Q: What opportunities do hybrids present your company? A: We are proud that we are the only non-Asian supplier that is in series production with a hybrid system.
Playing a key role in the companys overall success was Continental Automotive Systems. Factoring in exchange rate effects, the chassis and body systems division saw sales increase 8.3 percent to more than E5 billion in 2004. The division reported a 31.9 percent increase in earnings before interest and taxation to E487.5 million.
Karl-Thomas Neumann, the Continental executive board member responsible for the division, sees substantial growth prospects for the unit in 2005. He talked about the companys outlook with Automotive News Europes Edmund Chew.
What areas are growing fastest in the comfort and convenience business?
We do ECUs [electronic control units] for body electronics; we do window lift electronics; we do central body computers.
In the past you had one ECU for one function, which was very expensive. Now OEMs are taking a systems approach. They ask if we can combine functionality in fewer ECUs. We supply those ECUs. We also supply smart motors and gateways – which are the hearts where all the CAN (controller area network) buses come together and exchange information.
We are working with some of the leading OEMs on the next-generation body electronics architecture. I think were well positioned. I see a good business for us there.
But arent some carmakers trying to reduce the number of ECUs in a car?
That threatens some of [the potential business], but as we are not that big a player yet here, we are growing at just the right time. If we position ourselves as being a good partner for the next generation, I hope we will win business from other people currently there.
Are you looking to move r&d to low-cost countries?
The majority of our r&d is very close to the customers in our big r&d hubs. But, as an example [of what we are doing in low-cost countries], we have a new electronics factory in Romania where we have put software engineering and testing. We have 120 engineers there and we are going to grow this further, but dont expect to see a thousand engineers there next year. We need to educate people; we need to work with universities; it needs to grow. It is a trend.
What opportunities do hybrids present your company?
We are proud that we are the only non-Asian supplier that is in series production with a hybrid system. We are in two GM trucks, the Silverado and Sierra. That is a mild hybrid, a 15-kilowatt type. We really see future business potential there – full hybrids in North America, mild hybrids for Europe.
We think that with our electric motors, power electronics, and control electronics we are well positioned. We have done a number of prototypes for some of the most important OEMs in Europe, and we really think there is a business opportunity for us.
How will hybrid technology develop in Europe?
Europe is not clear. I think we will see both [full and mild hybrids]. From a strict engineering perspective, if you set down the costs against the benefits you will find the mild hybrid offers the biggest payoff. That is why we went for the mild hybrid in the past.
I still think the mild hybrid is a very good solution, and we will see some of them. But the mild hybrids are getting very powerful, up to 25 kilowatts, very close to what you normally define as a full hybrid.
We have also been doing prototypes of components for a full hybrid car. Full hybrids cost the customer more, but also offer more benefits than simply just the economics. They give you even more of a green image. They give you the experience of electric driving – being able to drive quietly into your garage or your yard, which is great. And they are able to add a lot of torque. If you look at the Lexus RX 400h, it can produce 750nM of torque.
I think they could become mainstream in North America so that is where the majority of the volume will be in the next few years.
The r&d share of sales is high for suppliers with a high electronic content. Is there any way you can reorganize to get better synergies across vehicle makers or across products?
Just as the carmakers talk about platform or module strategies, we have that too. We re-use our software/hardware platforms. For example, if you look at our EBS [electronic brake system], there are basically only three or four platforms.
We have the software catalog, and then we have the application, which is customer specific. By working with our customers, I think further progress can be made so that the application part gets even smaller, and we can re-use more.
What are you doing with software?
We have a catalog of software functions that we offer our customers. Some of our customers think that software is of value and has a growing worth, and that you need to pay for it. We even have been able to sell our software into some competitors systems. So we think software as a product has a future.
On the other hand, it is really difficult to see that its going to be a billion-euro market. Compared with some businesses we are in, it is very small. It is in the two-digit million area.
Does electronic stability control add a lot of content compared with ordinary ABS?
Yes, it adds a lot of content. First, the system itself is more complex. You have the sensor for the gyro-function. Then there is the next-generation EBS [electronic brake system], like our MK60E5, which is on the BMW 3 series.
[EBS gives] a lot of additional software functionalities, such as rain brake support with connections to the rain sensor, and driver disk, which detects when you take your foot off the gas pedal to go to the brake and [sends brake fluid to the brakes] in preparation for use.
A few years ago there was talk about co-developing tires and brake systems. Is this still likely?
It might not be something very big, but there is a benefit.
One example is the tire monitoring software that runs in the EBS. Based on wheel speeds, it determines the state of the tire.
We are at a stage where we can detect a rapid drop in pressure. That would meet the pending legislation for the North American market.
I think only a tire maker and an electronics company working very closely together can get there, because you need to understand the tire and you need to understand the electronics and software. In cooperation with our tire friends, we also have other tire pressure monitoring systems and we have started to put our sensors into the tires. So there is cooperation, but its not the next new big business.
Whats the outlook on steel, and what are you doing about it?
Steel is a big issue. We are hopeful, but we cant expect 2005 to be a year of change. We are talking to our suppliers and our customers, and there are signs that we are getting agreements.
What are the other challenges you will face this year?
You have to move really fast to make the necessary changes in the organization and your technology to make sure that you can withstand the price pressure in this market.
I think we have the right measures in place to stay successful, but its not easy. Another challenge is quality. We are working extremely hard, not only in our own organization but also with our suppliers, to make sure we get the quality that we need in place.