What do you mean?
We strongly believe in increasing the supply chains in each region to make each region as self-sufficient as possible. Looking at semiconductors and some raw materials, we are clearly too dependent on a few regions. This should change. ZF will play a role here. We will support activities, maybe just as a customer, but also by helping to cover some of the ramp-up costs. We will support initiatives that make the overall supply chain more robust when it comes to these critical items. Although we are working systematically with our partners to boost the resilience of the supply chain, this will still take years to achieve.
What impact has the war in Ukraine had on ZF and what is the company doing to offset these issues?
Our No. 1 focus has been making sure our people are safe, which they are. We have daily contact with them, and we are supporting them every way we can. Some of the families of our associates have even come to Germany as refugees and are being helped by ZF. When it comes to supply disruption, so far ZF has not been hit directly, therefore we have not had to stop any production lines. But we are heavily affected by shutdowns at our customers’ plants. We are also trying to identify potential areas of concern deep in the value chain, so we are ready to respond if needed. Will there be another raw material or a certain production that suddenly becomes scarce? What if there is a lack of truck drivers in Europe because so many of them are Ukrainians? Could that hit us in the course of the next few weeks? Those are the topics we have a task force investigating because we know the importance of being agile and being able to act quickly.
What about your business operations in Russia?
We were in the first wave of businesses to say we would stop deliveries due to the unclear situation. We need to understand the new sanctions. This will take a few months because the local authorities are overloaded with questions. So, our business in Russia is on hold. We, however, continue to pay our people in the region and will take care of them because they are part of the ZF family. Also, since we have so many people of Ukrainian and Russian origin working for us in other countries, we are actively reminding everyone that we are one family, which is called ZF.
When it comes to difficulties with five being the highest level of trouble and one being the lowest, how do the chip crisis, pandemic and Ukraine war rank and why?
The shutdown caused by COVID-19 in a second quarter 2020 was the toughest crisis since World War II because of its wide reach, which caused global production to drop 60 percent. I hope we never see anything like that again. That is a five based on your scale. Other crises such as the war in Ukraine have a greater impact on one continent. Europe will feel the effects most severely because there is a high risk of a gas and energy shortage here. We will have to see how things develop. And the chip crisis has prevented tens of millions of cars from being built. Therefore, those two rank between three and four. What this all means is that we certainly don't expect 2022 to be any easier than 2021.
Stellantis has taken a hardline with suppliers because he wants them to cover more costs related to the shift to EVs. Meanwhile, Volkswagen Group recently said it wants to be more collaborative with suppliers. How are relations with automakers and what business approach have you found to be the most constructive?
We have seen all of these approaches come and go. There is nothing new. What do you do as business leader? You discuss things with your team, and you shift capacities and your best people to the constructive relationships. In my experience, having a constructive relationship doesn't result in a pricing disadvantage for either company. When my teams are highly motivated to work with the customer they will fight to get the deal done. Maybe the ideal margin is not yet where we want it, but we know that somehow we will get there over the course of the project because we have a good understanding with that customer. Those relationships have always been the most successful. We see this with startups because they understand it's the most beneficial way for them to get access to key technology so they can differentiate themselves. The other [more hardline] approach is a short-term approach that we have seen, we know how to handle, and we believe will change over time.
At what point do you decide to walk away?
We accept whatever strategies our customers have, but we also have our own strategy. If the customer has demands we just cannot meet and there is no way to reach an agreement it's very important to always be ready to say no. Fortunately, we are large enough to avoiding having too much dependency on a small number of customers.
You are scheduled step down as CEO in January 2023. Could you provide some insights on where you see the industry heading in the future and share any advice you would give to whomever will be your successor?
Our industry is in the midst of a multi-faceted transformation. One is well underway, which is the shift to e-mobility. There is also the move toward the software-defined vehicle and cloud-based functions for mobility, both of which we see kicking in pretty heavily starting by 2025. And the fourth is the arrival of autonomous functions that could change mobility overall by providing practical, comfortable, reliable solutions that go beyond cars such as our Level 4 shuttles. ZF is working in all of these areas, which will resulted in unmatched changes for our industry. When it comes to me, I don't want to look too far ahead because I am fully committed to working with my team to master all of the challenges in front of us in 2022. There will be time for reflection later.