JATCO accounted for 41% of global continuous variable transmission (CVT) production last year and has aims to be the number one automatic transmission (AT) manufacturer in the world. President & CEO Teruaki Nakatsuka takes a look at where global automobile markets and trends are heading, and the importance of JATCO to be as efficient, flexible and innovative as the products it makes.
How do you see the Japanese economy up to 2020 and what are the key challenges it will face?
The main key issue we are facing here is that Japanese companies and individuals are too comfortable in their current situation. The majority have lost their aggressiveness and ambitions to go global. The fact that Japan is a peaceful country and that we are the third largest economy in the world makes our younger generations to be happy with remaining in Japan. When they read newspapers, or watch the TV, they perceive that there are some problems in the United States and other foreign countries that compared to them, Japan is a nice country to live. They are not ready nor willing to change. In addition to that, the Japanese population presents low levels of consumption as they dedicate a high percentage of their income to savings. This is another key differentiator from the US population where population usually presents higher rates of consumption.
I support Prime Minister Abe and his reforms. To be honest, I truly think that he is the best leader Japan has ever had. I hope he will manage to extend his tenure for another three years to turn this country towards the right direction. Japan should change, but changes happen very slowly. We are making some progress to some extent, but deeper reforms are required.
What should be the role of the automotive industry in this recuperation?
Thinking about the last 50 years of Japan’s industry history, the automotive sector has always been and still is the leading industry. In fact, we can say that Japan’s only leading industry nowadays is the automotive industry. In the past, the electronics industry was way ahead, but nowadays it has lost its competitiveness to countries like China, Taiwan, Korea or even the US. The Japanese automotive industry kept its competitive advantage while this happened.
I can proudly say that we, the automotive industry, are the leading industry of this nation. This is why, as leaders of this industry, we have the responsibility to maintain it at the forefront towards the future and help other industries to regain their innovative edge. In any case, we will keep on adapting and researching towards more environmentally friendly and safe cars for the next generations. In terms of mobility, Japan should keep on being a leader.
One of the main goals of the automotive industry is to improve automobiles’ energy efficiency. On one side, we have companies such as Ford going for lighter materials as a solution. On the other side, carmakers like Honda are improving continuous variable transmissions (CVTs) in their energy efficiency efforts. How is CVT a good solution to reduce the use of fuel per km?
The advantage of using CVT is that it offers flexibility from a fuel consumption standpoint. It provides the best shifting to the automobile thanks to its flexibility, differently from a traditional automatic transmission (AT). By definition, CVT provides a very good solution for energy consumption, which means a CO2 emission reduction, smoothness when driving, best performance and best shifting for the automobile. To sum up, CVT is the best eco-friendly transmission system on the market.
Beyond the reduction of fuel consumption, CVT offers more advantages over the traditional automatic: fewer moving parts, smaller and weighs less. However, although CVTs might offer a cost advantage to the automaker, they are not necessarily lower in upkeep to the owner. While conventional ATs are sealed and essentially maintenance-free for 100,000 km, many CVTs might require rather costly fluid changes which can represent more than what was saved on fuel. What are the main challenges that CVTs are facing in its efforts to increase its penetration in the AT market?
As you know, AT includes CVT among other types of transmission that are automatic. In any case, AT in general has a high potential of market penetration, because all over the world there are still many manual transmission cars, especially in European countries. What we have experienced is that once drivers move to AT, they never go back to manual transmission. We would like to be part of that penetration process.
Moving to CVT, it is important to acknowledge that today, approximately 20% of the entire AT is CVT. If AT gets more popular, we will certainly increase our opportunities to grow as we would have a bigger share to take in the AT expansion. In order to achieve that growth, we will keep on appealing for more fuel efficiency, CO2 emissions reduction and the rest of our product advantages.
It is true that CVT as well as the other AT units can be more expensive if needed to be replaced in the long term, but we need to be realistic. The average life of a car is around 10 years, depending on the country. To make CVT more appealing in markets, we are innovating to make our CVT repairable instead of replacing the entire unit. We have started to offer a cost competitive solution through the OEMs (original equipment manufacturers) that use our transmissions. The service is provided through their dealers.
JATCO was established in 1999, and has become one of the few companies in the world dedicated to the manufacture of CVT. Last year JATCO accounted for 41% of global CVT production and now you are aiming to be the number one AT manufacturer in the world. What are the main strategies that JATCO is following to achieve this ambitious goal?
The trend of more AT is progressing, but the ratio varies from country to country. There are certain countries that love CVT, and others that do not like it that much. Good examples of countries where CVT is well accepted are the US, China and Japan. In other countries, as in the European ones, drivers prefer a more direct feeling of conduction, so CVT is less popular. For JATCO, the most important markets are the US, China and Japan. Our strategy is to accelerate growth in each of them.
The challenge there is to make drivers choose CVT as their first choice in AT. Flexibility is one important feature of the CVT: it allows drivers to manipulate direct shifting, creating a direct feeling to it. This is what we call a D-step, direct-step feeling. It sacrifices efficiency a little bit, to be honest, but we do this to fit customers’ tastes. They can choose between going directly, smoothly or even automatically. When drivers push the acceleration pedal very hard, it automatically captures their intentions and goes into the direct mode. If you press it slowly, it enters into the smooth mode. By providing this flexibility we would like to expand the popularity of the CVT there.
In your plans, you aim to surpass your Japanese rival Aisin AW Co. by 2020. How are you differentiating your services from them? What do you consider your major strengths?
Aisin AW Co. is a very good company inside the Toyota Group. The difference between us and them is in our globalization speed. We went global much faster than them. We have three CVT manufacturing locations: Mexico, China and Thailand. Our production in overseas countries already represents 50% of our total production. Other than being faster, we also have the desire to be closer to customers. In any case, fierce competition is good. If Aisin AW gets ahead, we will be satisfied as well, as it will mean more AT and more CVT in the end. We would like to enlarge the market to win together.
Annual investment in automotive R&D by Japanese companies amounts for over 2 trillion yen ($18 billion). How is JATCO addressing the challenge of being a constant innovator? What kind of new innovation or next generation products are you working on at the moment?
One good thing for JATCO is that Nissan, a very strong OEM, is the 75% shareholder of our company. All transmission companies need to work closely with OEMs and partners, including when they conduct R&D, as transmissions are long-term products. We are lucky to have Nissan with us, as Aisin is lucky to have Toyota behind. OEMs are frontrunners in adapting to new environments and new technologies.
The key for us is to learn how to capture even better OEM requirements and how to work together with them in the most efficient way. For JATCO, CVT is our core advantage, therefore enhancing CVT capability towards more efficient, smaller in size and lighter transmissions is our priority. For instance, we have just introduced a new CVT concept at the Tokyo motor show last October.
We would like to be the frontrunners of the CVT technology, but that is not enough. Now, new trends are arising, as electric vehicles, autonomous driving, fuel cells, connected guiding, etc. What does that mean to transmission? We need to respond to those trends. For example, Nissan’s electric vehicle does not have a transmission system; Toyota’s fuel cell car does not have transmission either. In my opinion, electric vehicles should have the transmission function to make their motors able to drive at the ideal condition and speed. This is something we are working on now.
Historically, carmakers have kept close ties with their suppliers, operating as parts of conglomerates. These relationships are changing in response to needs for more globalized supply chains. Nissan has already taken many steps to remove itself from traditional keiretsu ties after aligning with the French automaker Renault. How is JATCO adapting its strategy to this enhanced competition scenario? How are you expanding your customer base beyond Nissan, Mitsubishi and Suzuki?
There are several OEMs that have never used CVT. The good news is that some of them are interested in adopting CVT for their next generation products. There are many Chinese and Southern Asian OEMs that have expressed their interest in adopting CVT. We’d like to expand our customer base.
In addition, the main OEMs produce their transmissions internally and they may outsource, as transmission production is capital intensive. I believe that there are many opportunities to capture them.
How do you want to be perceived by the main American OEMs such as GM, Ford or Chrysler?
Some of them are already our customers and we have the know-how to adapt our products to their requirements. I am constantly meeting with them to better explain our products, strategies and future prospects, especially regarding the potential creation of new CVTs. Our product is a long-term investment and requires long-term relationships. If we talk today, maybe a project will only materialize four years later. To achieve this, we have to build a good relationship with their management team, earn their trust, and have them understand what the advantages of our strategy and technology are.
Non-car manufacturers, such as Google and Apple, are now developing automobiles and automotive components, specializing in the software area. How is JATCO planning to capitalize on this trend? How do you think the Internet of Things (IoT) will affect your business in the future?
As a traditional manufacturer of hardware for cars, I do understand this trend, but to be very honest I believe the majority of the industry still wants traditional automobiles. This scenario will probably last for the next 20 to 30 years. Of course, in JATCO, we do recognize the new trends and new business models: we need to be a part of that. But we are still a key player of the traditional automobile industry, where we still believe we can expand our customer base.
Nevertheless, we need to take new trends very seriously if we want to keep Japan’s automotive industry in its leadership position. To achieve that we must keep on moving towards the European car manufacturing model, much more flexible. In Europe, there are huge automotive parts suppliers, like Continental, Valeo or Bosch, dealing with different OEMs. Differently, in Japan, the keiretsu model still exists. Can this model be sustainable?
In my opinion we need more consolidation and it should be done much faster. Shipping companies consolidated their container business in Japan despite being rivals. This should happen in our industry too. Nissan, Honda, Mitsubishi and Toyota suppliers need to be competitive globally. That kind of consolidation, as a dynamic evolution inside suppliers, including us, needs to take place in this country as a general direction.
Domestic automobile production has been steadily rising since 2012, in light of a weaker yen and stronger global market for motor vehicles. This has led to extended expansion by Japan’s major automakers. In 2014, the US market represented 37.2% of Japanese car sales. What role does America play in your globalization efforts?
Our supply source for the American market is located mainly in Mexico. Our Mexico plant is the largest overseas manufacturing unit for JATCO: 1.7 million units per year are produced there, mostly going to the NAFTA region including the US.
For us to be successful, the US market is extremely important, and the perception of US drivers of CVT is very important as well. CVT is rising in popularity in America, but things are not perfect yet. There is this issue of the expensive replacements and other aspects we should work on.
Today, Nissan remains JATCO’s biggest customer in the US market, which is also part of our strategy. Other than Nissan, Mitsubishi is also selling cars with our transmission in the US, followed by Chrysler as well. In order to make today’s product more reliable and repairable, partnerships with OEMs remain critical.
In June 2014, you were appointed as CEO and President of JATCO. If we come back in five years, where would you like JATCO to be?
I want to drive the growth. I do not want JATCO employees to be comfortable with the status quo. I want to keep growing as the future is coming. I am encouraging our staff to change, to evolve, to improve their processes. I am fighting against the mentality that likes to maintain the status quo, a mentality that I feel is dominant in this country. I want JATCO to be always pushing forward to keep growing and embrace change. If we are not number one today, it is still ok as long as we have the aspiration to be the number one and keep on growing and innovating.