Japan: JATCO: CVT The best eco-friendly transmission system on the market

JATCO accounted for 41% of world continuous variable transmission (CVT) production last year and has aims to be the number one automatic transmission (AT) manufacturer in the world. President & CEO Teruaki Nakatsuka takes a look at where world automobile markets and trends are heading, and the importance of JATCO to be as efficient, flexible and innovative as the products it makes.

How do you see the Japanese economy up to 2020 and what are the key challenges it will face?

The major key issue we are facing here is that Japanese companies and individuals are too comfortable in their current situation. The majority have lost their aggressiveness and ambitions to go world. The fact that Japan is a peaceful country and that we are the third major economy in the world makes our younger generations to be happy with remaining in Japan. At the same time as they read newspapers, or watch the TV, they perceive that there are some problems in the United States and other foreign nations that compared to them, Japan is a nice country to live. They are not ready nor willing to change. In addition to that, the Japanese people presents low levels of consumption as they dedicate a high % of their gain to savings. This is an extra key differentiator from the US people where people usually presents higher rates of consumption.

I support Prime Minister Abe and his reforms. To be honest, I truly think that he is the best leader Japan has ever had. I hope he will manage to extend his tenure for an extra three years to turn this country towards the right direction. Japan should change, but changes happen very slowly. We are making some evolution to some extent, but deeper reforms are required.

What should be the role of the automotive industry in this recuperation?

Thinking about the last 50 years of Japan’s industry history, the automotive sector has always been and still is the leading industry. In fact, we can say that Japan’s only leading industry nowadays is the automotive industry. In the completed, the electronics industry was way ahead, but nowadays it has lost its competitiveness to nations like China, Taiwan, Korea or even the US. The Japanese automotive industry kept its competitive chance while this happened.

I can proudly say that we, the automotive industry, are the leading industry of this country. This is why, as leaders of this industry, we have the responsibility to maintain it at the forefront towards the next and help other industries to regain their innovative edge. In any case, we will keep on adapting and researching towards additional environmentally friendly and safe cars for the next generations. In terms of mobility, Japan should keep on being a leader.

One of the major goals of the automotive industry is to improve automobiles’ energy efficiency. On one side, we have companies such as Ford going for lighter materials as a solution. On the other side, carmakers like Honda are improving continuous variable transmissions (CVTs) in their energy efficiency efforts. How is CVT a good solution to reduce the use of fuel per km?

The chance of using CVT is that it offers flexibility from a fuel consumption standpoint. It provides the best shifting to the automobile thanks to its flexibility, differently from a traditional automatic transmission (AT). By definition, CVT provides a very good solution for energy consumption, which means a CO2 emission reduction, smoothness at the same time as driving, best performance and best shifting for the automobile. To sum up, CVT is the best eco-friendly transmission system on the market.

Beyond the reduction of fuel consumption, CVT offers additional advantages over the traditional automatic: fewer moving parts, smaller and weighs less. However, although CVTs may offer a cost chance to the automaker, they are not necessarily lower in upkeep to the owner. While conventional ATs are sealed and essentially maintenance-free for 100,000 km, a lot of CVTs may require rather costly fluid changes which can represent additional than what was saved on fuel. What are the major challenges that CVTs are facing in its efforts to increase its penetration in the AT market?

As you know, AT includes CVT part other types of transmission that are automatic. In any case, AT in general has a high potential of market penetration, because all over the world there are still a lot of manual transmission cars, particularly in European nations. What we have experienced is that once drivers move to AT, they at no time go back to manual transmission. We would like to be part of that penetration process.

Moving to CVT, it is significant to acknowledge that today, approximately 20% of all AT is CVT. If AT gets additional popular, we will certainly increase our opportunities to grow as we would have a bigger share to take in the AT expansion. In order to achieve that increase, we will keep on appealing for additional fuel efficiency, CO2 emissions reduction and the rest of our product advantages.

It is authentic that CVT inclunding the other AT units can be additional expensive if needed to be restored in the long term, but we need to be realistic. The average life of a car is around 10 years, depending on the country. To make CVT additional appealing in markets, we are innovating to make our CVT repairable instead of replacing all unit. We have started to offer a cost competitive solution through the OEMs (original equipment manufacturers) that use our transmissions. The service is provided through their dealers.

JATCO was established in 1999, and has become one of the few companies in the world dedicated to the manufacture of CVT. Last year JATCO accounted for 41% of world CVT production and presently you are aiming to be the number one AT manufacturer in the world. What are the major strategies that JATCO is following to achieve this ambitious goal?

The trend of additional AT is progressing, but the ratio varies from country to country. There are certain nations that love CVT, and others that do not like it that much. Good examples of nations where CVT is well accepted are the US, China and Japan. In other nations, as in the European ones, drivers prefer a additional direct feeling of conduction, so CVT is less popular. For JATCO, the majority significant markets are the US, China and Japan. Our strategy is to accelerate increase in each of them.

The challenge there is to make drivers choose CVT as their initial choice in AT. Flexibility is one significant feature of the CVT: it allows drivers to manipulate direct shifting, creating a direct feeling to it. This is what we call a D-step, direct-step feeling. It sacrifices efficiency a little bit, to be honest, but we do this to fit customers’ tastes. They can choose between going due, smoothly or even automatically. At the same time as drivers push the acceleration pedal very hard, it automatically captures their intentions and goes into the direct mode. If you press it slowly, it enters into the smooth mode. By providing this flexibility we would like to expand the popularity of the CVT there.

In your plans, you aim to surpass your Japanese rival Aisin AW Co. by 2020. How are you differentiating your services from them? What do you consider your major strengths?

Aisin AW Co. is a very good company inside the Toyota Group. The difference between us and them is in our globalization speed. We went world much faster than them. We have three CVT manufacturing locations: Mexico, China and Thailand. Our production in overseas nations by presently represents 50% of our total production. Other than being faster, we as well have the desire to be closer to customers. In any case, fierce competition is good. If Aisin AW gets ahead, we will be satisfied as well, as it will mean additional AT and additional CVT in the end. We would like to enlarge the market to win together.

Annual investment in automotive R&D by Japanese companies amounts for over 2 trillion yen ($18 billion). How is JATCO addressing the challenge of being a constant innovator? What kind of new innovation or next generation products are you working on at the moment?

One good thing for JATCO is that Nissan, a very strong OEM, is the 75% shareholder of our company. All transmission companies need to work closely with OEMs and partners, inclunding at the same time as they conduct R&D, as transmissions are long-term products. We are lucky to have Nissan with us, as Aisin is lucky to have Toyota behind. OEMs are frontrunners in adapting to new environments and new technologies.

The key for us is to learn how to capture even better OEM requirements and how to work together with them in the majority efficient way. For JATCO, CVT is our core chance, therefore enhancing CVT capability towards additional efficient, smaller in size and lighter transmissions is our priority. For instance, we have just introduced a new CVT concept at the Tokyo motor show last October.

We would like to be the frontrunners of the CVT technology, but that is not enough. Presently, new trends are arising, as electric vehicles, autonomous driving, fuel cells, connected guiding, etc. What does that mean to transmission? We need to respond to those trends. For example, Nissan’s electric vehicle does not have a transmission system; Toyota’s fuel cell car does not have transmission either. In my opinion, electric vehicles should have the transmission function to make their motors able to drive at the ideal condition and speed. This is something we are working on presently.

Historically, carmakers have kept close ties with their suppliers, operating as parts of conglomerates. These relationships are changing in response to needs for additional globalized supply chains. Nissan has by presently taken a lot of steps to remove itself from traditional keiretsu ties next aligning with the French automaker Renault. How is JATCO adapting its strategy to this enhanced competition scenario? How are you expanding your customer base beyond Nissan, Mitsubishi and Suzuki?

There are several OEMs that have at no time used CVT. The good news is that some of them are interested in adopting CVT for their next generation products. There are a lot of Chinese and Southern Asian OEMs that have expressed their interest in adopting CVT. We’d like to expand our customer base.

In addition, the major OEMs produce their transmissions internally and they may outsource, as transmission production is capital intensive. I believe that there are a lot of opportunities to capture them.

How do you want to be perceived by the major American OEMs such as GM, Ford or Chrysler?

Some of them are by presently our customers and we have the know-how to adapt our products to their requirements. I am constantly conference with them to better explain our products, strategies and next prospects, particularly regarding the potential creation of new CVTs. Our product is a long-term investment and requires long-term relationships. If we talk today, maybe a project will only materialize four years later. To achieve this, we have to build a good relationship with their management team, earn their trust, and have them understand what the advantages of our strategy and technology are.

Non-car manufacturers, such as Google and Apple, are presently developing automobiles and automotive components, specializing in the software area. How is JATCO planning to capitalize on this trend? How do you think the Internet of Things (IoT) will affect your business someday?

As a traditional manufacturer of hardware for cars, I do understand this trend, but to be very honest I believe the majority of the industry still wants traditional automobiles. This scenario will probably last for the next 20 to 30 years. Of course, in JATCO, we do recognize the new trends and new business models: we need to be a part of that. But we are still a key player of the traditional automobile industry, where we still believe we can expand our customer base.

Nevertheless, we need to take new trends very seriously if we want to keep Japan’s automotive industry in its leadership position. To achieve that we must keep on moving towards the European car manufacturing model, much additional flexible. In Europe, there are huge automotive parts suppliers, like Continental, Valeo or Bosch, dealing with different OEMs. Differently, in Japan, the keiretsu model still exists. Can this model be sustainable?

In my opinion we need additional consolidation and it should be done much faster. Shipping companies consolidated their container business in Japan despite being rivals. This should happen in our industry too. Nissan, Honda, Mitsubishi and Toyota suppliers need to be competitive globally. That kind of consolidation, as a dynamic evolution inside suppliers, inclunding us, needs to take place in this country as a general direction.

Domestic automobile production has been steadily rising since 2012, in light of a weaker yen and stronger world market for motor vehicles. This has led to extended expansion by Japan’s major automakers. In 2014, the US market represented 37.2% of Japanese car sales. What role does America play in your globalization efforts?

Our supply source for the American market is located mainly in Mexico. Our Mexico plant is the major overseas manufacturing unit for JATCO: 1.7 million units per year are produced there, mostly going to the NAFTA region inclunding the US.

For us to be successful, the US market is extremely significant, and the perception of US drivers of CVT is very significant as well. CVT is rising in popularity in America, but things are not perfect from presently on. There is this issue of the expensive replacements and other aspects we should work on.

Today, Nissan remains JATCO’s biggest customer in the US market, which is as well part of our strategy. Other than Nissan, Mitsubishi is as well selling cars with our transmission in the US, followed by Chrysler as well. In order to make today’s product additional reliable and repairable, partnerships with OEMs remain critical.

In June 2014, you were appointed as CEO and President of JATCO. If we come back in five years, where would you like JATCO to be?

I want to drive the increase. I do not want JATCO employees to be comfortable with the status quo. I want to keep growing as the next is coming. I am encouraging our staff to change, to evolve, to improve their processes. I am fighting against the mentality that likes to maintain the status quo, a mentality that I feel is dominant in this country. I want JATCO to be always pushing forward to keep growing and embrace change. If we are not number one today, it is still ok as long as we have the aspiration to be the number one and keep on growing and innovating.