Quiet Wedding

Corporate mergers are often described as marriages, but if you want to use the metaphor for the union of Siemens Automotive and Atecs Mannesmann VDO AG, think of it this way: A middle-aged couple who have been dating since college deciding to fly to Las Vegas one weekend and elope. No big wedding, no limos, no extravagant honeymoon.

So far, the fanfare surrounding the new venture, which was expected to have $8 billion in sales in the 2001 fiscal year ending Sept. 30, has been very low-key compared with the lavish coming-out parties that have heralded the debuts of some other major new suppliers entering the marketplace during more optimistic times.

Running counter to recent trends, the new company doesn't even have a flashy new-age name and logo, even though the merger creates one of the top 10 Tier 1 suppliers in the world, and the third largest supplier of automotive electrical and electronics systems.

Instead, the new company's name is refreshingly simple: Siemens VDO Automotive, perhaps reflecting the no-frills nature of today's increasingly difficult economy, where even senior executives at automakers and suppliers now have to fly coach.

Despite what looks like a growing global economic slump, Franz Wressnigg, chairman and chief executive officer of the new venture, predicts a combination of new high-tech products and improvements in productivity should allow the company to do well in the coming fiscal year.

Among the key new products:

“We will grow in particular with innovative products,” Mr. Wressnigg says, adding: “The successful start of series production of our new diesel injection system with piezo technology will be reflected by a significant increase in sales next year.”

Most of Siemens VDO's key new products are related to the fastest-growing sectors in automotive, electronics and sophisticated diesel powertrain applications, points out Chief Financial Officer Johan Lottner.

Critics point out, however, that all automotive electronic products are not automatic successes.

For instance, one of the highest profile pieces of technology at the Frankfurt Motor Show was the new Siemens' “iDrive” driver information system on the new BMW 7-series. The system features a large knob mounted on the center console where the gear shift lever normally would be (the gear shift lever now is mounted on the steering column) and offers more than 700 different functions, from being able to access the Internet and check the weather at the driver's destination to controlling the heater and stereo.

BMW is heavily promoting the concept and had a dozen stand-alone systems mounted on kiosks in its hall at the show for the general public to play with. But privately many BMW officials and dealers are concerned the system is overly complex and will confuse even the most technically astute drivers — perhaps setting back some of the ambitious plans automakers have for future electronics and telematics systems.

But even if iDrive flops, it seems that Siemens VDO has plenty of other products in its portfolio to make up the difference.

Nevertheless, Mr. Wressnigg doesn't seem to have any illusions as to how hard it will be to succeed in an automotive market that he says is “stagnating.”

He says the company will show a loss for the fiscal year just ended, which he blames mostly on slumping business in the U.S. and the higher cost of buying some electronic components, as well as investments related to bringing its diesel injection technology to market.

But he promises a turnaround in the coming year and says he is committed to achieving earnings before interest and taxes of 5% to 6% in the '02-'03 fiscal year.

Numerous other cost-cutting and productivity-enhancing measures also are being put into place, as well as several U.S. plant closings that were announced earlier this year.

Mr. Lottner and Mr. Wressnigg both dispute the idea that the former Siemens Automotive and Atecs Mannesmann VDO merged mainly because neither had enough “critical mass” to compete in the future (each company had about $4 billion in annual sales prior to the merger).

While being an $8 billion company rather than a $4 billion one does enable it to compete more effectively in a market populated by giants such as Delphi Automotive Systems Corp. with $29 billion in annual sales, Mr. Lottner says there was a lot more to the decision to merge than just getting bigger.

Instead, he says the companies were an almost ideal match: highly technology-driven, involved in similar marketplaces, yet hardly any overlap in products.

Furthermore, the two companies' different customer bases should also help each get their foot in the door at new companies and in new geographic regions, he says.

The former Siemens Automotive and Atecs Mannesmann VDO have been working closely together for many months now, even though they only recently officially tied the knot. The union was preceded “by a very long courtship period.” Mr. Wressnigg explains, adding that the two companies “had been flirting with the idea of getting together for the past 10 years or so, because each saw such a good fit together.”

Siemens VDO officials had planned a press conference to formally introduce the new company to the global automotive industry at the Frankfurt Motor Show on Sept. 12, but like most other exhibitors at the show, it cancelled the event following terrorist attacks in the U.S. on Sept. 11.

A spokesman says there are no plans to reschedule the press conference. Officials have been informally introducing the new company to customers since last April, he says. “I think those people who matter most already know who we are,” he says.

Siemens VDO Automotive at a glance

Siemens VDO Automotive was officially formed when Siemens acquired the former VDO from Atecs Mannesman AG Oct. 1, 2001. The two companies had combined worldwide sales totaling $7.2 billion in fiscal year 2000. Sales were expected to hit $8 billion in fiscal 2001 ending Sept. 30. North America represents about 22% of total sales.

Since its formation, the new company has been formed into five main business divisions:

Powertrain Div.

32% of overall sales. Powertrain is subdivided into two major technical areas, Air Fuel Modules and Diesel Systems.

Siemens VDO says its Air Fuel Modules unit is the largest producer in the world of components such as plastic intake manifolds, air delivery products and electronic throttle controls, and the world's second largest supplier of integrated air fuel modules.

Diesel Systems is a major producer of high-tech diesel components such as Piezo-actuated injectors. It is manufacturing 100,000 piezo common rail systems annually and is scheduled to ramp up to 2.5 million by the end of the '02 model year.

Information and Cockpit

20% of overall sales. The largest supplier of instrument clusters in the world, and Europe's leading supplier of built-up instrument panels. It is the second largest supplier of OEM driver information and navigation systems.

Car Body

17% of overall sales.

Was the first to bring passive entry and ignition to market (in '99 Mercedes S-Class in Europe) and promises to be the first to introduce it to the U.S. market in an '03 Cadillac.

Claims to be the first to bring tire monitoring technology to market in the U.S. on the Ford Explorer/Mercury Mountaineer and in Europe on a passenger car application in 2002.

Safety and Chassis

16% of overall sales.

World's biggest supplier of single-point air bag electronic control units. Says it will be the first to introduce 3-dimensional occupant sensing camera for control of air bag deployment and near-field radar-based collision warning technology — both due to be in production by 2004 in Europe.

The division also is a major supplier of fuel tank systems and is developing a “vaporless” fuel tank.

Car Communications

15% of overall sales.

Telematics, navigation systems, wireless technology. Devoted to integrating complex individual functions like cell phone, navigation, CD, heating/ventilation into advanced driver interfaces.