SCHWEINFURT, Germany - Bearings maker FAG Kugelfischer Georg Schafer AG hopes to increase profits by focusing on high-tech, specialist applications.
FAG is the fourth-largest bearings company in the world, with group sales of $2 billion last year.
But it is suffering from fierce competition and price pressure in the automotive sector, which accounts for more than 25 percent of sales.
Along with its three main rivals - Sweden's SKF and NTN Corp. and NSK Ltd. of Japan - FAG is struggling for share in a crowded market.
Sales in FAG's automotive division, FAG Automobiltechnik AG, grew almost 13 percent in the first nine months of 2000. New orders rose by 28 percent in the same period.
But bearings prices have been falling by about 1 percent a year, FAG says, and the automotive division has been struggling to make a profit. It had operating margins of just 1 percent in the first nine months of last year.
Martin Creydt, chairman of FAG's automotive division, resigned in December.
The following month, FAG announced restructuring plans that involved 290 job losses at its core automotive operations in Schweinfurt in the next 21/2 years.
The cuts represent 8 percent of the work force in the automotive division.
Uwe Loos, CEO of the FAG group, plans to reposition FAG and its automotive operations.
Loos - a former production director at Porsche - says that bearings remain important automotive components and offer opportunities for profitable growth.
Standard - or commodity - bearings account for around 70 percent of the global bearings market. The remaining 30 percent is made up of bearings for special applications.
Loos is looking to build FAG's operations in both areas, but wants bearings for special applications to be the focal point of its business. Bearings for special applications have high profit margins, Loos said, because competition is less tough than it is for standard bearings.
In particular, FAG wants to explore a niche for high-tech applications. For example, FAG supplied all 12 Formula One teams with specialty clutch bearings last year.
'The Formula One volume is not so big. Annual sales are about $917,000 at the moment,' Loos said. 'But the profits are excellent.'
Loos has also implemented a productivity program for all FAG plants, including a continuous improvement program. This has focused on bringing all units up to a standard level, and then improving all areas of operations.
Loos says small, focused business units created within FAG have made the company more flexible, competitive and able to react more quickly.
Loos believes a pretax margin of 5 percent by 2003 is possible, and he expects to see production volume rise 6 percent to 10 percent by 2002 or 2003.
Loos expects part of this increase to come from new hub designs that integrate bearings with other precision parts.
Another part of the growth will come from international expansion, which Loos says is key to FAG's future.
FAG has around 50 percent of its operations in Europe, 30 percent in the Americas and the remainder in Asia.
Asia accounts for 34 percent of the global bearings market, so Loos is making the region a major focus of FAG's expansion.
'First and foremost, we want to expand in Asia,' he says.
In October 1998, FAG formed a 70/30 joint venture with the Hanwha Group in South Korea.
'We not only bought the production facilities and capabilities, we also bought the market,' Loos said.
In addition, in April 2000 FAG entered into a cooperation agreement with Japanese bearings maker Koyo Seiko Co. Ltd. to produce digital magnetic bearings for turbo-molecular pumps.
Pooling capacities and making processes more efficient at plants around the world will benefit all bearing manufacturers, he says.
The agreements also form part of FAG's strategy of shifting production of bearings away from Germany.
Outside Germany, FAG's bearing production operations include a plant in Debrecen, Hungary, with about 400 employees.
'We can produce the parts in a cheaper, more effective way and with the same productivity and quality as in Germany,' Loos said.
Loos also has plans for FAG's aftermarket business, which accounts for annual sales of $18 million to $21 million. In particular, he wants to expand in Europe and the United States, either alone or with other competitors who have small aftermarket businesses.