Auto focus

Aiming for the right mix in turbulent times

| Updated on November 29, 2018 Published on November 29, 2018

German supplier seeks bigger role for industrial business

Global volatility and trade wars take up a generous chunk of the conversation with Georg Schaeffler and Klaus Rosenfeld. Brexit, in particular, has been making the news almost every day and Schaeffler recently announced its decision to close two plants in the UK.

Georg Schaeffler readily admits that the present global scenario is “no walk in the park with roses and soft music in the background”.

The business environment, he makes clear, has definitely become more difficult and it is fast changing. “All I am saying is that it is our job to manage this. These challenges pertain not only to us but everyone else and it is up to us to handle it better than the others,” says Schaeffler.

His CEO adds that all this eventually boils down to leadership in setting a direction. This is when India’s example is cited as an ideal mix for the company’s auto and industrial businesses. Rosenfeld makes no bones about the fact that he would love to have this replicated worldwide though it is easier said than done.

There was a time till the 1990s when Schaeffler AG had a much more balanced mix of its auto and industrial businesses. Over the years, with the obviously larger volumes of automotive, the shift has been more pronounced.

Yet, says Schaeffler, one needs to look beyond sales numbers at business cycles, profit contribution aspects and so on.

“From that perspective, standing on two feet means more stability and that explains why we want to have a more balanced distribution between automotive and industrial,” he adds.

“It is extremely hard of course because we cannot tell the auto guys to slow down. The industrial business is small in terms of volumes and we would like a more even distribution for stability,” says Schaeffler.

At present, two-thirds of the turnover comes from automotive OEM, around 23 per cent from industrial and 10 per cent from the automotive aftermarket. Yet, quite unsurprisingly, the highest margin is the aftermarket (which also consumes less capital), followed by industrial and finally the automotive OEM.

It is also in this context that the mergers and acquisitions strategy becomes a key pillar for the German group.

Rosenfeld, however, makes it clear that this will only focus on smaller add-on technology acquisitions and “no elephant hunting”.

“It is about being systematic where we need to build a pipeline and be selective about what we intend doing. Cultural integration is also important in M&A,” he explains.

Schaeffler agrees saying that it is important that there is enough management, and just not financial, resources/bandwidth to carry this off. “Sometimes, companies struggle on that side and the key is how this fits into our systematic approach,” he says.

Published on November 29, 2018
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