DENSO's Yoshihiko Yamada emphasizes meeting customers' needs, technology and manufacturing excellence rather than the company's size and prowess.
DENSO is in the enviable position of serving both the OE market and the aftermarket. It is the OE business, he says, that ensures parts quality for aftermarket customers. According to Yamada, DENSO's parts are designed to fit properly and therefore are easier to install, which leads to fewer comebacks for shops.
DENSO's aftermarket offerings range from starters and spark plugs to oxygen sensors, wiper blades and A/C components, and Yamada notes that launching a new product line has its share of constraints, like raw material costs, which are skyrocketing for suppliers.
Yamada, who has 30 years of experience with DENSO, says the company is nonetheless forging ahead, looking into such areas as safety and the environment. The company also is hard at work developing collision avoidance radar systems and drowsy driver detection, among other items.
Other challenges, he notes, include the commoditization of products and supplier consolidation.
Yoshihiko Yamada became president of DENSO Sales California in January 2008. Yamada joined Nippondenso Co. Ltd. (DENSO Corporation) in April 1977 after graduating from Nagoya University with a bachelor's degree in law. His first assignment was in the Overseas Sales and Marketing Department at DENSO headquarters in Kariya, Aichi, Japan.
In 1983 Yamada was given his first overseas assignment in the Sales and Marketing Department at DENSO Australia. Since then he has held various executive positions at DENSO Indonesia, Singapore and Thailand. His most recent position was president of DENSO International Thailand from July 2005 until January 2008.
DENSO is a significant supplier to the world's major auto manufacturers, as well as being a major auto aftermarket supplier. How does one business affect the other? How do your customers — OE and Aftermarket — benefit from DENSO being a supplier to both?
Our OE and aftermarket customers want to bring "value" to their customer — which also aligns with our corporate philosophy. One way we bring value is by giving our customers the security of the DENSO name.
Our aftermarket customers definitely benefit from DENSO's position as a leading OE supplier. One of the biggest benefits is our expertise in manufacturing. DENSO manufactures many different components that meet or exceed our OE customer requirements. This manufacturing excellence carries over into our aftermarket components where DENSO has one of the lowest return rates in the industry. DENSO's OE expertise helps ensure our aftermarket components are designed to fit properly the first time they are installed. Fewer comebacks after the parts are installed add value for our customers. This is what we call our "First Time Fit" philosophy.
Let's talk about your specific aftermarket product lines. Can you tell us the trends of your current product lines with regard to technology and how you go to market, including the kind of value-added support you provide resellers? Where are the biggest opportunities with regard to the type of product(s)? In what particular markets?
DENSO currently offers 14 different product lines in the independent aftermarket. These product lines include starters, alternators, spark plugs, filters, oxygen sensors, wiper blades, AC components and compressors, ignition wires, diesel components and fuel pumps, just to name a few. This may not seem like a broad spectrum of products, but keep in mind we only sold spark plugs to the aftermarket in 2000. Going forward, we are planning on adding additional products based on the needs of our customers. We are planning to make an announcement at AAPEX, therefore it is too early to mention it here, but it will involve an existing product with an enhancement to meet the consumer needs.
At DENSO, relationships are most important. Our strong relationships with our business partners, such as warehouse distributors, retailers and independent service shops, are vital to our success. One of our activities is to practice Genchi Genbutsu — it means to "go and see for yourself." This is one of the activities I have been doing since my arrival in the United States in January. I have been meeting many of our customers to understand their needs, including input on new products.
In regard to trends, across the industry, there is an overall improvement in the quality of parts. They fail less, and as a result, people are keeping their cars longer. This makes for greater competition because the replacement opportunities are less frequent. Competitor's parts are also getting better.
Differentiation from the competition is important. Going back to providing more value — Being an OE parts manufacturer — according to comments from technicians, our parts are easier to install, and they experience fewer comebacks.
In our technician-training program, we offer training about Engine Performance, AC Diagnosis, Hybrid Service, Diagnostic Tool and Emissions. Our classes are geared towards educating the professional technician and we deliberately avoid "selling to the technician" in our training program. This is something we learned from listening to them.
Are there any new products or technologies on the horizon that you can share with us (if not, how about general product areas?) and how will you go to market with them?
DENSO is always looking to expand its businesses based on communication with our customers. On the OE side, DENSO is a technological leader in the area of electronics. To pursue these technology development activities, we invest roughly 8 percent of our global consolidated sales in research and development activities. This may lead to more products developed for the aftermarket down the line — for example, navigation products. We already sell Aftermarket navigation units in Australia. We are also exploring new products for the heavy-duty aftermarket.
And to continue our products-oriented questions...are you looking at expanding into other product areas? If so, what opportunities do you see? If not, what is holding you back?
As I mentioned previously, we are examining our product mix and are always looking to expand our aftermarket business with new products. Look for an announcement regarding one of these products at the AAPEX show in November.
There are always constraints when launching any new product. There are many things to be studied, such as customer requirements, production schedules, logistics, raw materials' supply and cost. Any number of factors can result in the decision to delay or not launch a new product.
What is the company's philosophy with regard to product technology, i.e., which side of the business — OE or aftermarket — drives it? What do you learn from each side of the business that helps the other side?
Traditionally, OE product technology has always led and trickled down to the aftermarket. While this is certainly still true in many cases, it is not always the case. For example, navigation is one technology-driven product where the aftermarket version has become very good. The OE manufacturer is incorporating many of the features of the aftermarket product. We are providing feedback on how to improve our OE products to our headquarters in Detroit and Japan based on discussions with our customers.
What we learn from being on both sides of the business is that both complement product technology. For example: Vehicle entertainment systems came from the aftermarket side and have been embraced on the OE side. Many vehicle accessories and performance products are the same way.
But new product technologies, such as collision avoidance, lane-keeping assists, adaptive cruise control and parking-aid systems are some examples DENSO has introduced on the OE side.
As a technology leader, please speak to the areas of technology that are developing the fastest. How will these developments impact those in the parts distribution industry? Will we see fewer SKUs due to more replacement assemblies vs. individual components?
DENSO is keenly interested in safety and the environment, so consequently our areas of new technology reflect this direction. These products involve advanced electronics, an area of strength for DENSO. Many of our future OE products, such as collision avoidance radar systems, drowsy-driver detection and driver-distraction detection all rely heavily on electronics and are important to improve driver safety. Automotive electronics is the fastest growing sector of automotive content.
The parts distribution industry can benefit because advancements in electronics can improve efficiency in their warehouse operations by tracking inventory more quickly and with greater accuracy. Take bar-code technology, for example. For years, DENSO has been an innovator and leader in bar-code technology. This has led to incremental efficiency improvements in our own warehouse operations.
Also, consolidation of part numbers or SKUs will continue as vehicle components become more modular in their design. By modular I mean that certain parts are grouped together as one modular component. We see this as a trend on the OE side and expect this trend in the aftermarket business.
There seems to be more private branding going on at the retail level across many product lines. What is your philosophy on private branding and how is it affecting your business? What do you think the perception is from the consumer — private label vs. manufacturers' branded product? There's always the danger of commoditizing products. What is your best argument against commoditization as it relates to distributors and repair shops?
Private branding at the retail level has its advantages when the retailer's name has greater value than the manufacturer's name to the Do-It-Yourself customer.
Today, branding has very little impact to our business because — by choice — we have not invested heavily to promote our name to the Do-It-Yourself customer.
Ideally, we would always like to have a DENSO product in a DENSO box, but that is simply not the way the aftermarket parts business currently works. Private branding has been around for a long time but has become increasingly prevalent in North America. Retailers are requiring full-line coverage based on units in operation for their geographic area. Even Tier 1 suppliers like DENSO cannot offer coverage for every make and model. Our main goal is to ensure the level of quality of the product in the box meets or exceeds our customer requirements.
Commoditizing of products is definitely not a desired situation for DENSO. Essentially, what this would mean is that our customers don't feel there is any value for our product compared to another brand. But the reality is, because of the quality and performance of our products, we do provide value. In some cases we probably can do a better job of communicating the quality of our products if our customers feel they have become commodities.
That's only one serious issue that the aftermarket has to handle. What are some of the others that you think are pressing and how do you think they should be handled?
There are several issues we face today — an increase in fuel prices and its impact to the annual miles driven per year, raw material cost increases, low-cost competitors, vehicle production cuts and the impact to our manufacturing plants, just to name some.
DENSO will have to be persistent. Our aftermarket sales are still ahead of last year and we continue to add new customers. A recent announcement with the Aftermarket Auto Parts Alliance group named DENSO as a preferred supplier. We are fortunate our sales have continued to increase through growth, and we feel we still have many opportunities that have not been fully realized.
Another concern facing us is product counterfeiting. At DENSO, our product quality and reputation are important to us. We have taken steps when we feel our intellectual property rights have been violated.
Consolidation is continuing in the marketplace at the manufacturing and distribution levels. What do you think the impact is at both levels? How about how it impacts Denso? Do you have to approach the market differently today or in the future as a result of consolidation? Why or why not?
Consolidation at the distribution level may strengthen the financial condition of companies and could lead to providing better services. It will not impact how DENSO approaches the aftermarket, and I do not expect it will have a negative impact to DENSO.
We have no reason to believe that the trend of supplier consolidation will not continue. Mergers and acquisitions are continuing to take place in the aftermarket industry, as cost competitiveness becomes an ever-increasing issue. This will have little effect on DENSO, because our philosophy is to build a new business from the ground up rather than purchase another company that may or may not be able to assimilate with the DENSO culture, philosophy and spirit.
What value-added programs do you have in place for resellers (distributors and retailers)? How about for independent repair shops? How are the current programs working and what's next on the agenda in supporting these different levels of distribution?
I mentioned previously we have developed a series of training programs to educate technicians on the proper installation and servicing of our products. In many cases, we hold our training class at the customer's place of business to make it easier for more technicians in the local area to attend. The feedback we have received from the technicians has been outstanding and very valuable to us. We are very pleased to see the significant amount of repeat technicians that attend different subjects in our training program.
In addition, we have developed diagnostic and educational materials for the independent repair shops to assist them to explain to their customers the function of components and how they perform in their vehicles. These tools were developed to assist the technician to explain how a vehicle is properly diagnosed and repaired.
There are some issues that are beyond anyone's control that must be faced, two of which are higher gas prices and a slumping economy. What are you doing as a manufacturer to meet these challenges, and what is your long-term outlook for the OE and aftermarket segments from an economics point of view?
We recently announced we revised the half-year forecast for the fiscal year ending March 31, 2009. But our North American aftermarket plans have not changed. Our plans to increase from last year remain the same.
At DENSO we place a high value on the concept of foresight. This means being able to anticipate the needs of our customers even before they imagine what those needs will be. For example, we began developing hybrid technology with one of our OE customers long before the current gas crisis was upon us. DENSO employees try to incorporate this concept of foresight into their daily work activities.
I feel that our overall economic outlook should be good. There will always be challenges to overcome in any economy. I know that our DENSO employees are capable of overcoming these challenges, and I am confident that the aftermarket industry is capable of adjusting strategies and methods to meet these challenges as well.
How do you think Denso will fare this year in light of the market and economic challenges and on what do you base your answer? How about the overall aftermarket?
As I mentioned earlier, we just announced we revised the half-year sales forecasted. But again, the aftermarket is still projected to be an area of high growth for DENSO. We have added new customers and continue planning for new products.
We anticipate that OE sales in North America will continue to be a challenge for us due to reduced vehicle production and the corresponding reduction in requirements for parts. On the aftermarket side we see a somewhat brighter picture as we continue to expand our product offerings and coverage.
Now that DENSO is the world's largest automotive parts supplier, what will it do for an encore? What is the company's next frontier?
Sales figures are an important success measure; however, we do not set goals based on sales rankings within the industry.
As far as the aftermarket is concerned, we will continue to focus on providing quality components that add value to our customers. Our goal at DENSO is to be a company that's trusted by customers and society and that achieves sustainable growth. Sales rankings are not an important measure of success for us.
A recent Global Automotive Aftermarket Symposium speaker said we are not in a recession, rather, we're facing a "soft" economy. How does the "R" word and all its implications play into DENSO's long-term strategy for growth? And what do you think — are we, or will we be, in a recession?
We cannot speculate on what the overall economy will do. The North American market has seen a rather dramatic downturn in recent months mainly due to the sharp increase in fuel and raw materials' costs. With that being said, the U.S. economy actually grew by 1.9 percent in the second quarter of this year, so perhaps the downturn will not be as dramatic as we had once feared. Keep in mind that with every downturn, there are always corresponding opportunities that previously didn't exist. For example, as new car sales slow, people keep their cars longer. This can create new opportunities for us in the Aftermarket.
As far as DENSO is concerned, globally we anticipate a flat sales year in 2008, primarily due to slowing automobile production in North America. Our aftermarket business has remained strong, however, and continues to grow. That is certainly encouraging news for us.
It's to the benefit of all working in the automotive business to keep people driving. What are your recommendations for those at the various levels in the aftermarket to accomplish this?
I think that the enjoyment of driving a vehicle will be with us for a long time! In the future it may take different forms and may have different propulsion systems, but people have a relationship with their cars and trucks — and I don't see that going away.
I feel the various automotive aftermarket associations do an excellent job keeping the public informed about how important driving and, particularly safe driving, is to our quality of life. I mentioned safe driving because I was thinking of the Car Care Council's "Be Car Care Aware" campaign encouraging motorists to get maintenance performed on their car on a regular basis. Initiatives like this help encourage motorists to continue to think of their vehicle as their primary mode of transportation.