Desperate Parts Companies in Toyota’s Hometown Challenge New Ground

With Toyota Motor Corporation at the top, Aichi Prefecture is home to the headquarters and factories of 1,467 companies including Toyota Group mega suppliers (major parts companies) such as Denso and Aishin, and Tier 2 (secondary subcontractors) and lower parts companies. Change is happening in this automobile kingdom.

Amid a shift in the industry structure from automobile electrification and lack of successors from low birth rate, small and medium sized companies are diversifying their business. I visited the place in early August to see for myself.

Takafune Kougyou : “Venturing into the Medical Equipment Market”

・Business: Manufacturing of automotive body parts
・Head office: Nagoya-shi, Aichi Prefecture
・Established: 1953
・Capital: 10 million yen
・Employees: 50

Walking 10 minutes from Kogane Station on the Kintetsu Nagoya Line, 2 kilometers southwest of Nagoya Station, the gateway of Aichi Prefecture, Takafune Kougyo’s main office comes into view. The company manufacturers fasteners such as car bolts.

President Fumihiro Ishii says, “Electrification brings risk to employment. With fewer parts required, various companies will scramble into the remaining parts market. To keep our employees, we have to create another business alongside the main one, and work on both.”

Although the company enjoyed favorable sales mainly in auto bodies for gasoline cars, the growth potential seemed flat at best with the wave of electrification, and they decided to diversify their business. After considering aircraft, robotic, and environment businesses, they entered the medical equipment sector eight years ago. 

Why medical equipment? Ishii says, “We have been an auto parts manufacturer, but I always wanted to make products from scratch. I thought you could do the whole stretch of manufacturing—from cultivating the market to development and sales of the product, with medical equipment.”

With the help of experts dispatched from Aichi Prefecture, the company acquired the approval for medical equipment manufacturing. Initially, they subcontracted from medical equipment manufacturers, then began artificial joint development in August.

They will proceed with pharmaceutical applications and plan to start medical equipment sales from 2023. The company also plans to expand the ratio of new businesses up to about 20% of total sales, eyeing full-scale entries into robotics and aircraft sectors.

What is the employees’ take on this new approach? “I think it’s both exciting and challenging for them. Previously, we could turn to customers for answers and faithfully do as told. To create from scratch means we must find solutions on our own, in the diversified market full of answers. That’s the tough part,” says Ishii.

Ohno Seiko : “Decided to Shift Business When Orders Fell 50%”

・Business: Processing of auto precision parts
・Head office: Nishio-shi, Aichi Prefecture
・Established: 2001
・Capital: 15 million yen
・Employees: 230

“We decided to diversify our business after the 2008 global financial crisis,” says President Ryutaro Ohno of Ohno Seiko (Nishio-shi, Aichi Prefecture), a company that processes auto machine parts.

During the fall 2008 financial crisis, sales dropped 35%, which led them to enter the nursing business. In 2016, they established the Agriculture Division, expanding the scope of business besides manufacturing.

The Agriculture Division cultivates highly sweet tomatoes at the company farm and sells Baumkuchen. As Japan’s food self-sufficiency rate continues to fall with the aging population and falling birth rates, they saw a business opportunity in smart agriculture using AI and other technologies.

Sales are rising at a favorable pace, and the division is enjoying 136% higher sales than the previous term. “The workflow streamlining we developed in manufacturing also works well in the agribusiness,” says Ohno brimming with confidence.

Yet, considering the size of labor costs and investments, it would take considerable time for the agribusiness to match the scale of the manufacturing business. The group’s total sales as of end of May 2021 was 2 billion yen, of which 1.6 billion yen was in manufacturing.

The company’s search for a primary business besides manufacturing stems from uncertainties in the future of the automobile industry. “Most of our orders used to be from the diesel and gasoline auto departments of a Tier 1 (primary subcontractor) company, our main customer. But around 2019, the Tier 1company’s annual budget was slashed approximately 50 million yen. With that, our orders went down 50% at most,” says Ohno.

Management of Tier 1 and Tier 2 subcontractors are affected by their customers which are large corporations. As more corporations transfer their production sites overseas for cheaper labor, the subcontractors have a hard time grasping future direction. He confesses, “We can’t make large capital investments because we don’t know the mid- to long-term policies of our customers.”

Ohno also participates in a study group where business owners from about 70 small and medium-sized companies including parts manufacturers meet. He says, “Everyone shares the sense of crisis for the automobile industry’s outlook.” But with lack of funds, many companies cannot conduct research and development, or take any measures.

As for the future of the industry, Ohno says, “To be honest, I’m not sure if Japanese automakers have a fair chance with advancements in electrification and self-driving technologies.”

“In this age of tranformation, everyone is on a level playing field. We are free from former constraints, so even young companies like us may have a chance,” says Ohno.

You-I Seiki: “Entered the Mold Business When Prototype Orders Dropped”

・Business: Manufacturing of pressed prototypes for cars
・Head office: Owariasahi-shi, Aichi Prefecture
・Established: 1969
・Capital: 10 million yen
・Employees: 15

“Our rivals used to be similar-sized companies, but now we are competing against those with 10 times more employees. The market has shrunk that much,” says You-I Seiki (Owariasahi-shi, Aichi Prefecture) President, Kazumichi Mizuno.

The company mainly manufactures auto parts molds and car-seat related prototypes. Their business ratio of parts mold and prototypes is 8:2. The company has 30 to 40 trading partners including affiliates of Toyota and Suzuki.

Mizuno’s father established You-I Seiki. Yet, Mizuno did not join the company after graduating school, but instead established Issei Sangyo that manufactured plastic molds in 1988. He succeeded You-I Seiki in 2006 when his father died.

Around 2000, a Tier 1 customer told him, “the budget for prototype development will be cut.”

After experiencing fluctuations, the number of prototype orders dropped roughly 80% and sales decreased to half in the 2010s compared to 2000. Sales fell from 178 million yen at the peak around 2001 to about 14 million after the 2008 financial crisis. The trend of parts standardization (that enables application of same parts to multiple products) was also an additional blow.

When the number of prototype orders declined, it reminded Mizuno of the time when plastic mold orders began to fall at Issei Sangyo. “Most of the plastic mold customers were from the light electrical appliance sector, such as communication equipment and computer-related devices. The market suddenly shrunk with the rapid transfer to overseas production. I felt prototypes would follow the same path.”

Judging it would be difficult to make profits solely by prototypes, Mizuno decided to cut down the prototype business in 2016, and tapped into mold parts manufacturing. The business ratio of prototype and mold was 9:1 in 2010. Now it has reversed.

Mizuno reveals, “The company has young employees in their 20s. I want to create rewarding work for them. Yet, we may have to cut down our existing businesses in the future.”

There is also the issue of successors. “The number of factories are decreasing significantly across Japan. But I have the image that Aichi has more business closures than bankruptcy. We’re no exception.”

Mizuno explains future uncertainties of the industry by an analogy of grocery stores and electronics stores. He stresses, “Like supermarkets replaced grocery stores, and mass merchandisers replaced electronics stores, small factories are being pushed out of competition. We never know when our customers will be acquired. So we have to stop being dependent.”    

Currently, the company is focusing on magnesium alloy that is quarter the weight or iron. Mizuno says, “Even as electrification advances, weight reduction will always be required. Our efforts so far will match the needs of the coming age.” In the future, they plan to curb the main mold parts manufacturing business to about 30%, and seek to survive with the magnesium alloy business. 

Chiyoda Kogyo : “Electrification and SDGs Are Business Opportunities”

・Business: Design and manufacturing of press die
・Head Office: Togo-cho, Aichi Prefecture
・Established: 1962
・Capital: 90 million yen
・Employees: 150 (including overseas)

Some parts manufacturers have succeeded in riding the tide of decarbonization.

Chiyoda Kogyo (Togo-cho, Aichi Prefecture) designs and manufacturers press dies for car seats. About 80% of the company’s customers are Toyota affiliates.  

The company began handling high tensile strength steel sheets from around 2004 when Toyota Boshoku (Kariya-shi, Aichi Prefecture), a major car interior company, requested the development of a protptype.

High tensile strength steel sheets, also called Hi-Ten, have higher strength than general structural steel. At the time, there was growing demand for lighter bodies to improve fuel efficiency as well as vehicle safety. When it became mandatory to install seat belts in the back seats, Hi-Ten demand arouse for related parts, and the company’s Hi-Ten products were adopted.

The company is also focusing on overseas business. They have operations in Vietnam, the largest, Indiana in the U.S. and Thailand.

Chiyoda Kogyo’s potential attracts other companies. “They frequently approach us to propose M&A. To prevent that, Toyota Boshoku invested in us,” says President Hayase.

And now, the company’s products are used in electric vehicles (EV) with increasing needs for weight reduction. “Our past efforts have become an advantage,” says Hayase.

Meanwhile, in 2012, Chiyoda Kogyo collaborated with the National Institute of Advanced Industrial Science and Technology (AIST), and began research on processing wood with the press processing machine.

After the 2008 financial crisis, the company was seeking to expand the scope of business and applied for a joint research with AIST. They succeeded in practical application of the wood flow molding technology that can change wood into any shape just like plastic. With focus on Sustainable Development Goals (SDGs), it is attracting attention as a technology leading to reduced use of petroleum-based products such as plastic.

Commercialized products using the new technology include bamboo speaker and hinoki cypress Japanese chess pieces. The company aims to get ready for mass production, and aims for business growth that will account for half of total company sales.

“In 2012, words like SDGs and carbon neutral (net zero greenhouse gas emissions) were not common, and many people were indifferent. But in the last few years, inquiries suddenly increased,” says Hayase.

(Nobuyo Saito, Editorial Department)