FRANKFURT - Although tires will continue to be a cornerstone of Continental AG's corporate structure, the company clearly sees its future in electronics.
In the wake of Continental's acquisition last year of ITT Automotive's brake and chassis operation, tires now account for less than half of Continental's sales, down from two-thirds.
At the time of the acquisition, former Continental Chairman Hubertus von Gruenberg spoke glowingly of the potential synergies. But many employees in Continental's Teves electronics division were skeptical.
'The Teves people considered tire-making a `dirty hands' business, and most Conti people didn't know quite what to make of their new electronic brethren,' said company Chairman Stephan Kessel.
'It took someone with vision to see how these two seemingly disparate companies would interact,' he said during a recent interview. 'And that someone was von Gruenberg, who knew both companies intimately.'
Before joining Continental in 1991, von Gruenberg had headed the ITT business that was acquired last year. Now that executives and engineers from the two companies have had a year to interact, the number of cooperative projects is expanding exponentially.
'Our sidewall tension-sensor idea alone has sparked a number of concrete crossover projects, with hopefully many more to follow,' Kessel said.
With the car companies increasingly keen on eliminating the spare tire, the prognosis for original-equipment tire sales is not particularly rewarding. Moreover, the jury is still out on which supplier's run-flat tire the automakers will embrace.
Continental has high hopes for its ContiWheelSystem tire-and-wheel package, especially in combination with the tension sensor. However, Kessel acknowledges that Continental's run-flat tire faces strong competition from Michelin's PAX integrated tire and wheel.
'Regardless which system it is, no manufacturer will be given an exclusive,' Kessel said. 'The car industry needs multiple suppliers for tires, so licensing of the technology will be an essential component of the system.'
So while the tire side of the business comes to grips with relatively slow sales projections for original-equipment tires, Kessel sees a bright future for his company's Teves operation.
The electronic content of a car's value is expected to rise to 40 percent in three to five years, up from 30 percent currently, Kessel said.
With its product lineup of brakes and traction control, Continental Teves covers a broad range of vehicle electronics. What's lacking is expertise in steering systems, something the company most likely will gain through alliances.
'Fully electronic steering is in various stages of development at the car and supplier companies,' Kessel said. 'If we can't find the appropriate partner, we feel there's still time to do it in-house.'
Continental's belief in its sidewall tension-sensor technology is based on one fundamental principle, Kessel said: 'The vehicle industry is obsessed with noise, vibration and harshness. And who understands noise, vibration and harshness better than a tire-maker?'
Continental hopes to parlay this premise into concrete development contracts and, eventually, significant chunks of original-equipment business. Continental wants to use its tire sensors to measure speed, cornering forces, yaw, pitch, traction and braking.
The company contends this electronics package will save money and enhance safety. Continental engineers say this technology, plus additional tire-tread sensors under development, will allow antilock brakes and yaw control systems to react more quickly.
Until recently, the concept was almost purely theoretical. Only in mid-September, on the eve of the start of the biennial Frankfurt auto show, was Continental able to demonstrate a working prototype of a car using tire sensors to operate antilock brakes and traction control.
Aside from developing its tire-sensor systems, Continental is taking several steps to improve long-term prospects. The company will:
Close its unprofitable tire plant in Newbridge, Scotland.
Build a tire plant in Timisoara, Romania, and expand production at its Barum plant in the nearby Czech Republic to 1 million units a month.
Form a joint truck tire venture in Slovakia with local manufacturer Matador.
Evaluate further consolidation of its European manufacturing network.
Acquire full control of affiliates in Mexico and South Africa and negotiate control of affiliates in India, Pakistan, Tanzania and Mozambique.
Find a South American partner and build a tire plant in Brazil.
Negotiate joint ventures in emerging economies such as China, Southeast Asia or Russia, where Continental is prepared to work with Moscow Tire Co.