Adient: Will Johnson Controls Spinoff Work?

In January, Johnson Controls, Inc. announced that Adient will be the name of its automotive seating and interiors business after the entity is spun off into a new publicly traded company in October 2016.

"Adient is a Latin word that translates to accepting and advancing a situation or a stimulus, which is representative of our constant drive to engage, compete and always improve," said  Bruce McDonald, chairman and CEO of Adient at the time of the announcement.

IndustryWeek asked McDonald about the new company and its strategy.

IW: You have talked about the need for Adient to be innovative to move forward. Will the new company create a formal process to stimulate innovation?

McDonald: Adient has a world-class engineering and product development process supported by 14 global R&D centers that draw upon our innovation, making us the global leader in automotive seating. 

We understand that in order to retain that leadership position, we have to bring new technologies and innovative products to our customers at an even faster pace.  Innovation is so important to our new company that we made it one of our seven “markers” – that is to say, one of the primary metrics by which we will drive and measure our success. 

We’ve committed to increasing our participation in the world’s major auto shows, with the expectation that we use those shows to introduce innovative new products and technologies.  That requires us to increase our investments and disciplines related to innovation. 

As part of our increased focus, we have created the new position of vice president of innovation to be led by Richard Chung.  His team will focus on customer satisfaction, topline sales growth and margin expansion through the lens of a global innovation strategy.  While the position is new, Richard is no stranger to the automotive industry. He was previously vice president of industrial design and craftsmanship for Yanfeng Automotive and began his career at Johnson Controls 16 years ago.  

IW: Reinvesting in this particular business is a one the major reasons you have cited for the spinoff, but given the debt load this company will carry, how will you be able to find funds to invest?

McDonald: For many years, automotive seating was the growth engine of Johnson Controls. We know how to grow this business. Adient is launching from a position of strength with a very flexible capital structure. We enjoy a leading market position in each of the major automotive regions of the world (NA, Europe and China) and also across the major seating components and systems (complete seats, metal structures and mechanisms, trim, foam and armrests / headrests).  We expect our strong cash flow will further strengthen as we continue to improve our profitability, and we’ll be able to rapidly pay down debt. 

In fact, our recently placed bonds received a high non-investment grade rating from the external rating agencies – evidence of the strength of the current business, our expectations for improving cash flow and our overall strong outlook. Our capital structure gives us flexibility to invest in the growth of the business, pay down debt, and enhance shareholder value through a competitive dividend.  I feel good about our balanced approach.

IW: Some have questioned your ability to compete without the backing of a large corporation. How would you answer that?

McDonald: Adient is much more favorably positioned as a standalone company independent of Johnson Controls.  Due to Johnson Controls’ strategic objectives, the company intentionally allocated capital away from the automotive business over the past few years in order to further invest in its Building Efficiency and Power Solutions businesses. These choices naturally limited the automotive business unit’s ability to make strategic investments and grow to support its customers. Adient will not have those constraints and will be free to manage our own growth for maximum benefit.

IW: What is your personal style of leadership and how will it shape this new company?

McDonald: My personal leadership style is inclusive…getting input, alignment and commitment from my key leaders—those who run the company and can influence all the levels of the organization.

Over the past year, our top 20 leaders have created a shared vision, mission and values as well as a five-year marker that details the company we want to be and how we’ll get there.

With the spin-off of Adient, we have a once-in-a-career opportunity to do something really special. We are the largest supplier of automotive seats and interiors in the world, so this spin-off in some ways is like launching a $17 billion start-up company.  There’s still a lot of work to be done as we transform into a standalone company and reinvest to return to growth. I couldn’t have a better management team to work with as we launch Adient.

I am a chartered accountant and have spent most of my career in the automotive industry, both in the U.S. and overseas.  I joined Johnson Controls in 2001 and was named CFO in 2005.  In the last couple of years, I served as Vice Chairman of the company.  Throughout these years, I had lots of interaction with the investment community.  My experiences at JCI have prepared me well for the challenge of leading Adient.  It’s familiar territory.

IW: Who are your mentors? Who inspires you?

McDonald: As we become a public company, I look to our board for guidance and mentoring. In particular, I look forward to working with John Barth, who is the former CEO of Johnson Controls and ran our automotive business for many years, transforming it into the global leader it is today. John will be serving as our lead director.