Magna Growth Strategy Pivots Around OEM Move To Asia

By T Murrali:

Magna International Inc., a leading global automotive supplier, which has 328 manufacturing plants and 99 product development, engineering and sales centres in 29 countries, is setting up on an average 10 new plants a year, mostly in Asia. With its vision to be the customers’ preferred global supplier partner for the automotive industry, it will continue building new plants up to 2020.
“Asia, especially China is the main driver; we are almost doubling our growth there in the next couple of years. In North America we are already twice the size of our nearest competitor, so it is difficult to grow there. Europe is improving a bit, Russia can improve dramatically to give us high growth rate potential; in South America we shrank, so growth will take us back to what we were with the markets there. Asia is the key,” Frank O’Brien, Executive Vice President, Asia, Magna International Inc., told AutoParts Asia.
“The trends in the industry have been for stuff from the northern parts of the US to move to the southern part and Mexico. In projections for car builds, Asia is taking up most of the growth for the next 10 years with structural changes in Europe continuing to move east. People ask me how much are we importing from China and the answer is very little because our components are big enough that they have to be located close to the customer,” he said.
Magna considers Africa as a significant market for the long-term.“Our present priorities have Asia at the top as well as supporting our traditional customers as they change their manufacturing footprint. We have some projects in Northern Africa; Africa is going to start from the countries close to Europe. Some European productions are shifting to countries close to Spain; it’s going to start there and migrate to the countries in the south,” O’Brien said.
Magna follows its customers. “We are not going to set up operations where there are no OEM plants nearby. Labour cost is not a big driver for us; for some of our competitors it is – low shipping costs for high volumes. If you put a footprint that 10 OEMs are going to have plants somewhere, we are likely to have a multiple of that number for our big product groups,” he said.
The moving away of OEMs to new locations involves closing down of existing facilities. Magna also has to face such a predicament. O’Brien said, “It is always difficult to shut down a plant. We make every effort to fill it up with something else wherever we can. It has been a long time since we have closed operations. Even in the downturn when some of our customers were closing plants in 2008-09, we took on a billion dollars of work from others. We have had GM, Ford and Chrysler closing down plants but more often than not in the same state we have had Japanese and Korean plants coming up, and in future you will have the Chinese too. We have probably closed operations when we acquired another company and found we had two plants in the same area; but we have got the economies by combining them and giving employees opportunities to move in. Years ago we closed a powertrain facility in New York but were able to relocate many employees in other factories.”


Magna is transforming from a traditional company to something futuristic with focus on its four pillars of smarter, cleaner, safer and lighter vehicles. O’Brien said, “Compared to some of the other companies we have a vision of the complete vehicle as it is going to be every five years from now, for the next 20 years. We are not just focused on the new elements of the vehicle but also on what is going to remain in place. We are still going to have metal in the vehicle because we need to have a structure, whether it is autonomous or non-autonomous driving. There are certain fundamentals that will always be in the vehicle; we will have paint, colour, different types of materials, etc. All those elements are still going to be maintained; the question is how they are going to be modified to adapt to things like autonomous driving. Seats might need to be much more luxurious if people are going to be sleeping in them or massaging when they don’t have to drive. It is going in different directions depending on how the new technology comes in.”
As Magna is a de-centralised company, each of the product groups or companies plans where its future is going to be. All the companies are not going to invest in autonomous driving. Each one of the product groups is going to focus on how it can be successful, regardless of what the powertrain is and whether people are driving personally or by robot. They will look at and concentrate on how they can succeed through all the changes.
“It may be difficult to say what happened over the last year but certainly on the non-bricks-and-mortar side we have shown a Level-IV vehicle; we certainly have the capability to go to Level-IV when and if the time comes. We might be a little less optimistic of the day when we have a fully autonomous vehicle, but our policy is to be ready for it when that day comes,” he said.
Max-4 is a good example of what makes Magna different. It did not look like a lab project having big LIDAR on roof top; instead it was seamlessly integrated into the front-end and back-end modules and their exteriors groups were able to do that. The sensor integration of that is what the OEMs were most impressed by. “Our electronics group is working on the autonomous side of things, putting it together without impacting the design, using our exteriors grouping. This is something other suppliers cannot do; they have to use somebody on the outside to do that,” O’Brien said.
Magna took a long time to come from Level-III to Level-IV despite possessing almost everything that was needed for its development. About this slow-down, O’Brien said that there were many factors for that. “We had divested from Radar; in the meantime, different approaches to Radar had become much more advanced, with Lidar becoming cost-prohibitive. After the four pillars, the fifth one, which is the foundation of all, is affordability. We were never going to incorporate a Lidar which costs six or ten thousand dollars as it is just not affordable. If something is at that level, it delays the market introduction much further. Now we have the new- technology Radar and a partnership for Lidar, with the cameras having developed many generations. Our own development is to push cameras as far as possible; we have been the leader in cameras for many years. We upgrade the cameras four times a year, which is our core internal development. The other stuff we decided not to do internally but with partnerships. It is a question of who has got the pieces that fit into the puzzle.”
For Magna the key question for all these technologies is when they are going to be really sold in the market. It wants to get involved only when they are commercialised. “That’s what we have to keep in mind because you can spend an awful lot of money on a technology that might be out of date by the time it is commercialised. The problem with software-based technologies is that they become obsolete very quickly. A good example is the lithium-ion battery. People are putting in huge capacity right now on the current approach, but will that be appropriate and still feasible when the EV market really takes off? At the Tokyo Motor show 2017, Toyota announced that it is moving ahead with its solid-state batteries. They feel it will be feasible much sooner than previously thought. So how will that affect the whole lithium-ion industry is a big question,” he said.

Pace Of Change

As a decentralised company, Magna operates on the basis of individual companies. It has electronics and powertrain together as an operating unit as it considers that all aspects of electrification and ADAS are inter-related.” We are always looking at ways to organise the business and make it sustainable with individual modules or product groups. Obviously, if we are to take a business totally devoted to ADAS, we would lose a lot of money because there are no sales for it. We have to focus on something that can sustain itself as a stand-alone business. We are unlike our competitors because we like to get businesses to be stand-alone and self-sufficient as soon as possible, but they have to have a market before we do that. We look at long-term business survivability,” O’Brien said.
Magna looks at the very fast changes and disruptions in the automotive industry in isolation. For example, in something like ADAS, which is changing very fast,the company finds a lot of glitz attached to that. Similarly, powertrain,where almost everything changes in five years.
“There are CAFE requirements, fuel efficiency and light-weighting needs; every small item down to the pump is changing very noticeably. It’s easier to make changes when you have software because you don’t have to retool anything. If you look at the projections for EVs, by 2025 or 2028 the internal combustion engine may become obsolete, which means that any new investments in IC engines have to be looked at very seriously. The pace of change must be considered carefully as lead-times in business have reduced considerably. Even the metal business is changing rapidly with alternatives required for the hybrids coming in. Everything, including seats, is changing so you have to look behind the glitz. The pace of change in our business overall has increased dramatically,” he said.
About a possible large-scale transition or cross-over to EVs, when their cost of ownership will become affordable in the near future, O’Brien said, “The most important question is when is the cross-over point because once there is an infrastructure people may go from the IC engine to electric mobility; there will be a flipping point, but costs have to come down significantly. A few years ago, our approach would have been that we can do everything internally – we did not look outside. The fundamental difference now is that we are looking more outside because of the pace, and cost, of change. No single company can follow all the paths where technology is going so we have looked for partnerships. In the past we would try to control the partnership but now we are amenable to working with multiple people at the same time, investing an amount in each of them so that we can save money on a number of different horses in the race. It would help us strike a balance – it’s a very big change for us. The closer we get to a new technology, like ADAS or anything to do with software technologies for the new-age vehicle, it makes us that much more externally focused and outward-looking.”


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