Special Coverage

Frankfurt Auto Show

FRANKFURT – The struggles of established U.S. auto suppliers in their home market have been well documented.

But a number of European suppliers that have established North American operations in the recent past now are suffering the same ill effects of a domestic auto industry that cannot maintain consistent profitability in the face of declining market share.

One executive with a prominent European supplier confides to Ward’s he is aware of several major European suppliers that are losing money in North America, even though those parts makers face fewer legacy costs and tend to be leaner than many of their overseas counterparts.

During a press conference here at the Frankfurt auto show, ZF Friedrichshafen AG President and CEO Hans-Georg Harter says his company is doing well in its home market of Europe and in Asia/Pacific.

But in North America, Harter discloses ZF has been losing money for three years, although he says there is a good possibility those operations will break even in 2007.

The North American market dynamics are exceedingly frustrating for one of the world’s largest manufacturers of axle, transmission and suspension systems.

Harter presents a slide that shows light-vehicle production growing by 3.4% in Europe, 9.1% in South America and 7.3% in Asia/Pacific, but dropping 6.0% in North America, from 2006 to 2007.

“Especially last year, we had an unsatisfying situation in this (North American) market,” Harter tells Ward’s. “This is not what we expect from this market. It’s my personal task to turn it around.”

ZF has three plants in Mexico, one in Canada and 15 in the U.S. In 2006, some 14% of ZF’s E11.6 billion ($16.2 billion) in global sales came from North America.

And although Harter says ZF remains committed to North America, he admits the company has stumbled in the region.

ZF withdrew from a joint venture with Ford Motor Co. in 2003 to produce continuously variable transmissions at a Ford plant in Batavia, OH, and also ended a partnership with ArvinMeritor Inc. to produce truck transmissions.

An all-new plant established in Chicago to supply axle systems for the Ford Five Hundred and Freestyle (now known as the Taurus and Taurus X) has fallen short of volume expectations.

And in South Carolina, ZF lost the axle contract for the all-new BMW X5.

Meanwhile, ZF’s North American headquarters and technical center in Northville, MI, sits with “hundreds of meters” of empty space, Harter estimates, in part because the two JVs that were supposed to be housed there no longer exist. The building opened in 2001.

As Detroit’s Big Three auto makers suffer production cuts and volumes losses, so too has ZF.

“The market position is really hard and challenging because the Big Three are going to lose market share, and this market share is picked up especially by Japanese and Korean players,” Harter says. “So we are on the losing side, and it’s hard to balance these market-share changes.”

ZF has been attempting – with little success – to win new business with Japanese and Korean auto makers.

In the meantime, the supplier is intently focused on cutting costs in North America and winning profitable new business in the region.

ZF’s Saltillo, Mexico, plant is planning to produce some 1 million torque converters annually for General Motors Corp.’s new 6-speed automatic transmissions.

And ZF will continue to use Mexico as a low-cost alternative, when feasible, for North American production programs, Harter says.

“We are going to extend our position in Mexico,” he says. “We have two plants in the ZF Sachs division, on the shock absorber side and clutch and torque converter side. We are going to invest in Mexico to serve the North American market with our componentry. We have on the chassis side a very successful plant in Mexico.”

Looking forward, Harter says the U.S. market will remain vital to the success of ZF.

“With all the problems we have to face in the U.S. in truck business, in passenger-car business, in the construction business, in the long-term perspective, (the) U.S.A. and North America is a huge market,” he says.

“(The) U.S.A. doesn’t lose importance for ZF. We have to face our problems and overcome our problems, and that is what we are doing currently,” Harter says, adding he looks forward to the time when ZF will find success again in the U.S.

“There is no alternative,” he says.

tmurphy@wardsauto.com