Key Safety Systems Inc. CEO Jason Luo has the swagger of a riverboat gambler who has just pushed all his chips into the center of the table.
And that’s understandable for a Detroit executive who just leapfrogged his competitors.
Luo, a Chinese-born engineer- turned- manager who settled in the United States after college, announced plans to buy most of the assets of the newly bankrupt Japanese airbag supplier Takata Corp. for $1.6 billion.
The deal will more than triple Key Safety’s annual sales to $7.5 billion, enabling the suburban Detroit company to become the industry’s No. 2 airbag maker, behind Sweden’s Autoliv.
“We started thinking about this three or four years ago,” Luo revealed in an interview just after last week’s acquisition was announced. “I’ve known Takata for many years. I know the management. I know the people.”
Overnight, the deal will catapult Key Safety from an airbag market share of 8 percent to approximately 25 percent, thanks to the assets and customer base of the much-bigger Takata.
Takata’s thriving seat belt business — which accounted for 33 percent of the company’s revenue last year — will give Key Safety a big share of that product segment.
The Takata deal also creates new business possibilities for the electronics company that acquired Key Safety last year, Ningbo Joyson Electronic Corp.
And despite the maelstrom of fines, lawsuits and multibillion-dollar recall costs that have bankrupted Takata, Key Safety will not be financially exposed to those liabilities.
But Luo’s success is not assured. As he works to complete the deal in 2018, he must:
• Prevent further brain drain of key Takata staffers fleeing the company.
• Ensure that Key Safety executives can manage their fast-growing empire.
• Persuade skeptical Japanese automakers to buy his airbags.
• Fend off hungry rivals such as Autoliv, Toyota-affiliated Toyoda Gosei and powerful TRW, now owned by Germany’s ZF.
Luo seems unfazed by the challenges, in part because he has been studying the move for years — well before Key Safety was purchased last year by Ningbo Joyson.
Luo has taken several steps to reassure Takata employees, managers and customers that Key Safety will bring stability. Last week, he announced that Takata’s factories and r&d center in Japan will remain open. Likewise, there won’t be any major layoffs in Japan, and Luo will ask some senior Takata executives to join his company.
Luo also says reports of a brain drain at Takata have been overstated, and that key technical staff have remained at most Takata operations.
On the other hand, the Takata brand name likely will disappear, and company CEO Shigehisa Takada — part of the company’s founding family — has told Japanese media that he plans to leave.
But what about Takata’s customers, especially Honda Motor Co., its largest client? Is Luo confident that Takata’s Japanese customers will stick with the airbag supplier now that it has become a U.S.-managed, Chinese-owned entity?
“We’ve met with almost every customer,” Luo said. “I’ve asked most of the automakers to support Key Safety. That issue already is in the past.”
Luo acknowledges that he has unfinished business. For example, he must figure out how to integrate Takata’s many world factories with Key Safety’s manufacturing. In January, he hired Steve McKenzie — a 30-year veteran at Alcoa, Siemens and ITT Automotive — as vice president of global manufacturing.
But Luo has not yet decided whether McKenzie will run Takata’s factories too.
“We are undecided as yet,” Luo said. “We have time to figure out how to organize.”
Likewise, the company must boost inflator production. Before the Takata deal was announced, Key Safety had confirmed plans to raise its annual output to 100 million inflators by 2020, up from 70 million last year.
Now Luo says he’ll have to raise output again, although he hasn’t decided how much.
Up for grabs
But despite Luo’s confidence, Takata’s customers appear to be up for grabs. As Takata-related recalls topped 100 million inflators around the world, Autoliv and TRW have expanded output. They also began to win new contracts as Honda and other companies abandoned Takata. In 2015 and 2016, Autoliv won more than half of the passive safety contracts that it bid on.
As a result, Autoliv’s 39 percent share of global passive safety sales — including airbags and seat belts — is expected to rise significantly in 2018 and 2019, according to company spokesman Thomas Jonsson.
Takata’s troubles have presented Autoliv and TRW with a golden opportunity to gain a niche in Japan, a market that had been largely closed to foreign airbag makers.
As if that weren’t enough, Luo may face questions in Japan about Key Safety’s Chinese owners. Ningbo Joyson paid $920 million to buy Key Safety.
But Joyson, a $3 billion-a-year supplier headquartered in the east China seaport of Ningbo, has left Luo and his team in charge.
“We are not a Chinese company,” Luo said. “We operate in the U.S. — in Michigan. At the end of the day, our customers are looking for us to provide a competitive part. When it comes to doing business, they always focus on the basic stuff.”
Luo says his upbringing introduced him to Japanese culture. His family hails from Manchuria, a large swath of land in Northeast China that was controlled by the Japanese until the end of World War II.
His father spoke fluent Japanese and worked on the Japan-owned South Manchuria Railway.
“I understand a lot about Japan,” Luo said. “I can speak to the food, the culture, the way they do business. To make a deal, you have to communicate and understand how [the other side] is thinking. This shortened the distance between us. The cultural gap was almost not there.”
Luo has been in management at Key Safety since 1997, when the company was operating under the name Breed Technologies. After financial troubles, bankruptcy and a rescue by private equity, Breed was renamed Key Safety in 2003. In 2007, Luo led a management buyout of the company, involving a new investment firm, Crestview Partners.
As CEO, Luo steered the company through the 2008-09 economic crisis, and last year, welcomed the acquisition by Ningbo Joyson.
Luo must now demonstrate Key Safety’s reliability and management stability to Takata’s customers worldwide.
As part of Takata’s reorganization, automakers have been assured that Key Safety will maintain Takata’s production of airbags, seat belts and steering wheels.
Last week, Honda issued a guarded statement of support.
“We understand the turnaround plan is based on a secure supply of parts,” said Honda spokesman Kosuke Kachi on Thursday. “So if this will be granted, we will continue to [buy] from the new company.”
Scott Upham, principal of Valient Market Research, a consultancy in Rochester, N.Y., is less certain about Key Safety’s ability to do that — mostly because of Takata’s past, rather than Key Safety’s intentions.
“The industry has a total lack of confidence in Takata management,” Upham said. “It’s a shambles. Key Safety will have to try to resurrect those relationships. I think there will be a shakeout of market share. At this point, TRW and Autoliv are safer bets.”
Even as it fends off its rivals in Japan, Key Safety faces another uphill battle: self-driving cars.
As automakers design these vehicles, they are asking suppliers to integrate their airbags, seat belts and sensors with new-era obstacle detection software and other advanced technologies.
That would allow vehicles to activate airbags and restraints before a collision occurs — thus offering extra protection. As major suppliers of radar, cameras and software, Autoliv and ZF-TRW can do that. Key Safety aspires to do so, too.
The company has added 360-degree cameras to its portfolio, and it is researching radar.
To gain software expertise, Key Safety also acquired a majority stake last year in ImageNext Co., a Korean supplier of software for driver assistance and 360-degree obstacle detection. Key Safety displayed its active safety technology for the first time at the 2016 CES technology expo in Las Vegas.
Now the company is starting to win contracts. Active safety accounts for only 2 percent of Key Safety’s sales, but Luo hopes to boost that to 10 percent by 2020.
“At the end of the day, I don’t think we can be a full-system supplier” for self-driving vehicles, Luo said. “Our strategy is to focus on safety.”
Fuente: Automotive News