Q&A: Continental boss Manfred Wennemer talks about repositioning within the tire and systems markets

Hanover. In the two years since he assumed his post, Continental AG Chairman Manfred Wennemer has made a name for himself as a boss who gets results while cutting costs. He spoke to Bettina Mayer, from Automobilwoche, about profitability within the tire business, sales structures and the competition.

What are the biggest challenges for tire manufacturers?

Worldwide it is the cost for raw materials, which has risen by approximately 30 percent during the past 18 months. Unfortunately, we have to pass those additional costs on to the automobile manufacturers, dealers and finally the buyers. On top of that, due to the strong euro we have a lot of competition from China, Japan and South America. That increases the pressure on us to continue raising our productivity.

Will Continental continue to move its production locations from Germany to low-wage countries such as Romania?

So far we have moved 50 to 60 percent of our European tire production to low-wage countries. We will continue to do so as we certainly have not reached the limit. However, first we have to focus on our new factory in North America.

With which products do you achieve most added value?

The sales within the tire business have meanwhile become quite reasonable again. The margin with our automobile tires in 2003 was 8 percent after nine months. The revenue for commercial vehicle tires is still slightly below that.

How much higher is the margin for vehicle components?

The margin for electronic components is generally not higher. It lies within the CAS (Continental Automotive Systems) region at 7.9 percent. There are also differences due to the distribution channels: 70 percent of tires are for the spare parts business, and only 30 percent go straight to the automobile industry. It is very difficult to achieve good margins when making business with original equipment manufacturers.

Where do you still see cost saving potential within sales?

There are still a few. We already do our dealings with the OEMs without the use of paper, and this should also soon be the case with other partners. Logistics can probably also still be improved. In the future we will concentrate our logistics to just a few warehouses in Europe and will expand our electronic order system on the Internet. However, the principle is that when production costs are too high, cost saving measures within sales will not help us either. .

Continental is the world's No. 4 tire maker, behind Bridgestone, Michelin and Goodyear. Is it still your aim to get to the top?

No, definitely not, as it is also a matter of accounting and of point of view: You cannot just lump all companies that manufacture tires for automobiles, commercial vehicles and planes together. You have to differentiate between them. For example, within the original equipment sector we were the European market leader for the first time in 2003, and therefore, we were in the lead where it counts. In Germany we are already No. 1.

Tires become increasingly intelligent due to the interlinking of ABS, ESP and vehicle sensor technology. What does that mean for tire manufacturers?

Due to the new emergency-operation tires and tire pressure control systems, electronics and tires are definitely growing closer. Our competition also sees it that way and cooperates with engineering partners who support them on the electronics sector. We have now reached the stage where we can handle such developments on our own.

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