TALK FROM THE TOP: EUGENIO RAZELLI

Marelli CEO Razelli predicts huge growth for stop-start and hybrids

Luca Ciferri
Automotive News
April 29, 2008 - 12:01 am ET

Magneti Marelli CEO Eugenio Razelli says that pending EU legislation on CO2 emissions will reshape the auto industry by giving a huge boost to fuel-saving systems such as stop-start and hybrids.

Such a scenario would be good news for the Fiat group-owned partsmaker, which already supplies stop-start and is working on a hybrid system for Formula One racing.

Razelli, 57, has been Marelli's boss since April 2005. Last year the supplier increased revenues by 12.2 percent to 5 billion euros and this year expects to grow another 6 percent to 5.3 billion euros.

Marelli's midterm goal is to boost sales to 6 billion euros by the end of the decade. Razelli was interviewed by Automotive News Europe Chief Correspondent Luca Ciferri this month at Marelli's headquarters in Corbetta, Italy.

What effect will pending EU legislation on CO2 emissions have on the auto industry?

CO2 legislation will reshape the automotive industry to an extent that today is hard to predict.

In the midterm to long term, fuel-saving devices such as stop-start could be on 50 percent to 70 percent of all vehicles sold in Europe.

A year ago hybrid powertrains were seen as a niche solution. Now some predict that they will grab 10 percent to 20 percent of the market. In a year's time, such a prediction could change completely.

How is Marelli trying to cope with these challenges?

We have two contracts for stop-start. Fiat already announced it will begin selling the 500 minicar with the system this autumn. The second carmaker has not announced anything yet so I cannot elaborate further.

Marelli couples stop-start with its automated manual transmission. What are the benefits of combining the two systems?

In EU test cycle, the AMT in automatic mode cuts fuel consumption by 5 percent compared with a manual transmission. By adding stop-start, the combined saving increases to about 10 percent. Nevertheless, in real-life urban driving, we expect a fuel-consumption reduction of about 15 percent to 20 percent.

Why are you so bullish on stop-start when sales of the system have been poor so far?

I think the drivability of existing systems probably is not yet totally satisfying to the customer. Secondly, customers do not seem to recognize the value of fuel-saving devices. I think rising fuel costs will increase customer awareness of the true benefits of stop-start systems.

How is the market for your automated manual transmission evolving?

Last year we doubled production to 230,000 AMT systems. Our three biggest clients are PSA/Peugeot-Citroen, Fiat Group Automobiles and Renault.

This year we predict a further 40 percent growth and also a wider geographical spread.

So far AMTs like the ours have been mainly used in Europe, but now they are beginning gain in popularity in South America and China.

What about hybrids?

We have a working group on hybrid technology. The first application will come next year in Formula One racing. Starting in 2009, Formula One will require the use of kinetic energy recovery systems (KERS). These systems recuperate braking energy, which is later used to increase acceleration -- or top speed -- with help from an electric motor. We hope to win contracts to supply four to five F1 teams next year.

How will Marelli benefit from those F1 contracts?

We hope to be able to derive some components from the F1 KERS system that could soon reach the market. In my view, there will not be many suppliers of complete hybrid systems. Carmakers seem interested in buying different parts from different suppliers.

The new Lancia Delta will debut Marelli's first electronic damping control system. Which other cars will get your Synaptic Damping Control?

The Alfa Romeo Mi.To will be the second. We hope to attract other clients soon.

Are raw material prices still a problem?

Unfortunately they are. In lighting, the price of plastic and polymers is connected to the crude oil price, which is rising. Cast iron for suspensions remains high; steel for exhaust systems continues to grow.

We are seeing some relief in electronic components, but it is mainly a currency effect. Electronics are traded globally in US dollars, thus a strong euro makes these parts cheaper.

Can you get a discount because of Fiat group's centralized purchasing organization?

We try to combine our purchasing volume as much as possible, but you seldom buy the same exact raw material.

Does Marelli help its subsuppliers on the purchasing side?

It happens mainly in plastic resins, particularly in leveraging their smaller purchasing volumes into our bigger ones.

Would you be interested in guidelines for fair terms and conditions in automaker-supplier contracts?

I think this could be a good starting point because, so far, there are no standard contracts. Contracts always get more complicated when you factor in raw material prices, currency fluctuations and warranty obligations.

A supplier could take on all risks because this becomes gambling, not business. In general, we prefer to lose some business rather than signing an unfair contract. And, we would like our clients to remember that our plants are not on wheels. We cannot adjust our manufacturing footprint from one day to the next.

How much of your sourcing is done in low-cost countries?

The share of our purchasing bill from best-cost countries was 32 percent in 2007. We plan to increase that to 37 percent this year. By 2010, we want to buy 40 percent of our parts from best-cost countries.

How is Marelli's manufacturing footprint evolving?

Late this year we will open an electronic component plant and a powertrain plant in Slovakia. We are doubling our lighting capacity in Poland and Turkey and opening a second plant in Russia. In addition, we are starting an instrument panel joint venture in Russia and five JVs in India, ranging from engine management systems to lighting, intake manifolds and exhaust.

What about South America?

Within two to three years our sales in the Mercosur area [includes Argentina, Brazil, Paraguay and Uruguay] will reach 1 billion euros a year from 700 million euros in 2007. We have to expand our manufacturing footprint in all our business sectors to cope with the growth.

And Morocco?

Renault is a very important client to Marelli and we are thus investigating how to follow them to Morocco.

North Africa is a very promising area because of its proximity to western Europe and because costs there probably will not grow as fast as it is currently happening in central and eastern Europe.

What sector or technology from Marelli has the most promising future?

It is telematics by far. In a few years telematics boxes will become compulsory in many areas of the world. In Europe, e-call [emergency call] will probably be standard by 2010 or 2011 and satellite-based antitheft systems most likely will become compulsory in Brazil much sooner than that.

The potential is really enormous in term of applications, e-pay of tolls, insurance pay-per-use, integration of the vehicle in the infrastructure, traffic management related to dynamic and so-called "green" navigation, fleet management, remote vehicle diagnosis, communication and entertainment. In addition, many applications of telematics boxes will be available also for existing vehicles, thus the market potential is much more than just original equipment into new vehicles.

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