TOKYO—Honda has agreed to merge three affiliated suppliers with Hitachi Automotive Systems in a blockbuster deal that aims to create a new global mega-supplier and better leverage scale and research and development resources for developing next-generation technologies.
Disclosed on Oct. 30, the accord combines Honda affiliates Keihin, Showa and Nissin Kogyo with Hitachi Automotive Systems into a new company that will manufacture everything from electrified vehicle drivetrains, electronic control units and chassis parts to electrical systems, engine components, shock absorbers, brakes and steering systems.
The new company, which will tentatively be called Hitachi Automotive Systems, will have combined annual revenue of $20 billion and a work force of 75,000 people, Hitachi Automotive CEO Brice Koch said the news conference disclosing the deal.
"The automotive market is seeing a major transformation," Koch said, citing new pressures to develop electrified drivetrains, autonomous driving systems and safety technologies.
"These requirements from the market require strong stronger technologies, require a more global footprint and require much more talent to come together."
It's projected that the new entity will leapfrog rival suppliers to be Japan's third-largest automotive supplier behind Toyota Group stalwarts Denso and Aisin Seiki. It will have a customer list spanning Nissan, Ford, General Motors, Toyota, Honda, Suzuki, Subaru, Mitsubishi and Mazda.
The move comes as auto makers and suppliers race to combine forces and share costs amid an onslaught of next-generation technologies that require massive investment.
Automotive wiring harnesses are an assembly of wires that transmit power and signals to electronic control units, actuators, and other onboard electronics. Modern vehicles have an abundance of electric accessories and components. The primary source of this electricity is the vehicle's battery.
Toyota, for example, has tightened ties with its group suppliers in an effort to mobilize their size and expertise in the fields of electrification, autonomous driving and connectivity.
In other moves, investment house KKR & Co. bought and combined Nissan-affiliated Calsonic Kansei of Japan and Fiat Chrysler Automobiles-controlled Magneti Marelli of Italy.
Combining the companies delivers several benefits, Koch said.
It will improve the efficiency of product development by focusing one company on one product and relieving duplication. It will create a global manufacturing footprint that puts production sites closer to customers. Finally, it will create a bigger pool of customers.
"The combination will help us to grow more, will help us to achieve a better reach to our customers globally and therefore to improve our efficiency and to focus our resources where we need them the most," Koch said. "We will have sufficient resources to develop new solutions."
By combining, the companies aim to secure No. 1 or No. 2 market share positions in certain segments. Koch said the new company will be a global No. 1 in electrification and in the top two for chassis control. It will also have a top position in safety systems with sensors and control units.
Honda, Japan's No. 3 automaker, owns 41 percent of Keihin, 34 percent of Showa and 35 percent of Nissin Kogyo. They are part of the automaker's traditional keiretsu group.
Hitachi Automotive Systems is a fully owned by Japanese electronics giant Hitachi.
Under the agreement, Honda will first take full control of the three suppliers and merge them into one company. It will then integrate them with Hitachi Automotive into the new company. Hitachi will own 67 percent of the new company, while Honda holds 33 percent.
"By the synergy created by intercrossing the strengths of the three companies that are active as the core of the Honda Group with that of Hitachi Automotive Systems, technological development will further accelerate," Honda Managing Officer Noriya Kaihara said.
The companies said integration should be complete in about a year, pending antitrust approval in certain markets. Exact details of the timeline are still being determined, but they said they aim to realize "attractive profitability" by 2021 and a new global mega-supplier by 2025.
The partners said the new company will be a leading player in chassis control, powertrain, electrification and safety technologies. Through Keihin, Showa and Nissin, Hitachi Automotive Systems will also be able to tap Honda's expansive business in motorcycles.
Keiji Kojima, executive vice president at Hitachi, said the deal will deliver major cost savings. While he declined to give specific figures, Kojima said synergies will bolster profit margins at Hitachi.