finished bags to the Jundiai factory.

Most of the production of inflator modules will be initiated in Brazil as well, though some parts of the modules will continue to be imported. Production of the bags is planned to begin in 2011, and the whole project to add the new industrial processes would be finished in 2014, Evangelista says. “Before the new law, production volume of airbags was relatively low, and the investment to make the inflators is very high, so it was never worth it to make them here,” he adds. “But now that volume will grow, it’s worth it to move production to our factories here in Brazil.”

To complement the investments in new production capacity, and to add the new processes to the current factories, Takata is also planning a big new investment in its Brazilian engineering operation. New specialists would be hired, and new equipment (including hardware, software and testing machinery) would be purchased. Also a new, stronger engineering center will be built, to upgrade the Brazilian unit’s capacity to design, test and then produce new products locally. The company plans to begin adding the new engineering capacity this year. The project should be completed by 2012.

BACKSEAT BAGS
Takata is also considering adding a new product to its locally manufactured line. Many automakers offer customers airbags to protect backseat passengers. Takata is consulting with its customers in Brazil to find out if demand for these bags, known as curtain and thorax bags, will be big enough to justify manufacturing them locally as well.

The company has started these programs to make its already excellent Brazilian unit even more responsive to the local market’s demands. Once the ongoing investment in its engineering unit is finished, Takata will be in an even better position to develop specialized products for its customers and to grow sales in Brazil and Argentina, reports Evangelista.

“Because of the strength of our local engineering, we develop solutions that are adapted to the Brazilian market,” he explains. “The expertise we have in our market permits us to meet the needs of the local automobile industry.”

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