By Rhoda Miel
STAFF REPORTER
Published: December 18, 2013 3:16 pm ET
Updated: December 18, 2013 3:19 pm ET
Johnson Controls Inc. expects it will not finalize its review of strategic options for its auto interiors business until the second half of 2014, but laid out “optimized portfolio decisions,” which would see it divest its visor and headliner products lines, but define the core of its business in door panels and instrument panels.
JCI announced in October that it was looking at changes for its interiors group, which could include selling the unit. During a Dec. 18 meeting with analysts, company leaders said it is clear that something must change.
“The interiors business is a business model that is broken, not just for us but for the marketplace,” CEO Alex Molinaroli said. “If you look at our competitors, no one is really running at a cost that meets the cost of capital [expenditures].
“Something needs to happen in that business … [and] I’d rather be at the front end of that than at the back end.”
JCI, with corporate headquarters in the Milwaukee suburb of Glendale, Wis., and automotive business based in Plymouth, Mich., built its interiors strategy 10 to 15 years ago when it — along with automakers and other suppliers — expected carmakers would select key companies to produce entire interiors. That proposal did not come about, so the company has had to take another look at its business.
“We have some great customers, but what was have to figure out is how to crack the code to make a profit,” Molinaroli said.
One key, he said, will be to re-think how it uses its existing manufacturing footprint. Rather than seeking a customer, then building a plant to make parts for that customer, it may instead need to think about what it can make at its existing operations, then have its sales team focus on selling those parts to customers in the region.
“You’ve got to fill your plants,” he said.
Molinaroli pointed to automotive seating as another example of how JCI has had to change its way of thinking.
Automakers have been more involved in selected specific suppliers for key parts, rather than hiring a seating company to make a finished seat and relying on that firm to source the sub-suppliers.
Companies like JCI need to be able to focus on making strong individual parts because that’s where the “value add” opportunities are, he said, while the “Tier One” seat supplier becomes more of an assembly specialist.
“To be a technology business in seating, you have to be in components,” he said. “It’s a huge paradigm shift.”
Seating will continue as a core business for JCI regardless of what happens to the interiors group. It saw $16.3 billion in sales for 2013.
JCI will also continue to build on its businesses in China, where it anticipates an 11 percent growth rate in 2014 for its auto groups alone, said Chief Financial Officer Bruce McDonald.
The company is in the midst of building a new regional headquarters facility in Shanghai, which will become increasingly important in the global structure.
“We need to get more invested in the marketplace [in China] and not just participate in it,” Molinaroli said. “When we talk about corporate [going forward], it will be in terms of both Milwaukee and Shanghai.”
In addition to its auto interiors and seating groups, JCI has a building efficiency and global workplace solutions groups which concentrate on heating, cooling and ventilation systems for structures — worth a combined $14.6 billion in sales for 2013 — and the power solutions unit, which includes its automotive battery production, which saw $6.4 billion in sales.
JCI will look to strengthen its manufacturing efficiencies throughout all of its businesses throughout the coming year as well, Molinaroli noted.
And while the company may be shaking up some of its holdings, he warned that many options remain on the table.
“Don’t get locked into thinking we’re going to divest [interiors],” he said. “I think the business models are going to shift in terms of how the customer buys and how you make money in that business. We already know how you don’t make money in that business.”
“We believe that the industry is going to change and we want to be proactive rather than reactive,” McDonald added. “We know that something’s got to change here, and we want to be the first and not the last.” | 
