Taking advantage of the fast-tracked "green" building trend, Glendale-based Johnson Controls Inc. is planning for significant growth in future years in its building efficiency division. About
50 percent of Johnson Controls’ 2005 operating income was generated from auto interiors. However, Stephen Roell, executive vice president and chief financial officer for Johnson Controls, says the company’s executive team is deeply concerned about negative trends in the auto industry, especially for the "Last Two" of the great American manufacturers, General Motors Corp. and Ford Motor Co.
So, Johnson Controls is taking steps to further diversify. By 2008, the company plans to have 50 percent of its business in its building efficiency division, about 30 percent in its auto interior division and about 20 percent in its automotive battery division, Roell said.
"(We’re concerned about) the financial condition of our automotive customers and the financial pressure they’re under," said Roell, who was the keynote speaker at the 2006 Northern Trust Economic Trends Breakfast presented by Small Business Times. "And to a lesser extent (we’re concerned) about the supply base under them. Added to that are higher raw material costs and higher fuel costs."
Higher steel costs through 2004 and 2005 were widely publicized, but Roell said costs for petroleum-based products such as plastics, resins and foam have also increased due to global petroleum demand.
The American auto industry has done very well over the past 10 years because of sport utility vehicle sales, especially the larger and more expensive models. As sales of those vehicles have tapered off with rising gas prices, American automakers’ sales are lagging.
Japanese automakers Toyota and Honda quickly tapped into the emerging hybrid market to bolster their sales, but the American companies were asleep at the switch and are now catching up in that market.
Because Johnson Controls is a large manufacturer of nickel and lithium batteries, the company is poised to piggyback on the future successes of hybrid technologies, Roell said.
"We’re well-positioned to take advantage of that as the trend evolves," he said.
About 35 percent of Johnson Control’s production for the auto industry is for non-Big Three producers such as Toyota, Nissan, Honda and Mercedes.
Johnson Controls is one of the most diversified auto suppliers in the U.S., Roell said. Diversification has been and will continue to be Johnson Controls’ solution when it becomes concerned about one of its client bases, he said.
Current projections show energy prices staying high for the foreseeable future, making the building efficiency division a logical growth area, he said. The green building trend, a move toward buildings that are more energy efficient and environmentally friendly, and Johnson Controls’ recent acquisition of York International Corp., a Pennsylvania-based heating, cooling and ventilation manufacturer, also make building efficiency an attractive market for the company, Roell said. The acquisition of York took Johnson Controls’ building efficiency division from a $6 billion business to an $11 billion business.
The acquisition also has given Johnson Controls a foothold for international business in the building efficiency area.
"There are global opportunities in Asia and eastern Europe that are critical to us diversifying our global footprint," Roell said. "The York acquisition in our building efficiency group gave us a great footprint to drive our international group. York has $400 million in revenues in China, and they have a great presence in South America, the Middle East and Eastern Europe."
Roell said the green building trend will continue to grow, and there will be more interest in retrofitting existing commercial buildings to be more energy efficient, which will lead to more work for Johnson Controls.
"There is a lot of interest in retrofitting from a variety of customers," he said.
Because of the increased interest in building efficiency, Johnson Controls is projecting a 14 percent sales increase for 2006, from $27 billion in 2005 to $32 billion this year.
At the same time, Johnson Controls is projecting earnings to increase between 13 percent and 17 percent this year, while the company’s capital spending is reaching record levels. Those new levels have been reached because of the acquisition of York, investments in information technology and new product launches, Roell said.
Johnson Controls has kept some of its key employees motivated and excited about their jobs by stressing continuous improvement and cost-cutting, Roell said.
"We constantly have to challenge ourselves on the cost side," he said. "And we have a culture of continuous improvement, whether that is by tools like best practices, Six Sigma or lean manufacturing, our success over the past decade has been driven by our ability to reduce costs."
The company’s employees have a chance to deal with a wide variety of industries and international issues.
"There are very few opportunities in Milwaukee to work for a company that has as broad of a reach as we have," Roell said. "They can get involved in global leadership. The growth does amazing things for their career paths."
Johnson Controls Inc.
Address: 5757 N. Green Bay Ave., Glendale
Web site: www.johnsoncontrols.com
2005 sales: $27.9 billion
Employees: 120,000 worldwide, including 2,500 in Milwaukee.
Industries: Auto interiors, power solutions and building efficiency systems.
Roell predictions
- Increased demand for efficient buildings.
- Increased demand for batteries and hybrid vehicles.
- Increased electronic content inside automobiles.
- Continued struggles for the "Last Two" American automakers, General Motors and Ford.
- Wireless technology in health care will provide more opportunities for advanced controls technology.
- "Engineering efforts will become global efforts."
