Toyoda Gosei expands in China with acquisition of Hubei Rock

KIYOSU, Japan—Toyoda Gosei Co. Ltd. is purchasing a majority stake in Hubei Rock Rubber and Seal Technology Co. Ltd. to strengthen its automotive parts business in China.

The deal is expected to be complete in December, according to an Oct. 30 news release. Toyoda Gosei said it will pay about $7.12 million for a 60 percent stake in Hubei Rock from its parent company Hubei Zhengao Automotive Accessories Co., which will hold the remaining 40 percent as a minority joint venture partner.

"TG is a top class global supplier of weatherstrips," a company spokesman said in an email. "Its abundant expertise in product development and quality improvement of the product will help Hubei Rock meet needs from auto makers and thereby support its growth in the region."

Based in Shiyan, China, Hubei Rock is an independent supplier that provides both EPDM and thermoplastic vulcanizate-based weatherstrips, mainly to Dongfeng Motor Corp., which Toyoda Gosei described as one of China's "big three" auto makers. It employs 281 people at its 465,000-sq.-ft. facility and generated $11.8 million in sales in fiscal 2017. The building sits on about 840,000 square feet of land.

The company also supplies to Dongfeng's joint venture companies with Japanese and other foreign manufacturers, including Dongfeng Honda Automobile Co. Ltd. and Dongfeng Peugeot-Citroen Automobile Co. Ltd.

The spokesman said that Toyoda Gosei received requests from auto makers, most notably Honda, to expand further into the region. Honda operates a manufacturing company jointly with Dongfeng in central China.

Dongfeng represents a new customer for Toyoda Gosei. The spokesman said Hubei Rock's partnership with Dongfeng and other auto makers in the region was what made it so attractive.

"Needs from auto makers were for higher quality and production capacity increase of weatherstrips," the spokesman said. "In order to meet these needs, Hubei Zhengao decided to cooperate with TG. On the other hand, TG did not have a plant in the region. For greater presence there and expansion of its business in China overall, working with Hubei Zhengao was a good option for TG."

With this partnership, Toyoda Gosei's production network in China will expand to four locations—TG Star Light in northern China, Foshan TGR and Fu-Yue in southern China, and now Hubei Rock in central China. Toyoda Gosei said it considers China a crucial market and will continue to strengthen its development and production networks there.

The official name of Hubei Rock will change to Hubei Toyoda Gosei Zhengao Rubber and Seal Technology Co. Ltd.

It is TG's second acquisition of a Chinese weatherstrips producer in 2018, acquiring TG Star Light—formerly Tianjin Star Light Rubber & Plastic Co.—in March. At the time, TG said the firm employed 994 people with about $75 million in sales for 2017. Its only manufacturing facility, based in Tianjin, spans about 462,800 square feet. It produces EPDM weatherstrips for opening trims/doors and thermoplastic vulcanizate weatherstrips for glass-run systems to local original equipment manufacturers on a Tier 1 basis.

Tianjin Star Light's main customers include Tianjin FAW Toyota Motor, Changan Ford and Great Wall Motor.

"Automobile production is expanding in the country," the spokesman said, "and procurement needs for weatherstrips will increase accordingly. Needs for other parts like airbags, one of TG's main products, also are increasing."

Toyoda Gosei also plans to change the corporate form of its regional headquarters in China from a management company to a holding company in order to speed up management decisions in the region.

Toyoda Gosei (Shanghai) Co. Ltd. would change its name to Toyoda Gosei (China) Investment Co. Ltd. by the end of 2018 and increase its current capital from $2 million to $12 million. The new entity will be involved in business planning, product development, and other management functions in China.

The spokesman said that the move is part of TG's strategy in expanding business in China, adding that the change is planned to take effect in December.