LIPPSTADT, Germany – German supplier Hella is a market leader in European automotive lighting. The privately owned company, which also specializes in automotive electronics, increased sales 1.9 percent to E3.1 billion in its financial year ended May 31, 2004, thanks to gains outside its home market. Hella CEO Rolf Breidenbach says the company is committed to Germany, but that wont stop it from expanding outside Europes largest market. He talked about the steps Hella is taking to increase its global competitiveness when he met with Automotive News Europes Edmund Chew.
How are you changing the companys manufacturing footprint?
Hella has a clear commitment to Germany. The heart of Hella beats in Germany. That means that we control our worldwide production and r&d activities from our competence centers here. But to be competitive its very clear that you must find a mix, in Europe for example, between your eastern European locations and your German locations. And that doesnt only apply to eastern Europe, but also to China, NAFTA (the US, Canada and Mexico) and all the other important regions.
What measures are you taking to counteract the rising cost of raw materials and the pressures from automakers to reduce your prices?
With most of our customers it is possible to find fair solutions. Its clear that our customers cannot compensate for the entire material price increase; every partner has to take a fair share. The only way to realize an acceptable margin is to increase our cost-reduction efforts. In Europe especially we must become more and more efficient every year, not only in terms of staff productivity, but also capital productivity. Its an ongoing improvement process, and there is no end in sight to this cycle.
Could you specify what youre doing to reduce costs in Europe?
We have to revise our overhead structures again and again – in the administration area, our production activities – and we have to increase our r&d efficiency every year. We have to streamline our r&d processes, and see how, with the same input, we can develop more projects through standardization and other factors. So we are not concentrating on one specific part of the value chain, but rather we are trying to find improvement potential over the entire value chain we control every year.
What initiatives have you undertaken in the last six months or do you expect to undertake in the next six months to accelerate cost reductions?
The cost reduction process is not a 100-meter dash, but more like a marathon. That means that we are not relying on short-term measures to quickly bring us a lump sum, but on our continuous improvement process. We proactively reorganized our big lighting plant here in Lippstadt, last year. We always try to be ahead of these cost-reduction rounds; to realize our potential before we have to give the savings to our customers. Therefore there will be no spectacular one-off activity.
What do you feel are the fastest growth areas?
Electronics is one highlight, especially the body electronics and driver assistance systems. Our front-end activities also will have a very attractive growth rate.
Have the key success factors for a large supplier changed?
Quality aspects are becoming more and more important, particularly in electronics. I think this will be the big factor in success of an electronics supplier in the future.
How are you addressing this?
We are addressing this on all levels of our value added chain, which means we need a benchmark supplier management system. In other words, the quality our customer expects from us, we in turn expect from our suppliers. Different approaches such as supplier support systems, training of the suppliers and good supplier competition are all important. Of course, we have to continually develop and revise our electronic processes; and test procedures will become more and more important in this area. We have to test the whole system, not only our components. Building up a very close relationship and a seamless interface with the OEM also will be more and more important in the future.
Where do you see growth opportunities?
We are very successful in Europe, and step by step we are building up a footprint in NAFTA and Asia-Pacific. We also see very attractive new fields of business such as electronic remanufacturing. The whole field will become more and more important, and we see a lot of interest on the OEM side too.
Is there anything systematic in the way that you approach the market that enables you to capture growth markets?
I think that the core element is our network strategy. When we think that we could be stronger and deliver much better services with partners, we build these alliances. I think this is a core element of our success all over the world. Not only do we build up these alliances on a product base, but also on a regional base. We are very satisfied with our global alliance partners, in Japan, with Stanley [Electric Co.], in Korea, with SL [formerly Samlip Industrial Co.], and with our joint-venture partners Behr, Plastic Omnium and Leoni.
Does having a partnership slow the decision-making process?
No, because we try to build alliances with companies like Behr that not only fit a global product pattern but also a cultural pattern, which is also very important. After a short period of building up relationships with the partners, the decision-making process is very fast and is very straightforward.
The lighting business is a very competitive and you recently indicated that you do not expect it to grow. How do you successfully compete in that area?
There are two key factors for success: cost competitiveness, which is clear, and technology leadership. When you consider the next set of innovations, such as the LED headlamp, we are absolutely convinced that we are among the technological leaders in this area. We are very satisfied with the feedback from our customers for our innovation.
Have you changed the way your business is financed?
No. I think to be successful in a family-owned company a clear prerequisite is a very sound financial constitution. We have a very conservative financial position. Our first priority is to keep this sound financial constitution with a high equity ratio, and we will continue with this strategy. We will not use too many additional financial tools. Of course, we have to invest heavily in innovation and technology, but we can afford that with our cashflow. We try to finance our internal growth by using our own resources. Sometimes have to say "No" to an acquisition or to an additional growth step when we see that our financial constitution could be jeopardized.
Intellectual property is particularly important to suppliers such as Hella that have a large aftermarket operation. Have you faced additional challenges in intellectual property from vehicle manufacturers?
It is a challenge, and it is a question we have to answer together with our partners, but in our experience it is possible to find win-win solutions.
What is the outlook for the rest of 2005?
I think 2005 will be a difficult year for automotive suppliers - the number of units at the OEMs is a little weak compared with 2004. The increase in materials prices also makes life a bit difficult for us, especially the increase in the price of plastic.
Which regions are particularly difficult?
Overall we see the European market as weak. We do not expect an increase compared with 2004. NAFTA also will be weak. China will see growth, but not as great as expected.
Where are the strong and weak regions for Hella's businesses?
I think our Asia business is running very well. We are also growing in the NAFTA region. But there is fierce competition in Europe, especially in lighting in the passenger-car sector. The electronics business is growing, but there is a significant price reduction in the electronic area.