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Mahle Chairman Heinz Junker says 12L 3cyl engine in VW Passat for demonstration only
<p> <strong>Mahle Chairman Heinz Junker says 1.2L 3-cyl. engine in VW Passat for demonstration only.</strong></p>

Mahle to Build Engines in U.K.

The supplier, which is expanding in the U.S., has a contract with an auto maker to redesign an existing engine and integrate turbocharging and eventually manufacture the powerplant.

FARMINGTON HILLS, MI – German powertrain component specialist Mahle is growing its presence in the turbocharger market, expanding in North America, extending into thermal management with its 51% stake in Behr and now sees an opportunity in delivering fully assembled engines.

The supplier has a contract with an auto maker to redesign an existing engine and integrate turbocharging and eventually manufacture the powerplant, Mahle Chairman Heinz Junker tells WardsAuto at the dedication of the supplier’s expanded North American technical center here.

“It will be the engine for a specific model of one of our customers,” Junker says, adding that the work will be done at a Mahle plant in the U.K.

Assembling high-volume engines requires significant investment in equipment and automation. But Junker says Mahle needs fewer machines because it can build up to 15,000 engines annually mostly by hand.

“It’s pretty much like assembling the (Chevrolet) Corvette engine or a similar process,” he says, referring to General Motors’s Performance Build Center in Wixom, MI.

Mahle already makes about 15,000 previous-generation Volkswagen 2.0L TSI gasoline direct-injection engines used in certain SEAT and Skoda models, Junker says.

Mahle ranks among the world’s top suppliers for pistons, assembled camshafts and cylinder and valvetrain components such as bearings and valves. For all the other necessary parts, Mahle relies on the same suppliers as specified by the auto maker customer.

“We do basically some of the machining operations and the final assembly,” Junker says.

Despite the cache that goes along with building complete engines, the executive says the company’s future does not depend on it.

“I would say this is one business opportunity which is somewhat unique for Mahle because we can do the design, the manufacturing, the assembly. But I think it will stay for the foreseeable future a core business of our customers,” he says. “And we do not want to compete with our customers.”

For instance, Mahle displays here a European VW Passat wagon billed as the Downsizing Demonstrator Vehicle, equipped with the supplier’s 161-hp 1.2L direct-injection gasoline 3-cyl. engine that is some 25% more fuel-efficient than the factory-installed 1.8L 4-cyl. unit.

“We have been asked, ‘When will you go into production with this engine?’ and we say, ‘No, this is a demonstrator engine.’ It is not our intention that this is a production engine,” Junker says.

Mahle also assembles about 80,000 complete cylinder heads a year. In 2005, when the supplier last expanded the tech center here, Junker told WardsAuto there was significant demand from auto makers for supplier-built cylinder-head modules.

Today, he says that market barely materialized.

“It did not work out the way we expected, because at that time everybody was talking about modules and systems supply,” Junker says.

But then the vehicle market tanked in 2008 and 2009, and auto makers began pulling work in-house to keep plant workers on the job.

He sees this trend potentially turning yet again. “There are some parts where it doesn’t make sense to do them in-house,” Junker says. “So many of our customers would like to outsource, but they cannot outsource because they need to keep the jobs.”

At the tech center here, Mahle invests $20 million to consolidate four operations previously located nearby in Novi and Ann Arbor. The campus now employs 400 people, up from 160 previously.

Still to be decided is whether Mahle’s newly acquired majority stake in Behr will result in staff transfers here. Behr has a world-class technical center in Troy, MI, that is reasonably new.

The acquisition is awaiting the last antitrust approval in China, which Junker hopes will come in September.

With 38 production locations worldwide, Behr adds 17,300 employees to Mahle’s current headcount of 48,000. Mahle’s global sales in 2012 were E6.2 billion ($7.9 billion).

Mahle opened its first U.S. plant in Morristown, TN, in 1978 and now operates 22 production sites in North America, plus the five Behr plants joining the organization.

Mahle will expand the Morristown facility next year to add production of assembled camshafts for two passenger-car customers in the U.S., Junker says.

The supplier entered the booming market for turbochargers by way of a 50-50 joint venture with Bosch that started in 2008. The JV supplies VW with turbochargers for 1.2L and 2.0L engines. Late next year, GM will source turbochargers from the JV, followed by BMW for various engine types.

Finished turbochargers come from a Mahle plant in St. Michael, Austria, but Junker says the JV is building a new assembly plant in China.

The automotive components business was severely challenged five years ago in North America, but Junker is convinced Mahle made the right decision to weather the storm.

“We believe in this region and stayed here through hell and high water to continue serving our customers,” he says. “We did not fire our employees. It is our plan to stay here for many years to come.”

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