STOCKHOLM, June 4 (Reuters) - Based in high-cost Sweden and serving a global auto industry notorious for forcing down prices, Autoliv , the world’s top car safety equipment maker, still achieves margins that some of its customers and rivals can only dream of.
To defend its position as car safety undergoes a revolution that will see the introduction of night vision and crash avoidance systems - so-called active safety technology - Autoliv is betting on its do-it-yourself approach to research and development and to production.
The Swedish company says it needs to stay at the cutting edge of technological development, a process that has seen it amass a portfolio of 6,600 patents, while keeping a tight grip on the pipeline that turns ideas into finished products.
“Entrepreneurs usually like to do things themselves, and that is a bit of our heritage and origin that still lingers,” Chief Executive and Chairman Jan Carlson said at the company’s Stockholm headquarters.
For 2014, a year of heavy investment, Autoliv expects an operating margin of around 9 percent and Carlson says this figure could increase after that.
Among its competitors, Takata has a margin of 3.2 percent, while among its customers, Ford is on 3 percent.
Autoliv, founded by two brothers in 1953 as a car and tractor repair shop, has roughly doubled its turnover since 2000. About 5,000 people, or nearly 10 percent of staff, work in research and development.
The fact that Autoliv - which began making seat belts in 1956 and air bags in 1980 - is the market and technology leader helps it defend its position and maintain margins, said Stockholm School of Economics researcher Martin Skold, who specialises in the automotive industry.
“You get a competitive advantage and you can maintain it. If you are alone, leading a niche like this, you can also get well paid. And so you find yourself in a special place in relation to other contractors who do more generic things,” Skold said.
Now Autoliv faces a new challenge: retaining market leadership as car safety undergoes a technological revolution.
One of the places where the company hopes to achieve this is Vargarda, a sprawling facility in southwest Sweden where it crash-tests cars at speeds of up to 80 kph (50 mph).
“To oversleep at a time of technological transition means death,” said Dan Persson, a 24-year Autoliv veteran described by insiders as one of the group’s greatest innovators, not least in developing new air bag concepts.
For Persson, the issue is simple.
“The one who leads in technology will always make money,” he said, walking through a cavernous airbag production hall, where white textile envelopes, newly arrived from Autoliv’s facility in Hungary, are rolled up like huge cigarettes as they wait to be fitted with gas generators.
Unlike most other air bag makers, Autoliv makes its own gas generators as well as the fuel - known as the generant - which triggers the explosion releasing gas into the air bag.
“Many air bag makers buy the generants,” CEO Carlson said. “We make it ourselves. It gives us control over fuel performance ... and we can tune it.”
The new frontier in car safety is technology such as radar and night vision coupled with electronics and software that allow a car to avoid accidents, rather than simply mitigate the damage of a collision, as with airbags.
Last year, Autoliv invested around 30 percent of active safety sales in research and development for these new systems. R&D spending for the whole group was less than 6 percent of sales. Active safety accounted for roughly 4 percent of the company’s total sales of $8.8 billion last year.
Euro NCAP, a safety benchmark backed by the European Union, awards ratings based on crash tests, this year included active safety in its criteria, a milestone for the new technology.
The car of the future - which spots the deer in time to avoid a crash, wakes up drivers if they fall asleep and knows its way to the office - is on its way. However, systems are complex and need extensive testing before entering the market.
Autoliv’s market share is 37 percent in passive safety - things like air bags and safety belts - and 20 percent in active safety. And as with any emerging technology, there can be hazards for established companies.
“New technologies may show up from players that may not be known today,” said analyst Stefan Cederberg at SEB Enskilda, a Swedish bank.
“Within active safety, there is a whole other kind of competitive situation, from established sub-contractors but also from companies from the electronics sector.”
Autoliv’s active safety business has grown by more than 50 percent for four straight quarters and the company expects growth to remain solid.
Autoliv has not revealed its margins in the field of active safety, but Carlson said the long-term target for the group of 8 to 9 percent should be achieved in 2016.
That the potential of active safety is causing a stir is clear. Mobileye, an Israeli company whose collision-avoidance technology has been adopted by BMW, is preparing a U.S. listing with a valuation as high as $5 billion, the Wall Street Journal reported last month.
In this environment, buying budding technology firms is difficult and Autoliv may need to rely on its own development skills as it looks for suitable purchases.
Sellers may be tempted to hold out in the hope of higher prices. But Carlson appears confident he will be able to make the acquisitions he needs.
“I believe that in time, there will be consolidation,” he said. “It is just a question of when.” (Editing by Giles Elgood)