Continental sees increasing demand for safety systems and cleaner engines as huge growth drivers for the German supplier. Continental is working on innovative technologies to bring the dream of accident-free driving closer to reality. CEO Elmar Degenhart also sees big opportunities for the company's powertrain unit because of the drive toward zero emissions and more fuel efficient engines. He spoke with Automotive News Europe Editor-in-Chief Harald Hamprecht.
A safer, cleaner future
Continental CEO Elmar Degenhart says the drive to cut accidents and reduce emissions will bring big growth
Meet the boss
An aviation and aerospace engineer by training, Elmar Degenhart had a rocket-like rise through the German supplier industry. After a stint at ITT Automotive Europe, he joined Continental for the first time in 1998, moving to Robert Bosch five years later as head of chassis systems. Between 2005 and 2008, he served as CEO of Keiper Recaro, after which he became head of automotive at Schaeffler Group, which owns 49.9 percent of Continental. Degenhart, 52, was named Continental CEO in 2009.
We can expect above-average growth compared with the global market in all five divisions. We see particularly large opportunities in the powertrain division. But we cannot single out any one division because all of them are experiencing above-average growth this year.
Safety, without any doubt! And not just with technologies such as electronic stability control or the brake systems of the future, but also in environment detection or other active safety systems. This includes radar sensors and cameras, and it is only a matter of time until every new car has at least one camera on board, for example. Thanks to intelligent networking – we use the term 'sensor fusion' – entirely new functions can then be developed, functions that bring us closer to the goal of accident-free driving, or what we call Vision Zero.
Ten years or so. All the technology for environment detection is already available. It must now be launched on the market in larger volumes. Only then can we really achieve our vision of accident-free driving and prevent 1.3 million people, which is the figure from 2010, from dying in traffic accidents globally. The dream of accident- and injury-free driving is no longer a utopia. Camera and radar systems are required for this. Even today, a large number of rear-end collisions could be avoided.
Yes, and in the long term we will definitely see this in passenger cars as well. The driver should be assisted as far as makes sense without having control of the vehicle taken away. For trucks, there is already a legislative initiative that specifies that all new models from 2013 onwards and all trucks from 2015 onwards must be fitted with an emergency brake assist system. We are ready to deliver.
The central task of the interior division is to manage information in the vehicle for drivers and passengers. In addition to the ever-increasing demand for intelligent display and operating concepts and expertise in system integration, networking is the largest driving force here.
This can be achieved more quickly than many people currently believe. There is a very large need for this. Particularly if you want to get young people interested in cars, you must provide everything in the car that is already available in their social environment. An automotive electronic platform has a development period of three to five years.
We do not have that much time. Since drivers below the age of 30 rarely drive luxury cars, it must be possible to develop the technology in a scalable manner so that it can be made available in compact and mid-sized vehicles quickly. For example, we have been sup-plying our AutoLinQ system for a mid-range car to a manufacturer in China since early July. This allows Chinese motorists to use Internet functions easily, safely and at an affordable price while in the car.
We have identified a clear trend: What used to be invested in performance and tuning is now being more heavily invested in communication and functions. The theme here is 'more networking and less horsepower.' This can also be attributed to increased environmental awareness.
We clearly believe in the onboard solution because this is a highly sophisticated function, particularly with regard to safety. After all, to-day's driver is already inundated with stimuli. For this reason, there will be more and more intuitive voice recognition in cars in the future. As it is, the car already has all five human senses at its disposal.
Not only can it talk via navigation systems, it can also see the vehicles in the next lane and warn the driver of a dangerous lane change. It can hear a crash and deploy the relevant airbags by measuring the noise and impact on the bodywork. It can feel with its equilibrium device, the yaw rate sensor, which is part of electronic stability control. The car can taste its gasoline blend and even smell its own exhaust values in the catalytic converter. So whatever happens inside and outside the car is less and less attributable to the individual and isolated assessments and actions of the driver and more and more attributable to intelligent networking.
Right. In the future, cars will be a kind of first-class 'wellness lounge' on four wheels, equipped with sensors, cameras and telecommunications. They assist us with driving, parking, steering and braking, with communication, orientation and information. They entertain us when we are bored and even keep us awake.
This depends very heavily on whether you only provide the hardware or whether you also provide the software and the service. In any case, it is clear that purchasers are willing to buy this type of added-value function. Just look at the outstanding success of smartphones. The secret behind their success is, and remains, networking with the surrounding area. If we implement this just as systematically in the car, I am convinced that we will benefit heavily from it.
Not necessarily only those whom we have known in the past but also, for example, mobile radio suppliers that wish to see communication used in cars but have no idea how to achieve this. We are the experts here with a very good starting position. But we must also rethink our whole concept of cooperation.
The car manufacturers and suppliers must work more heavily on standardizations. We have already made some progress on this issue with AUTOSAR (Automotive Open System Architecture). In contrast, we must urgently come up with a solution for the navigation head units, which continue to be dominated by individual applications. It is obvious that it is becoming more and more difficult to manufacture this complexity in an economical manner. We need to agree on an electronics architecture for the car as quickly as possible. Everything that does not serve to differentiate the carmakers' brands must be standardized. In addition, innovation processes must be synchronized.
Carmakers and suppliers must network more closely with software suppliers. Why? Because a car's life cycle is at least 60 months long; in consumer electronics, by contrast, there is a change of generation every six months. A possible solution to this is to install two control units in the vehicle: One that can be updated every six months with new functions of relevance for communication, and a second one that controls vehicle-specific functions. Naturally, it is important here that new Internet functions can be used in the car. The question here is: How can we make the unbelievably complex Web universe of software offers, programs and apps available in the car in such a way that they are hacker-proof, do not distract the driver, and are always up to date?
I advocate an open marketplace where Internet providers make their content available. Technology partners such as Continental and Deutsche Telekom are making this content compatible for the car and are offering it to car manufacturers. In turn, the carmakers then select the desired content, have it prepared for their individual display and control concept, and transfer it to their own portal. The carmakers keep full control of this portal, as it helps distinguish their brand.
There will be even stronger growth here than in chassis and safety because there is more and more pressure to change technology in order to achieve zero emissions. We are currently experiencing one technology change after the other here. We are reducing consumption levels in conventional combustion engines to less than 5 liters per 100 kilometers on average, and are also achieving lower and lower emissions thanks to efficient exhaust gas after-treatment. And the issue of e-drive systems is also beginning to rear its head.
All the signs point toward growth here as well. ContiTech enjoys an excellent position both in the automotive and industry sectors. With regard to tires, we ourselves have set up a multi-billion global investment program in new plants. However, growth is also powered by the introduction of the passenger car tire label in Europe in 2012, for example. This label provides information about safety, consumption and noise pollution. Starting in 2014, the label will be binding everywhere. Similar labels are also being developed in other key markets. And this will provide all premium tire manufacturers such as us with momentum, particularly with regard to low-cost suppliers from Asia. Unlike premium manufacturers, these low-cost suppliers have not mastered tire characteristics such as good wet-braking performance and low rolling resistance for fuel efficiency, characteristics which conflict for physical and chemical reasons.
We have had to adjust market prices across the world several times this year so far. Further price increases cannot be ruled out; we monitor the development of raw material costs on a continuous basis.
That is not entirely correct. In 2006, Continental checked whether it would make sense to sell the commercial vehicle tire business. As you can see, this area is still a key element in our business and is not up for sale – and nor is any other part of our core portfolio. We are very well positioned.
We are very well poised so that there is no need to take urgent action. In addition, our net debt will be well below 7 billion euros at the end of the year. However, we will not be able to do much with this. Our goal is still to further reduce net debt and to achieve a gearing ratio of 70 percent. As soon as we have achieved this, we can start thinking about major acquisitions again.
We currently have nearly 160,000 employees worldwide and will be achieving sales of at least 29.5 billion euros this year. During the eco-nomic crisis in 2009, we only had 132,000 employees, and achieved sales of 20 billion euros with them. If I look at the automotive study conducted by Frost & Sullivan in late 2009, I can see that we cover all growth fields in the automotive industry. The study thus shows that we have the greatest growth opportunities on the market. So it is obvious that we will continue expanding with work force appropriately.
From a geographical perspective, the clear growth drivers are the emerging markets. This is why we are primarily taking on new people in China, Brazil, India and Russia. But the traditional sites in Europe are also benefiting from developments in the BRIC countries because we network our resources intelligently and use them globally.
In 2010, we increased sales in China by 45 percent to 2 billion euros. And I see a very good opportunity for reaching a sales share of 30 percent in Asia in the automotive group by 2015.
In the U.S., we had major problems for many years – particularly with car tires – and we had to shrink in size in order to recover. We now see good opportunities here, particularly in the tire market. Following a long period of drought, we have again achieved profitability here. The market growth for new car registrations is to be found in the U.S., but naturally it cannot be compared with the growth in China. However, we want to grow at a stronger rate than the market. We are expecting a market of 13 million light vehicles this year. In the medium term, we are again expecting 14 million to 15 million units.
We want to remain among the top five in the world. It is not our goal to climb further up in this ranking. Our goal is to offer our customers the greatest benefit and the best quality, while achieving a high degree of profitability.
Both companies work together efficiently on an operating level wherever it makes sense. We want to offer our customers a special system competence in the field of mechatronics and gain new business with this. Both companies take advantage of this.