From AFX News Limited

DETROIT (AFX) -- Denso Corp., a Japanese automotive parts supplier, is stepping up investment in its North American operations at a time when many of its competitors in the U.S. market are struggling.

Denso International America Inc. isn't immune to those struggles, which include high raw-material costs and lower production volumes in certain vehicle segments. But the company has benefited from the growth of major customer Toyota Motor Co. in the U.S. and has increased its business with U.S. auto makers.

The Japanese company grew its revenue in the Americas 12.4 percent to $5.5 billion for the fiscal year that ended March 31 and plans another 7.2 percent increase in 2006. To fuel the growth, the company plans about $248 million in investments to expand two U.S. plants and add a testing center at its U.S. headquarters in Southfield, MI. The projects are expected to add about 900 jobs by 2010.

Denso's U.S. growth gives suppliers here -- many of which are going through bankruptcy restructuring -- a deep-pocketed competitor that's likely to get even larger. Denso, which makes a variety of electronic, engine, heating and cooling systems, has been making inroads among U.S. auto makers thanks in part to its innovation, industry sources say.

Denso International America President Mitsuo "Matt" Matsushita, in a recent interview, said the company wants to increase its business with U.S. auto makers and thinks it has the right quality and value balance to make that happen.

About 40 percent of Denso International America's business is with Toyota, while 30 percent is with U.S. auto makers. The North American market is Denso's largest outside Japan. Denso reported $27.3 billion in worldwide sales for the fiscal year ended March 31, with $19.6 billion coming from its home market of Japan.

Matsushita said market-share losses and production cuts by the Big Three U.S. auto makers -- General Motors Corp., Ford Motor Co. and Daimler Chrysler AG -- don't scare him away from having them as customers.

"GM is still number one," Matsushita said.

Nor is Matsushita scared off by the Big Three's reputation of demanding margin-eroding price cuts from suppliers. That differs from Toyota's reputation as a more supplier-friendly company.

"The pressure (for low prices) is high, but if you can add something other than pricing the customers will listen," he said. "They are listening to us. We always talk about more joint efforts to make our products better."

For example, Denso was bidding on an in-car navigation system to be used on all vehicles built on GM's Epsilon platform. Matsushita said Denso went one step further and made the system compatible for use in Cadillac cars.

Denso won the contract for Epsilon but GM is still evaluating the possibility for Cadillac, said GM spokesman Tom Hill.

"That's exactly the kind of great idea, kind of above-and-beyond-the-call-of-duty, that we like to see from suppliers," Hill said.

While a competitive threat to traditional U.S. suppliers, some of its growth will come in areas where competitors such as top GM supplier Delphi Corp. and top Ford supplier Visteon Corp. are cutting back, one analyst said.

"Their expansion isn't a zero-sum game," said Jim Gillette, director of supplier analysis for CSM Worldwide Inc., a consulting and research firm in Farmington Hills, MI. "Clearly, Delphi for one is backing out of North America, so that's a gigantic hole."

But it remains a threat in electronic components, an area many U.S. suppliers are beefing up because it typically posts high margins and because electronic content per vehicle is growing.

Denso's success tied to Toyota's growth means it can outspend many of its U.S. rivals in the race to grab next-generation technology first, said Craig Fitzgerald, partner and auto analyst at Plante & Moran PLLC in Southfield, MI.

But U.S. auto makers will monitor how much business they move from their traditional suppliers, which could limit Denso's growth, Fitzgerald said. Auto makers need several healthy competitors in every commodity line and aren't going to throw everything one supplier's way.

"They are cognizant of the fact that in any product area, you need a number of viable competitors," he said.

And he said Denso isn't the only foreign supplier with a strong U.S. presence. Robert Bosch Corp., Siemens VDO Automotive Corp. and other smaller players also have a long history of growth in the United States.

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