Auto-parts firm Tenneco looks to China for growth

U.S. auto-parts maker Tenneco Inc. is taking steps to boost production and expand research and development in China as an economic downturn hobbles North American and European vehicle markets.

Tenneco Chairman and Chief Executive Gregg Sherrill this week said the Lake Forest, Ill., maker of emissions-control equipment, shock absorbers and other automotive components expects demand for its products to keep rising in China as car and truck sales climb and the government tightens environmental rules.

"There is no higher priority than China," Mr. Sherrill said in an interview. "Nowhere else are we going to see, over the next decade, the growth" in vehicle-sales volumes that are forecast for China. "If there's a bright spot in the automotive world at the moment, it's China," he said.

Tenneco on Tuesday said it had formed a joint venture with a Chinese partner, Beijing Hainachuan Automotive Parts Co., to make emissions-control and exhaust systems at a plant in the Chinese capital. Initially, the venture will supply the China operations of South Korea's Hyundai Motor Co.

The Beijing plant -- 51%-owned by Tenneco -- will be the company's sixth joint venture in China. It also operates one wholly owned plant. Later this year, Tenneco also will start work at a plant in Guangzhou. The factory will supply emissions-control systems to Japan's Nissan Motor Co., which has manufacturing operations in southern China. Mr. Sherrill said Tenneco has yet to decide whether it will work with a partner or open the plant entirely on its own.

"Emissions control is our real growth engine," said Mr. Sherrill, as governments in China, the U.S. and elsewhere enact more stringent rules governing car and truck emissions. "Our growth is being pulled by regulations."

In China, tougher emissions standards are set to kick in next year, something Mr. Sherrill expects to drive growth in Tenneco's sales, especially of emissions-control systems for diesel-powered commercial vehicles. Tenneco makes components that filter particulate matter from diesel exhaust and reduce emissions.

The severity of the downturn in the U.S. and Europe has required Tenneco to cut costs and restructure to preserve cash and outlast the crisis, Mr. Sherrill said. But he said the company has continued to invest in developing emissions-control technologies that he says will drive Tenneco's growth.

"We keep that work prioritized," he said, so that Tenneco will be in a position to benefit when sales of cars and trucks revive in the U.S. and vehicle manufacturers there need improved emissions-control equipment to meet tougher regulations.

Mr. Sherrill said he "senses" that the U.S. auto market is "hitting bottom" but is "still very fragile" and that the bankruptcy-court proceedings for Chrysler LLC and General Motors Corp. are proving less "disruptive than they potentially could have been."

When sales eventually bounce back, Mr. Sherrill said, Tenneco is "absolutely determined to hang on to the efficiencies" that have resulted from cost cutting and restructuring. "I absolutely believe" that reductions in "structural costs" will mean wider profit margins when vehicle sales resume growing, he said.