Marl­boro Kicks Some Ash

Bloomberg Businessweek (Europe) - - COMPANIES/ INDUSTRIES - −Craig Trudell and Ni­clas Rolan­der “The holy grail of a com­mer­cially suc­cess­ful ‘safe’ cig­a­rette”

cre­ated by Takata’s woes. “Ev­ery­one in the in­dus­try saw that Au­to­liv would ben­e­fit” from Takata’s cri­sis, says An­dreas Brock, a Stock­holm-based fund man­ager at Coeli As­set Man­age­ment.

In­ci­dents of Takata in­fla­tors rup­tur­ing and spray­ing plas­tic and metal shards at pas­sen­gers have re­sulted in at least nine deaths in the U.S. since 2009. About 28 mil­lion Takata air bag in­fla­tors have been re­called in the U.S. in the past few years; re­calls of 60 mil­lion are in progress world­wide. “We’re com­mit­ted to be­ing part of the so­lu­tion to this highly com­plex mat­ter and ap­pre­ci­ate the sup­port we’ve re­ceived from other in­fla­tor man­u­fac­tur­ers,” says Dan Un­der­wood, a Takata spokesman.

Au­to­liv, mean­while, ex­pects to make 20 mil­lion re­place­ment in­fla­tors; some or­ders are still be­ing fi­nal­ized. Pro­duc­tion be­gan in 2015 and is ex­pected to con­tinue through 2017 and pos­si­bly into 2018. The com­pany is adding a dozen pro­duc­tion lines at sev­eral fac­to­ries to han­dle the work. “This was some­thing that we not only had to do … this is some­thing we want to do,” says Au­to­liv Chief Ex­ec­u­tive Of­fi­cer Jan Carl­son. “Air bags, we should re­mem­ber, are a life­sav­ing prod­uct.” More than half of the com­pany’s $9.2 bil­lion in over­all sales came from air bags in 2015. The com­pany says it won about half of all frontal air bag or­ders for new cars last year.

This isn’t a new busi­ness for Au­to­liv, based in Stock­holm and Auburn Hills, Mich. Founded as a car and trac­tor re­pair shop in the 1950s, it started pro­duc­ing air bags in 1980. For decades it’s made air bags and in­fla­tors for lead­ing car­mak­ers. Takata first started sup­ply­ing air bags in 1983 for po­lice agen­cies and U.S. test fleets, with pro­duc­tion ramp­ing up in 1987.

Amid the rash of safety re­calls, Au­to­liv has emerged rel­a­tively un­scathed. In 2015 more than 40 mil­lion ve­hi­cles were re­called to fix seat belts, elec­tronic com­po­nents, or air bags—three of Au­to­liv’s big­gest busi­nesses. Yet its prod­ucts have been in­volved in only about 1 per­cent of those re­calls since 2010.

Car­mak­ers have also turned to Ja­pan’s Dai­cel and Ger­many’s ZF Friedrichshafen for re­placee­ment in­fla­tors. And China’s Ningbo in­gbo Joyson Elec­tronic, a lead­ingng global auto parts sup­plier, sees ann open­ing: It’s buy­ing air bag mak­err Key Safety Sys­tems for $920 mil­lion.on.

While Au­to­liv pre­dicts dicts over­all sales will grow about 7 per­cent an­nu­ally through the end of the decade, CEO Carl­son says it’s too soon to tell how sus­tain­able thee gains will be. “That we pro­vide a qual­ity prod­uct that is ro­bust and can do the job may put cus­tomers’ views on mar­ket share, at least for the time be­ing, in a dif­fer­ent light,” he says.

Au­to­liv is also com­mit­ting more re­sources to tech­nol­ogy to pre­vent or mit­i­gate crashes in au­ton­o­mous cars. Radar, vi­sion sen­sors, and other sys­tems in mod­els rang­ing from the Chevro­let Mal­ibu to the Mercedes-Benz E-Class could gen­er­ate about $3 bil­lion in elec­tron­ics sales an­nu­ally by the end of 2019, Au­to­liv pre­dicts, with to­tal rev­enue reach­ing $12 bil­lion a year.

“We will have crash-avoid­ance sys­tems that we’ll be able to trust … in the same way that we trust seat belts and air bags to save our lives,” Carl­son says. “They have to be fully re­li­able. They will have to be qual­i­ty­first prod­ucts.” The bot­tom line In the wake of Takata’s re­calls, Au­to­liv says it will pro­duce about 20 mil­lion re­place­ment air bag in­fla­tors through 2017. Philip Mor­ris makes a de­vice to heat—rather than burn—to­bacco On a tree-lined street of stately 19th cen­tury palazzi in cen­tral Mi­lan, there’s a store­front with glossy par­quet floors, sub­dued blue light­ing, and walls dis­play­ing large-for­mat color por­traits of trendy young peo­ple—it looks like it might be an art gallery or chic hair sa­lon, but it sell­s­sel Marl­boros.

The shop is what cig­a­rette maker Philip Mor­ris In­ter­na­tion­alIn­terna calls an em­bassy for iQOS iQOS, a €70 ($79) de­vice that gives a nico­tine hit by heat­ing to­bacco in­stead of burn­ing it. Since N Novem­ber 2014 the com­pany has set up about 10 such out out­lets in Italy and Ja­pan where visi vis­i­tors can sam­ple Marl­boro Heat HeatSticks, which users say are more like smok­ing than e-cig­a­rette e-cig­a­rettes and of­fer a stronger buzz. An­dreAnd Calant­zopou­los, chief ex­ec­u­tiv ex­ec­u­tive of­fi­cer of Philip Mor­ris, told in in­vestors in Fe­bru­ary that the tech tech­nol­ogy puts the in­dus­try “on the cusp of a rev­o­lu­tion” that may im im­prove pub­lic health with a safer alt al­ter­na­tive to smok­ing, while adding as much as $1.2 bil­lion in profit.

Philip Mor­ris has spent more than $2 bil­lion de­vel­op­ing smok­ing al­ter­na­tives, in­clud­ing a sim­i­lar prod­uct called Heat­bar that flopped a decade ago. It doesn’t claim iQOS is health­ier than smok­ing—it’s sold with a warn­ing that the safest op­tion is to avoid to­bacco al­to­gether. But the com­pany has 300 sci­en­tists search­ing for proof that iQOS may re­duce the risk of smok­ingre­lated dis­eases, and iQOS brochures say it emits fewer harm­ful sub­stances than cig­a­rettes and that clin­i­cal tests are un­der way to com­pare the risks.

As ri­vals try to catch up and reg­u­la­tors ponder whether to sup­port such ef­forts, an­ti­smok­ing groups are push­ing back. “Time and again, Philip Mor­ris In­ter­na­tional has been caught ly­ing to the pub­lic about the health ef­fects of its prod­ucts,” says Cloe Franko, a se­nior or­ga­nizer at Cor­po­rate Ac­count­abil­ity In­ter­na­tional, a Bos­ton non­profit that op­poses to­bacco com­pa­nies.

To use iQOS, a smoker in­serts a tube of to­bacco that looks like half a cig­a­rette into a de­vice about the size of a fat ball­point pen. The to­bacco is skew­ered on a metal blade that heats it to about 500F, a third the tem­per­a­ture of a burn­ing cig­a­rette, pro­vid­ing a dozen or so puffs. The taste is akin to a tra­di­tional cig­a­rette, and the sticks smell like to­bacco, though less odor re­mains af­ter they’re con­sumed. The de­vice must be recharged af­ter each pack of 20 sticks, which cost €5 in Italy, vs. about €5.20 for a pack of tra­di­tional Marl­boros.

Au­to­liv’s share of the air bag mar­ket in 2015

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