Automotive News - December 1, 2008 - (Page 28b) 28B • DECEMBER 1, 2008 U.S. yarn maker opens China plant Factory produces nylon essential for airbags, seat belts Namrita Chow namritachow@autonewschina.com Invista’s Phil Webster oversaw construction of the airbag yarn plant in China. mance GmbH and joint venture partner China Shenma Group began production at a plant in China. Japanese fiber maker Toray Industries Corp. and Korean fiber maker Hyosung Corp. also are players in the market. The suppliers sell yarn to safety system makers such as TRW, Autoliv, Takata and Hyundai Mobis. A typical car in North America uses 4.4 pounds of airbag yarn. U.S. suppliers lose luster among Chinese buyers Steven Ribet sribet@crain.com SHANGHAI — Seeking a larger foothold in Asia, fiber manufacturer Invista, of Wichita, Kan., has begun producing nylon yarn for airbags at a plant in China. Invista’s share of the global airbag yarn market is a “little bit less than 50 percent,” says Mark Delaplane, global director of Invista’s nylon industrial specialties, performance surfaces and materials. The yarn — called nylon 6,6 — is an essential ingredient in airbags and seat belts. Local production expected Invista imports the polymer resin used to make the yarn. But that is likely to change, further benefiting customers in Asia. “We have a vision for doing that probably in the next couple of years,” says Stone, referring to local production of polymer resins in China. Despite the slowdown in auto sales, Thomas Xu, of TRW Systems Consulting Services (Shanghai) Co., still expects a 50 percent jump in TRW’s airbag business in 2009 because more automakers in China are beginning to use side curtain airbags. First plant in Asia A production plant in China puts Invista closer to Asian growth markets. The new Invista Specialty Fibers (Shanghai) Co. factory, in Shanghai’s Qingpu district, is Invista’s first nylon 6,6 production plant in Asia. No longer will customers have to wait for yarn to travel from Invista’s plant in Kingston, Ontario, to China. The yarn will be cheaper, mainly because of low shipping costs, says Dan Stone, president of Invista’s performance materials. Invista’s project manager, Phil Webster, was brought in to oversee construction of the plant, having had a similar role at Invista’s two other airbag yarn plants in Gloucester, England, and Kingston. SHANGHAI — As the crisis in the U.S. auto industry deepens, the assets of many American suppliers have for-sale signs out front. But Chinese suppliers are less interested than they once were in making acquisitions in the United States. “Chinese companies have recently had some bad experiences with acquisitions in the developed world,” says Tom Tan, president of powertrain supplier BorgWarner China. “The lesson they have drawn is that they’re not yet up to the task of managing companies in the world’s most competitive markets.” A survey by consultant A.T. Kearney found that automakers and suppliers here were more interested in acquisitions in Russia, the Middle East, Southeast Asia and Latin America than in North America. While 35 percent named Russia, only 7 percent talked about North America. Even Africa rated more highly than North America or Europe as an investment destination. BorgWarner China’s Tom Tan: The Chinese don’t think they’re ready to manage companies in the developed world. you in the same old way,” he says. Wanxiang Group and Weichai Power Co. Ltd. — two big Chinese component makers — entered talks to take over businesses belonging to Delphi Corp., which is operating in U.S. Bankruptcy Court. Two more suppliers, Dongfeng Motors and Minth Group, also were reported to be negotiating for similar purchases with Delphi and Visteon Corp. Since then, the yuan has appreciated about 17 percent against the dollar, meaning it takes fewer yuan to purchase American assets. Yet despite their greater spending power, Chinese suppliers are less, rather than more, enthusiastic about making U.S. acquisitions. The reason: a string of wellpublicized failed overseas takeovers. Gun-shy Chinese suppliers are losing interest in U.S. acquisitions. Other markets, such as Russia, offer better prospects. Chinese executives lack experience in mature markets. Some Chinese companies were burned by recent acquisitions. Steve Dyer, a consultant at A.T. Kearney, agrees. “I’ve known deals that did not go through because the buyer could not guarantee the unions that there would be no job losses,” he says. “The Chinese have no experience of dealing with this issue and that makes them wary.” Lack of global experience Moreover, the general realization has grown that Chinese entrepreneurs are often out of their depth when they venture into the sophisticated markets and legal systems of the developed world. “If Delphi can’t handle its lossmaking units, how can the Chinese?” asks Kevin Chen, whose Web site, www.gasgoo.com, works as an intermediary connecting Chinese suppliers to global automakers. “They just don’t have the international management talent.” In its survey, A.T. Kearney asked Chinese respondents for the biggest obstacles to overseas acquisitions. They cited lack of experience with mergers and acquisitions, integration complexities and a lack of market knowledge. Interestingly, Indian carmakers and supplier companies also questioned for the survey did not share the caution toward the industrial world. Of 13 Indian companies responding, 50 percent said North America was the destination they were most interested in for acquisitions, while 36 percent named Europe. A.T. Kearney’s survey was conducted as part of its annual Townsend Report on trends in the global automotive industry. c Winning back business To maintain its market share, Invista needs to win business from competitors. This includes winning new business back in the United States from the Detroit 3, plus Japanese and Korean automakers. Initially, the Qingpu plant will export 70 percent of production, mainly to Korea for airbag maker Kolon Industries Inc. Nylon 6,6 yarn is also used in the production of tires. “In the current climate, it’s always good for a plant to be flexible,” says Invista’s Webster. “Tire fiber is a potential opportunity.” c Mood has shifted Today’s mood is a far cry from two years ago. In 2006, Chinese suppliers riding high on a booming home car market made no secret of their desire to get their hands on the technology and market access of U.S. companies. Bankrupt American suppliers were desperate for companies to save their loss-making subsidiaries. The match seemed perfect. For instance, in 2006, China’s biggest glass maker, Fuyao Glass Industry Group Co., was in talks to buy the glass-making operations of Automotive Components Holdings LLC, the parts company owned by Ford Motor Co. Fuyao’s chairman, Cao Dewang, declines to comment on the state of the deal. But he agrees that U.S. component makers are now looking much less attractive as takeover targets to him and his peers. “If a factory lost money for its American owners, it’ll lose money for Burned overseas For example, in 2004 China’s TCL Multimedia Technology Holdings Ltd. acquired the ailing TV business of France’s Thomson SA. That led to huge losses for TCL, amid general recognition that the Chinese had severely underestimated the task of turning the business around. The example of Ssangyong Motor Co.’s acquisition by Shanghai Automotive Industry Corp. also has become industry lore. SAIC took over Korea’s fourthlargest carmaker in 2004. Bad management led to a strike by Ssangyong workers and then rumors — denied by SAIC — that the Chinese were planning to sell off their troubled acquisition. Delphi, Visteon, Wanxiang, Weichai, Dongfeng and Minth all declined to comment for this report. Fuyao Glass’ Cao also says Chinese executives are unfamiliar with Western labor unions. Tough competition Competition in the airbag yarn market is fierce. Last year, German supplier Polyamide High Perfor- “DOWN-SIZING” OR “RIGHT-SIZING”? ACCORDING TO NEW STUDY, CAR BUYERS SAY “BOTH.” Acxiom’s Automotive Consumer Dynamics study helps marketers pinpoint target buyers. For a complimentary subscription, visit www.acxiom.com today. A GLOBAL LAW FIRM FOR THE AUTO INDUSTRY Rely on 156 years of legal leadership to help you: IN THE MIDST OF THE Largest Restructuring of the Automotive Industry in History You Need Expert Legal Advice + Continue to operate in the liquidity crisis + Consolidate plant operations + Manage exposure to financially distressed suppliers/customers + Take advantage of global merger, alliance, and acquisition opportunities + Capitalize on new technologies, government programs and incentives + Commercialize automotive IP for non-automotive applications Contact Richard A. 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