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FUTABA: Driving innovation in automotive body parts

Interview - April 27, 2022

Founded in 1945 by four engineers determined to dedicate themselves to the principles of monozukuri, Futaba is a valued supplier to Japan’s automobile goliaths, utilizing its strong supply network and value-adding parts to help drive the industry forward. We spoke to President Hiroyoshi Yoshiki to learn about how the company is gearing up for the future of the automotive industry.

HIROYOSHI YOSHIKI, PRESIDENT/DIRECTOR OF FUTABA INDUSTRIAL
HIROYOSHI YOSHIKI | PRESIDENT/DIRECTOR OF FUTABA INDUSTRIAL

Can you give us a brief introduction to your company?

Futaba Industrial has 27 production bases in North America, Europe and Asia, and has established a system to supply auto parts to major automakers in Japan and overseas.

The Futaba Group intends to maintain its position as a trusted and successful supplier; accordingly, it has continued to enforce the basics of “Safety, Quality, and Monozukuri” to pursue optimization on a global basis, even while enduring the effects of the coronavirus disease (COVID-19).

 

The Japanese manufacturing spirit, also known as monozukuri, has been famous since WWII, and Japan has been called an industrial miracle. The automotive industry has been fundamental to that and is experiencing a once in a lifetime change with the switch to EVs or hybrids. What are those fundamental strengths of Japanese manufacturers that you would highlight, especially now that we are entering this new age of automobiles? 

We are located at the heart of major automobile manufacturers, such as Toyota Headquarters and Mitsubishi Motors. Toyota's value-adding OEM parts account for around 20% to 30%, while purchased parts make up the other 70%. Toyota assembles many things, but it cannot make a car on its own. There should be a very strong supply network to make a car, and we have a lot of suppliers.

In my observation, one of the strengths of Japanese OEMs, particularly Toyota, is their close communication. Given our proximity to them, we gain a significant advantage. It is a 15-minute drive from here. I can go any time to meet with their people for discussions and decision-making. In addition to that, I can share information with a number of tier-one suppliers.

 

EV accounts for 4% of all cars worldwide and European markets are adapting speedily. On the manufacturing side, China holds 70% of the production of batteries, and Elon Musk's famous brand, Tesla, has a USD 820 billion capitalization rate, almost four times that of Toyota. What is your forecast for the Japanese companies such as Toyota and Nissan with the new era in automotive underway?

I learned from many cases that new technologies are over-evaluated at the beginning but under-evaluated later. What I mean by that is people get excited by new technologies and think, "Oh, things are changing, and a new era is coming." However, it takes much longer time for new technology to gain major success than many people think. We have to deliberately consider the timeline and the speed of changing times. Right now, people are constantly talking about EVs. Some people say that maybe in 10 years, most cars in China and Europe will be EVs, but that is not precise. The change is definitely coming, yet the most important thing is to consider when and where. As an example of prediction, by 2030, probably 70% of all the cars in the world will still use internal combustion engines, and possibly 50% by 2050. It is moving in that direction, but it will not occur swiftly.

 

Do you have specific markets where you still see your business, particularly your muffler and exhaust-related systems, being demanded?

Our exhaust systems are still growing in India. It was a promising market at first, but it is now struggling a bit. Still, India has an enormous population from which only a limited percentage owns a car. Its automotive market is incredibly promising and is already bigger than that of Germany, and it continues to grow. The most annoying thing when we do our business in India is the power shortage. Depending on the area, sometimes we experience 10 times power outages in a day. Can you imagine everyone having EVs in India? Their generating electricity capacity is way under the demand, which goes to show that they need more Internal Combustion Engine (ICE) cars. We are doing business there with Suzuki, who understands the importance of developing new technology cars.

Currently, they are building a battery company next to their newest manufacturing facility in Gujarat as a joint venture with Denso and Toshiba. We also have our operation there, next to the big plant. We see the change, but it takes time. Suzuki wants to characterize the Indian operation as an export base for Africa. I think we have a certain existing growing market over there, but China and Europe are indeed changing very rapidly. The major contributing area to our revenues is China, and the Chinese operations of Futaba are very sound. There is a certain market there where EV is extremely popular. However, change is coming, so we need to be prepared for that. We are closely working with Toyota because we cannot make that change on our own. In fact, Toyota has already introduced EVs, and they will determine the percentage of the sales for EVs. They give us a lot of challenges and changes.

 

Japan has a shrinking population, and it is expected to have less than 100 million by 2050 where over a third will be more than 65 creating two main problems for companies. As a multinational company, what steps are you taking to offset this population decline in Japan? 

That is a serious issue. Unfortunately, the peak number of newborn babies was around 2.5 million, but it was only a third of that - 840, 000 in 2021. To survive as a company, we have to make our services extraordinarily attractive for the younger generation. We want them to look at our company as a good place to work. Futaba has been characterized as an exhaust system company for many years. Last year, we faced a difficult situation in recruiting new graduates because they have categorized Futaba as such. We are a long-established auto parts company that is strong in body structure. The exhaust system and the fuel system revenues excluding supplies from OEM are only 25% or so, while body parts correspond to 50%. We are endeavoring to shift our focus to the body frame parts and try to promote that to the public and the younger generation. Through human interaction with OEMs, we have been able to work in that capacity where we design the body. That has been OEM's domain for many years, but they are also moving from body structure to more software design. We need to help them in that transition while gaining opportunities to acquire more value-adding parts of the business. Another strength that we have is providing the body welding line. In fact, we are producing their manufacturing line that helps us understand how they process the body. Combining this with the design, I believe that we can propose the OEMs with excellence and better value-adding. We are working hard towards that. 



The next generation of cars will require new alternative materials such as aluminum, magnesium, CFRP or titanium to lighten the weight of the batteries. What new materials are you using to adopt to the demand for lighter yet stronger materials?

Toyota concludes that steel is probably the most efficient and environmentally friendly. It is not only a very recyclable material but also very cheap. Aluminum is immensely used by prestigious cars like Lexus, Mercedes or BMW for lighter body structure parts, but it is considerably expensive and heavily uses electricity. Therefore, it is not necessarily friendly to the environment. High tensile steel, say 1.5 Gigapascal, is extremely difficult to form and handle because it is hard and its spring back is high. We have been using CAE (Computer Aided Engineering) to discover ways to handle this overly difficult material, and we have been successful in introducing several parts.

Toyota is heading in that direction, and they have asked us to develop the super high tensile cold press parts. Some European carmakers are still using the hot press to a great extent because it is easy, but it consumes massive amounts of energy and electricity. It is not an environmentally friendly material for car manufacturing in Japan. Besides, one of Japan’s biggest problems is being far behind in energy sources, where 70% – 75% is imported fuel. If the life cycle carbon assessment is introduced, the Japanese auto industry will be in trouble. No matter how hard a private company works, we cannot change the source of the fundamental sources energy. That is a big issue for us right now. 

 

Could you tell us more about your research and development of your products, specifically your exhaust systems? 

Maybe 20 years ago, it was just focused on ICE, but now we have pure ICE, hybrid, EV and plug-in hybrid. The battery for EVs is much bigger than that of the hybrid and plug-in hybrid. For pure EV, we can forget about the exhaust system. The exhaust system used to be fitted to each different design body but we are now trying to utilize modular systems. These modular mufflers use the same module with different combinations and different pipes connected to them. We try to establish the common part and basic function, then we form combinations depending on the type of the car, which gives us more flexibility in manufacturing and lower capital investment. Our customers have shown interest when we proposed these to them. We are investing funds and resources into developing new exhaust systems that are more suitable for the diversified power source for a pure internal combustion engine, hybrid and plug-in hybrid cars because requirements vary. 

 

Are you looking to collaborate with new international partners?

Yes, definitely. This year I launched a new organization called future solutions creation office. One of the expected functions of the organization is open innovation. We conduct research and work with the government, institutes, universities and colleges to find out new combinations of our technologies, new areas or even our old technologies. Through this approach, we can provide products as solutions to society. When we asked inside the company, “Does anybody want to be involved in this?” Surprisingly, there were 30 to 40 people who raised their hands. It might expand internationally in the future.

 

Your sales in China from JYP 68 billion to JYP 81 billion. Could you explain why that was the case, and how are you going to continue this growth as part of your midterm strategy?

In the beginning, the Chinese market did not necessarily understand that as the auto market and society grew, the used car market became very important, and the value of used cars increased. They mainly focused on new products.  Toyota's reputation is not necessarily the best in an initial quality survey, but the quality of Toyota’s used cars is by far exceptional. Toyota customers are loyal because they understand that when they purchase the next car, it holds great value. Now, Chinese users are very much aware of that. I think Toyota has the top share among the Japanese automakers. Also, I perceive that the significant growth will continue as China's car market and society become more mature and understand the value of secondhand cars. We are growing along with Toyota's growth and success in the Chinese market, the most contributing region to our consolidated profit.

 

More than 52% of your sales come from foreign markets, the US being the biggest, accounting for 18% of your foreign sales.  You have plants in Indiana, Illinois and Texas, could you tell us more about your strategy in the US?

Since we established FIC AMERICA CORP. in 1994, we have established a total of three consolidated subsidiaries. In 2011, we also established a Headquarters in North America for enhancing a regional strategy. For approximately 30 years, we have established production and technology bases in favorable locations to respond to the needs of OEMs in a timely and flexible manner. In order to become a truly local manufacturer, we have provided body parts while concluding a business locally with creating and maintaining employment in the United States. In recent years, we have been actively engaged in procuring metal molds and production equipment in the United States, and I believe this will support measures to revitalize the U.S. manufacturing industry. While continuing to seek cooperation and collaboration with OEMs, we believe that we will be able to contribute to the further revitalization of the U.S. automobile industry, including electrification, as well as the expansion of our business in the United States.

 

Looking towards the future, is there any specific geographical region that you would like to tackle?

As the transformation of the automobile industry accelerates, rather than giving priority to countries and regions, first of all, we will make the most effective use of the resources established globally in Japan, North America, China, Asia, and Europe. We will flexibly respond to the needs of each country and region, including the environment. We will keep on challenging to be engaged in development to create products that will satisfy our customers, users, and all stakeholders. We will gain a new strength and competitive advantage globally as a result of others praising that "Futaba can be relied on to get a job done" or "Futaba came up with a new solution that simply hadn't been developed before."

 

In the future, which new locations are you considering, and what would be the strategy to do that? Will it be through a joint venture, M&A, another factory or a sales office?

Futaba had been pursuing growth, but in reality, it was in a difficult situation. The overseas operations failed to be profitable. My first mission is to become an effective company. I declared that we would not pursue growth for some time, rather, I want to strengthen this organization to be profitable. We are on the way to stabilizing the bottom part of our organization, the fundamentals. For now, I do not have a specific plan to expand our business in new regions or areas. Instead, our expansion opportunity is in India and China, depending on Toyota's growth. Also, we plan to expand in China, where Toyota established a new plant. Our main OEM customers are Toyota and Suzuki, and they have started joint activities in India. Suzuki is the winner in India. Toyota asked Suzuki to provide their products to the Toyota line through OEM, and we provide the parts. They support each other. We did not do business with Toyota in India before, only Suzuki. Now that they are working together, we can work with both companies.

 

Imagine we come for your 80th anniversary and have this interview all over again. What would you like to tell us? What are your dreams for this company, and what goals would you like to have accomplished by then?

In 1945, four engineers relied on their skill and knowledge to take on a new monozukuri challenge aimed at rebuilding both their own livelihood and that of the people of Okazaki. That was the motivation for founding Futaba Industrial. We started production of automotive parts in 1948. In the 1970s, the Japanese automotive industry continued its robust growth and we expanded its business. In 2000, it was the first step in the globalization of us.

When I became president in 2016, I created a five-year plan that is not centered on pursuing growth. I introduced total quality management, and I also asked our people to create the FUTABA WAY based on our history and culture. We introduced a lot of training programs and human resource policy changes. Moreover, we want to pay more attention to our technological advancements and recreate or recapture our original strengths moving forward into the future. In 2020, for the first time since becoming president, all the regions became profitable. I want to look at the rapid changes in DX, SDGs and CASE as opportunities. With the major changes taking place, I want to let our employees think like our predecessors after WWII who were so motivated to survive and re-establish the Japanese industry with a strong sense of mission. No matter how technologies change, our business will be where cars are. Futaba is the top company for exhaust systems in Japan, and we want to gain the same level of recognition with body structure in the country.

A big part of what I am doing is working on how to make Futaba's overseas operations attain the same level of capability as in Japan. It is vital for the local staff to be accepting and understand Futaba's manufacturing methods and how we conduct our business. There is no shortcut.

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