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Schaeffler to keep ‘eyes on the road’ in volatile world

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

Klaus Rosenfeld, CEO, Schaeffler AG, with Georg FW Schaeffler and Dharmesh Arora, CEO of the Indian arm

German auto supplier says its business model of regional CEOs will help weather the storm

Georg FW Schaeffler wears his family name lightly as he greets me. The 54-year-old Chairman of the Supervisory Board of Schaeffler AG is on one of his rare visits to India, a fact that he wishes to remedy in the future.

“I should and will increase the frequency of travel here because India is important to us,” he says. Keeping him company during this Mumbai stopover is Klaus Rosenfeld , Chief Executive Officer of Schaeffler AG and Dharmesh Arora, CEO of the Indian arm.

Georg Schaeffler is the son of the founder who passed away a little over two decades ago. He and his mother are the family shareholders of this group, which specialises in high precision components and systems for the automotive sector as well as rolling and plain bearing solutions for industrial applications.

I ask Schaeffler if this is one of the most challenging times for companies in the automotive ecosystem with new frontiers like autonomous cars, electric mobility and, of course, the threat of trade wars.

“From my perspective, the world is definitely more complex than what it was in the last couple of years. It is fair to say that the party is coming to an end,” replies the Chairman.

He admits that the last 10 years were very good for the global economy but believes that all this is part of the game. “Business goes in cycles and we are going into a bit of a difficult environment right now but that is our job to manage and handle that,” says Schaeffler.

Listening intently, Rosenfeld puts things in perspective while explaining that his generation grew up in a bipolar world with the east and west largely being the centre of gravity/conflict. “The political leadership has changed completely now, which means it is multi-polar,” he says.

Now taking that into account, continues Rosenfeld, with some of the unexpected changes “being communicated in a way which we could not react to appropriately” can be challenging. So it is a situation where “you need to have your act together with plans clearly understood”.

Regulations and politics

Schaeffler admits that things are getting a little more complex on the automotive side largely because of more stringent regulations coupled with the reality of politicians getting more and more into the game.

“This means that your are not dealing with just the typical market forces,” he says while indicating that this is particularly evident in Europe, China and India, which are grappling with their own sets of challenges on emissions.

How does the company cope in this rapidly changing environment where it is becoming increasingly difficult to predict what tomorrow has in store? “In the management team, we try to be very close to the business. It is very important that you understand what is happening on the ground. If you misinterpret a signal, it can create a problem,” responds Rosenfeld.

As he puts it, it is critical to keep “your eyes on the road and hands on the wheel” while being close to the locations/sub-regions. This is where the Schaeffler AG model of having regional CEOs helps in terms of sharing information and making judgments.

Rosenfeld reiterates that by the end of the day, the company has a very sound base where the core business is intact even while coping with new challenges. “This is not a digital company but a manufacturing entity with excellence around the world. To that extent, we are better than many others, which do not have these strong business models,” he says matter-of-factly.

It is a point well taken but is Schaeffler AG nimble enough to take on mobility challenges of the future? Is it constantly pushing the envelope to stay ahead of the curve? The Chairman reminds me that there are people within the group who are “constantly pushing us to looking at what we need to do beyond our existing business while keeping us on our toes”. Rosenfeld then says that innovation is part of the group’s DNA. “Some of our core businesses are very strong and if you think 10 years ahead, you can question how strong they will still be,” he explains.

Hence, the management team’s challenge is to balance this portfolio and also bring out smaller new things where the risk is higher. “We don’t know if we will succeed but to have this portfolio of new ideas that fit into this strategy is critical,” says Rosenfeld.

Scenario 2030

The Schaeffler group has a close network with startups back home in Berlin and Nuremberg as well as university cooperations in Germany, the US and China. Rosenfeld then speaks of the scenario for 2030, which the group had drafted two years ago after intensive discussions with a host of stakeholders.

In this roadmap, 2030 will see production of 120 million cars, of which 30 per cent will be battery electric (powertrain that is only battery-driven), another 30 per cent will have a combustion engine while hybrids will take up the balance 40 per cent.

This means that 70 per cent of the cars will be electrified either as full battery powertrain or something that has both. Simply put, 70 per cent of cars will still have combustion engines because 40 per cent are hybrid. The group also believes that there will be a variety of powertrain solutions across markets.

“China will play a different role while India has an affordability issue as well as infrastructure issue. This is not one solution that will work everywhere,” explains Rosenfeld. Hence, it is important to be flexible and do what customers need across different parts of the world.

“You need to regionalise for different solutions,” sums up Schaeffler while admitting that discussions like these sometimes get too emotional without looking enough at the facts. “We only look at the car but do not look where the energy comes from. A lot of it depends on the energy mix,” he cautions.

Schaeffler then narrates the time he was in Norway this summer on a family cruise. Now this is a country that gets most of its power from hydro sources making it a completely different environment (for clean mobility) compared to a country that gets its energy from coal and non-renewables. “So I think we need take into account these realities,” he says.

Rosenfeld also believes it is important to have global schemes as part of the effort which explains the group’s decision to have its e-mobility division with focus on the US, China and Germany as the three hubs which can coordinate with each other.

This requires more global oversight and a willingness to localise certain things. “Our management structure is one such where we have global perspective with regional representatives on the table to understand issues,” he explains.

Whilst on the subject of mobility, I prod Schaeffler if his company will consider making its own car. “Make our own car?” he exclaims in surprise. In his view, a supplier should stick to being a supplier even while definitely doing more on the component and systems front.

“When we did the Schaeffler Mover, one of the questions from a member of the supervisory board was if we were keen on making cars,” recalls the Chairman, a reference to the mobility solution that was on display earlier this year.

“The answer was a firm no and we made it clear that we were quite conscientious about avoiding competition with our own customers,” he continues. Sure, this innovation was in connection with the new world of e-mobility but “we need to respect a hierarchy and remain true to our competence”.

Published on November 29, 2018
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