Conti Chief: Change Is Good, Necessary

Sounding Like a Presidential Candidate stumping for office, the chairman of Continental AG's executive board focused on change in his keynote speech at the Convergence conference in Detroit.

Change is the only constant facing the auto industry today, Karl-Thomas Neumann says, referring to evolving business relationships, stricter environmental and safety requirements, steep economic challenges, advancing technology and emerging markets as examples.

But these challenges represent opportunities for suppliers and auto makers, alike. Neumann says the need to reduce fuel consumption and achieve zero emissions is a positive development for Continental, an expert in electronics.

“In this area, we have the strongest growth, and we are very optimistic about the future,” Neumann says.

He urges the industry to stay focused on great products and improving operations, rather than being consumed by anxiety about the economy.

“We think change is good and change is necessary,” Neumann says. “Yes, this crisis is bad. But it's an opportunity, because this crisis will impose change. We are confident we will come out stronger.”

One of the greatest opportunities is in emerging automotive markets such as India, which will launch the ground-breaking $2,500 Tata Nano in the coming months.

Neumann says he attended a reception in India with Tata Motors Ltd. Chairman Ratan Tata to preview the vehicle, and most executives sneered at it as exceedingly cheap, uncomfortable and unsafe.

But Neumann says most executives fail to grasp what the Nano represents in a country that desperately needs basic transportation for millions of people who cannot afford most cars.

“I also don't like the car,” Neumann says as he flashes an image on the screen behind him of an Indian father driving a small motor scooter, with five children on board, dressed in their school uniforms.

“But I don't drive my family on a motorcycle to school every morning,” he says. “The Nano is much safer than a motorcycle.”

Because of this contradiction, Neumann says auto executives in the established markets of Western Europe, North America and Japan must rethink what constitutes a great car in a world that allows for regional preferences and varying price points.

Within Continental, which became the world's fourth-largest auto supplier after its 2007 acquisition of Siemens VDO Automotive, Neumann is witnessing change daily as the two large companies continue to mesh their corporate cultures. It has not been easy.

“I'm convinced great companies have strong cultures,” he tells Ward's afterward. “Siemens VDO was a great company, and so is Continental.”

When the integration of the two companies began, Neumann says the goal was not to impose Continental's culture across the Siemens VDO operations. “Because, in some aspects, they are better than we are,” he says. “We wanted to get the best of both worlds.”

He compares the integration to the jarring sensation when two trains couple; eventually the united machine moves smoothly in the same direction.

Overall, Neumann describes the integration as “going well,” while admitting there are “operational issues, specifically in the area of powertrain.”

Asked about potential consolidation of manufacturing facilities, Neumann tells Ward's, “We have more than 200 facilities in automotive. It's too many.”

Still, Neumann says Continental may need more capacity, particularly in low-cost regions of the world. He says a smaller percentage of Siemens VDO's manufacturing facilities are in low-cost countries, compared with Continental.

As he told Ward's a year ago, one of the greatest assets of the new Continental is an abundance of engineers (13,500 in Europe, 2,500 in North America and 2,000 in Asia). Neumann wants to leverage their expertise. “We will not consolidate totally our engineering sites,” he says. “To move our engineers, we will lose too many of them.”

Neumann says the number of auto suppliers globally has plummeted from 35,000 in the 1980s to about 4,500 today, and that number will continue to decline by 200 companies annually.

Although some OEM purchasing chiefs prefer small suppliers focused on a few core competencies, Neumann says parts makers must be big to meet the needs of OEMs pursuing global architectures.

“First, you cannot work for only one OEM,” he says. “Second, if you work for any of these big OEMs … you have to have your factories globally, because (OEMs) expect you to be already there when they make plans to build a factory in Russia or somewhere.”