Continental AG has transformed itself from a supplier of tires and rubber products to an automotive systems and module supplier, primarily through the acquisition and integration of ITT's Teves business in 1998. Continental Teves is the global market leader in the disc brakes market and ranks number two in anti-lock brake and brake booster production. It is a major player in the corner module market and has recently won a development contract for its Intelligent Tire System (ITS), which integrates tire wall sensors into the chassis control system of a car. Stephan Kessel, who has been CEO of Continental AG since June 1999, talked to Automotive News Europe's Edmund Chew recently at the company's North American headquarters in Auburn Hills, Michigan, USA.
Where are you taking the business?
Our company is really going for the total chassis systems approach as we specialize in the dynamics of driving. We have expanded our core competence to include chassis and driving dynamics. Continental is the only supplier in the industry to sell the combination of tire, brake and suspension systems, which are three of the key elements of a total chassis system. We will soon be in a position to offer the chassis of the future on a worldwide basis.
Can you give an example of the benefits that can bring?
We have some challenging corner module projects. By producing a complete brake corner module we are able to integrate the brake, spindle, hub and bearing components to achieve weight, quality and NVH improvements. NVH improvements are crucial to achieve comfort in today's quieter cars, because these cars are more sensitive to the resonance that is easily transferred to the passenger compartment.
By optimizing the tire, the wheel, the suspension, the brakes and the electronics as a whole we are gaining performance and cutting costs, as well as enhancing safety. On the new Ford Escape, Continental will provide all four corners our largest full systems award yet announced.
Are the vehicle makers giving you more responsibility?
Yes. Perhaps this is a recognition that we can often do the engineering more economically and efficiently, with greater expertise in our product areas. So far we get paid through the products or the modules that we sell. I suggest this is odd, and not reflective of today's realities. In the future, we may become an engineering company that gets reimbursed for its engineering, as well for its products.
As safety systems and other products become more sophisticated, the amount of engineering and development involved increases as a proportion of the product. There is engineering value. If you look at a highly engineered ESP (electronic stability systems), it is software that delivers performance, and which makes the system more intelligent. This means that in the end we have to sell software to the OEM. This has completely changed the OEM/supplier relationship.
Will you change your organization to reflect the move to systems supply?
We merged our customer-facing activities in January, under the title 'One Face to the Customer', to show exactly how different parts of the organization will join forces to capitalize on their potential. Technically, 'One Face to the Customer' unites the sales and marketing teams from the tire and brake sides of the business. As a single entity, they are setting expectations among the customer base that Continental is a total chassis systems integrator. We want to create an environment in which tires and brakes are sourced together as part of a system.
Is this structure already in place?
We have it as a pilot scheme with one global customer located in the USA. As a general tendency US customers are fairly advanced in accepting systems suppliers compared to the Europeans. The European customer looks for high supplier expertise, like the US customer, but they don't tend to go into the systems integration job so much, so as a logical consequence of that we started this project here in the USA.
How is the NAFTA business going?
At Continental Teves we expect to double North American business by 2001 and triple it by 2003 versus 1998 levels. Our new North American headquarters, which will open in late summer, will be a state-of-the-art, highly visible $40 million commitment to our customers, employees and stakeholders. Soon we will be opening a new sensor plant in Mexico that will increase our capacity and ability to deliver quality electronic systems. This will be in addition to two tire plants that came with the acquisition of Grupo Carso in December 1998, and a new ContiTech plant in Mexico that will begin production shortly.
How is ESP (Electronic Stability Program) developing?
ESP volumes are taking off. By 2004 in Europe, one out of every three cars will be equipped with ESP. ESP is now coming onto the global market at Audi, BMW, Ford, VW, Volvo and Mercedes-Benz. In North America, the trend is picking up steam. Continental Teves supplied close to 400,000 ESP units last year. This year that figure will soar to almost 1.4 million. For 2004 we already have orders for 3.5 million units.
How is the wheel-tire assembly business going?
It is developing in Europe, but it is in very early stages here in the USA. We have some discussions with an OEM who wants to outsource the tire-wheel assembly.
Will e-commerce will affect your business and what are you doing about it?
I prefer to call it e-business. We have gone through the reverse auction process for tires once already and, yes, it was a new experience but I think we were satisfied with the result. I think engineered products, which is the predominant focus of our company, will not be acquired or purchased through auctions. There are other forms of e-business that are already happening. For example, our engineers exchange drawings and designs and product specifications already over electronic data links between the OEM and us.