Pierre Vareille has been CEO of UK-based engineering group Wagon since May 2004. The former head of Faurecias exhausts systems business says that being a mid-sized company – it had sales of £486.9 million (E708.6 million) last year – is an advantage because Wagon can be more selective when it seeks business. He says this increases its chances of picking projects that will be successful such as its contracts to supply doors for the Audi A6 and provide niche assembly of vehicles like as the Peugeot 307 CC. Vareille said Wagon will expand into eastern Europe, Turkey and China to take advantage of more than just lower labor costs. He told Automotive News Europes Edmund Chew that he thinks the workers in those markets are more motivated and better educated than their counterparts in western Europe.
How does Wagon differentiate itself?
I think that you have to be proactive and you have to propose something to the customers. Because we are a mid-sized company, we are able to be closer to the customer and more responsive to what the customer demands. We dont go to the customer with a huge organization and think that the customer has to accept the organization. We are flexible. Also we have been trying to have an organization where, if you are a customer, you know exactly who is in charge of what. There is accountability, there is responsibility, which helps us to have a very strong relationship with the customer.
How do you deal with your relatively small size?
Our size forces us to focus. You dont have to go after all the business, you choose what you want to do, and then you can spend the time with the customer. The fact that we are not a large company puts us in a position where its better for us to look for niche cars than to look for high-volume cars. If you look at our top three models, they are the
307 CC at 200 a day, the Renault Espace, which is maybe 400 a day, and the Audi A6. When we target a program, we are able to devote a large amount of resources to it.
Doesnt that leave you too dependent on the success of a handful of models?
We have to assess whether the model will be successful or not. You hope youre right and if youre wrong, then you have a problem. But when you are at the very early stage of development of a product, its very difficult to know. You always have some positive surprises with some of the models, negative surprises with others, and you just try to be cautious and not to put all your money in one bag. The turning point for us is when we have to invest in a model.
Could you elaborate?
We are creating two new plants, one in Spain, one in Italy. The investments are less than E10 million, but for us they are significant. These [plants] are for models that were pretty confident will sell. For instance there is the [Fiat] Ducato project, which is a van/truck built in the south of Italy. They have introduced a new concept, quite an innovative process. The new Ducato is likely to be in production for
15 years and provide very stable sales. Im not sure, but there is a fair chance that it will sell very well, so we decided to go for that. The same is true of the replacement of the Citroen Picasso, which will be manufactured in Spain and for which we have decided to build a plant near PSAs facility. But we cannot be sure that it will work. Its a question of flair, of luck.
Will you expand in countries that offer lower labor costs?
We have one plant we are expanding very rapidly in the Czech Republic and a very progressive agenda. In 10 years, a significant portion of our production will be in eastern Europe or even further east in China or Turkey. Cost is one reason to go east but the most important one is that the work force there is often more motivated and more educated than the work force in western Europe. In western Europe, and its particularly true in the UK, if you are educated, you prefer to go into a service industry not into a plant. But if you go to the Czech Republic or Romania, the most qualified people go to the plants. You also find very good engineers, so not only do you have the advantage of costs, but you have the advantage of getting people who want to succeed, which makes a huge difference. The third reason to go east is our customer base. If PSA or any other OEM builds a plant in Slovakia, you have to go there to be close to your customers.
How have you addressed the steel price increase?
The steel issue was difficult and worrying, but we went through it pretty well. The increase was such that a company like ours, which is a listed company, could not swallow it – it was impossible. So we went to the customers. I was very candid; I told them, Either you want us around in 10 years from now or you dont. We said, We will not cave in, not because we dont want to, but because we cant. For most of our products there has been a very long relationship with the customer and they need us. We need them, of course, but to some extent they need us, and we were able to pass on the vast majority of the increases to our customers. The increase was so large that our customers could very easily understand the situation. If the increase had been only 5 percent or 10 percent, that would have been different.
What have you been focusing on since you took over in May 2004?
The first thing that we did when I arrived was focus the plants on performance [that included] streamlining our processes, decreasing our costs and establishing a strategy based on technology and innovation. We have focused on good service and quality for our customers. I think that quality is the key for the future for any company in this industry. The focus on quality was very strong in the automotive industry 10 years ago, but had been more or less lost, and now there is a big push back to quality.
The second thing has been to get a more international team with a background across more than one country. In this industry its very important to speak French, German and English. That is starting to give this company a different strategic aspect. We also have put in place processes and added procedures to make sure there is more discipline and control. Wagon was, until quite recently, a combination of several companies, but Wagon has 5,000 employees now.
What were the structural changes?
We have reorganized the company and split our sales in three different business groups. The first business group is engineering structures, the second is metal components, and the third is innovative solutions. The agendas of the three business groups are very different because the people you have to deal with at the customers are different. Plus, the timeframe is different, and the drivers for success are different.
What factors are driving your business?
First, I think that car manufacturers dont want to have basic stampings in-house any more – and I know that we can do them cheaper. If you are a car manufacturer, you want to have some flexibility and pass on the simple jobs to the component supplier. This is a key trend, but it doesnt demand a lot of ideas from the supplier. The second key trend is that there are more and more niche cars and the car manufacturers want to differentiate with things such as glass roofs. The carmakers need to find suppliers that are able to propose new systems and who can bring new things to market.
What are the keys to your engineering structures division?
In engineering structures, the keys for success are to be [located] very close to the customer and to know what he wants to do. Typically, we will work on a project in advance and get sales two or three years from now. You are in the program for a very long time and the customer wants to have confidence that you will not only be able to produce the parts, but also to help engineer them.
What about your metal components unit?
Our metal components unit is a supplier to the engineering structures business, but it also supplies other Tier 1s and OEMs. For this business group, the emphasis is very clear – its cost, cost, cost. You have to have the lowest price or very close to the lowest price and you can produce wherever you want because you can transport the parts quite easily.
What role does the third division have?
The third business group is what we call innovative solutions. What we are doing here is products that you dont really need in a car – roof racks, roller blinds or a fixed-glass roof. This business group, which is quite small at this stage, suggests ideas for future products to customers, then the group engineers and patents the ideas and brings them into production a few years later.