Historic deal part of global strategy

Fuyao’s Moraine investment signals bold bid for U.S. market.

Fuyao Glass Industry Group — at a glance

Chairman: Cao Dewang

Headquarters: Fuqing City, Fujian Province, China

Financial Highlights:

$1.85 billion in sales in 2013, an increase of 12.2 percent over 2012

Profitability increased in 2013 over 2012

Sales have increased 101 percent over the past five years

Stock price climbed 67.4 percent in 2014

Fuyao has paid a stock dividend for five straight years

Fuyao has poured more money into R&D each year since 2011

R&D expenditures hit 3.4 percent of sales in 2013

Fuyao has added employees in each year since 2004

Stock listing: 600660, Shanghai Stock Exchange

Sources: Hoovers; Wright Investors’ Services

The Fuyao Group’s $360 million investment in the former General Motors plant in Moraine is part of a bold play by the Chinese auto glass maker to move aggressively into the North American car market with an eye on future expansion.

“Fuyao is going in big. They’re rolling the dice and they’re taking a bet that the customers – Ford, GM and Chrysler as well as the other transplant plants – are going to see that they’ve got the price, quality and delivery to grow their glass business here in the United States,” said Terence Lau, international business professor and associate dean at University of Dayton’s business school.

Already the top auto glass maker in China, the world’s biggest car market, Fuyao is seeking to become more of a global player. In 2013 it opened a plant in Kaluga, Russia, to serve Russia and Eastern Europe and last year it bought a float glass plant in Mount Zion, Ill., and paid $15 million for 1.2 million square-feet of the shuttered GM plant in Moraine.

Fuyao announced last week that it was doubling its hiring in Moraine to 1,550. Jeff Hoagland of the Dayton Development Coalition called the Fuyao project “one of the biggest international deals in Ohio history.”

Fuyao Glass America President John Gauthier, who had been plant manager in Mt. Zion, said Fuyao’s goal “is to be one of the major players in the automotive glass market here in North America going forward.

“There are somewhere between 15 million and 16 million total cars made in North America and we are going to produce enough glass for 4 million out of this plant,” he said.

‘This is something we must do’

Headquartered in Fuqing City in the Fujian Province, Fuyao has 19,300 employees across the globe, nine production sites in China and controls 70 percent of a Chinese market that produces 25 million vehicles annually. Sales have more than doubled over the past five years, hitting $1.85 billion in 2013, according to Wright Investors’ Services.

The company’s stock price climbed 67.4 percent last year.

Fuyao Group Chairman Cao Dewang said in Columbus last week that Fuyao’s Midwest investment will be more than $500 million — $150 million in Illinois and $360 million in Ohio.

The Mount Zion plant, which will employ as many as 250 workers, will supply float or sheet glass to the Moraine plant, where it’ll be molded and cut to meet customer requirements. While Fuyao began exporting auto glass to the U.S. in 2006, this will be the first time it will be manufacturing on U.S. soil.

“I know this is a challenge because many of my competitors in this industry are going through hard times,” Cao said, speaking through an interpreter at the Ohio Statehouse. “But I believe that this is something we must do.”

Lau said the move allows Fuyao to:

  • participate in just-in-time delivery without the shipping, warehousing and inventory costs associated with exporting from China;
  • capitalize on a red-hot U.S. auto market just as the Chinese market begins to slow;
  • adapt to automakers' requirements that suppliers have global capacity to deliver the same products around the world; and
  • sidestep currency problems.

American manufacturers have long accused China of unfair trade practices, and the President and Congress are under increasing pressure to level the playing field. In 2006, Fuyao was accused of dumping glass on the U.S. market at prices below the cost of product — a suit it won, Lau said.

Moving manufacturing to the United States removes a lot of obstacles for Fuyao, including trade issues, said Lau.

“You don’t have to worry about anti-dumping or anti-foreign sentiment because you’re now a local company producing for a local customer,” he said.

Fuyao, which last May received a 15-year tax credit worth nearly $10 million from the Ohio Tax Credit Authority, has made an investment in the region that goes beyond the Moraine plant. On Jan. 9 the company announced it was making a $7 million gift to support the University of Dayton’s China Institute in the Suzhou Industrial Park outside of Shanghai.

Steady growth

The global auto glass market is dominated by four companies: Fuyao, the French company Saint-Gobain S.A., and two companies based in Japan — Nippon Sheet Glass Co. and Asahi Glass Co.

Fuyao currently ranks fourth among global auto glass vendors but could overtake Nippon Sheet Glass and move up to number three within the next two to three years, according to Sriram Mohan, an industry manager who follows the company for the London-based research firm TechNavio.

Companies like Fuyao supply product to car makers as well as after-market companies such as SafeliteGroup, which fixes and replaces damaged auto windows.

Columbus-based Safelite AutoGlass Senior Vice President Dino Lanno said Fuyao’s expansion in Moraine is good news for his company.

“It can take 12 weeks to receive parts from China, so having another U.S. manufacturer will reduce the lead time to acquire parts — which also improves our predictive analytics on which parts will be needed,” he said.

Fuyao has big plans for the future. According to its website, the goal is to make Fuyao into a giant, modern, international corporation with the “capacity to design, develop and self supply materials.”

That is a long way from Cao’s modest beginnings. He grew up in Fujian Province with little formal education. Born in 1946, he stared his own business as a teenager, peddling tobacco, farming and selling fruit. In 1976, he started work at a specialty glass factory and in 1983 he was asked to take it over and turn it around. Within a year, he had made the company profitable, according to a biography published by Columbia University.

In 1993 Fuyao Group became the first company in its sector to be listed on the Shanghai Stock Exchange. In 2009, Ernst & Young named Cao the global entrepreneur of the year, citing him as a pioneer in corporate governance.

TechNavio predicts Fuyao will grow at about 5 percent a year through 2018, eclipsing the industry’s 3.75 projected growth rate during that time,. Mohan said state-of-the-art facilities and an innovative product portfolio gives the company “a bit of an edge.”

Fuyao’s advanced products include a head-up display windshield, wire-heated glass, hydrophobic glass, acoustic glass, infrared reflective glass, solar glass, a panoramic sunroof and bonding encapsulated glass, he said.

Fuyao, which had less than 10 percent of the market in 2010, could reach 18 percent in two years because of the expansions in Russia and the U.S., Mohan said.

Buoyed by increased auto sales and a move to more lightweight vehicles with advanced features and styling requirements, the global auto glass market is expected to reach $18.22 billion in 2018, according to TechNavio.

For now at least, the economics seem to be working in Fuyao’s favor. The company’s top five customers — GM, Chrysler, Honda, Hyundai and Kia Motors — all show growth in sales, Mohan said.

Competition intense

The Dayton Development Coalition doesn’t see any risk from the Fuyao deal, said David Burrows, the organization’s vice president of development. “Fuyao continues to grow globally,” he said.

But University of Dayton’s Lau said Fuyao’s move to the U.S. isn’t risk free.

“Like a lot of things in the auto industry, this could change in a whim,” he said. “If the auto industry takes a downturn, if an even cheaper competitor comes along, then Fuyao has to respond.…They’ve got to keep an eye on their quality and their costs.”

Mohan said the North American auto glass market is also intensely competitive.

In September, Japan’s Central Glass Co. acquired two automotive glass units from Detroit-based auto glass supplier Guardian Industries Corp. And competition from Pittsburgh-based PPG Industries also “could be a threat in the future,” he said.

Even at maximum capacity, Fuyao’s 1.2 million-square-foot finishing plant in Moraine won’t be able to meet the company’s supply needs for North America, according to Burrows. Some glass will still have to be brought in from China, where the company owns mines that provide materials such as sand and soda ash used to produce glass at float plants, as well as the float, finishing and encapsulation plants where that glass is manufactured, shaped and prepared for the automotive market.

Burrows remains hopeful that Fuyao will expand its local footprint even further. He compared Fuyao’s arrival in Moraine to Honda’s first venture in Ohio in 1979. Honda “has grown throughout our region,” including Tuesday’s announcement of a $340 million investment at its Anna, Ohio, plant to update the company’s 4-cylinder engine, he said.

“There are hundreds and hundreds of manufacturers that have direct connections to those Honda plants,” Burrows said.

To that end, the Dayton Development Coalition is working to identify and recruit suppliers related to Fuyao’s operations. In addition, the economic development organization is talking with other companies that “could potentially move here because of the impact that a Chinese company like Fuyao has in this area,” Burrows said.

“Our hope is that as this facility gets up and running, that their chairman and company sees how well this plant has done and they open more facilities,” he said.