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Continental Ups Its Ante

Bill Kozyra, president of Continental Automotive Systems, talks technology, strategy and the competitive nature of the supplier business.

When Slywotzky had written that line for his book analyzing competitive risk management, it was after Continental AG (Hanover, Germany) had acquired the automotive electronics business of Motorola in mid-2006. To say that it had evolved from a leading tire producer is to understate the case. As William Kozyra, president and CEO of Continental Automotive Systems (Auburn Hills, MI) points out, the company developed a pneumatic tire in 1898 and essentially spent the next 100 years optimizing it. But in 1998 it acquired the brake and chassis unit of ITT, Teves, which put it squarely at the corners of the vehicle. In 2001 it acquired Temec from DaimlerChrysler, which boosted its capabilities in electronics. Its rubber and plastics technology was enhanced through the acquisition of Phoenix AG (Hamburg) in 2004.

In July 2007, Continental AG announced its biggest acquisition in its 136-year history: Siemens VDO Automotive AG. In announcing the 11.4-billion euro acquisition, Continental executive board chairman Manfred Wennemer stated, “By joining forces, pooling our innovative prowess and allying our leading positions worldwide in key market segments like safety, chassis, powertrain systems, and telematics/infotainment, we are extremely well placed to take on the global competition and to profit from all mega-trends in our branch of industry.”

Essentially, Conti is strengthening its position in all of these areas, whether it is powertrain electronic control modules, electronic stability control, sensors, telematics (“Today we’re the largest sole high-volume producer of telematics world wide”), brakes...and yes, there are still tires. What is fairly evident is that Continental is strengthening its technology portfolio.

Positioning.
Speaking of the importance of technology as a supplier and of having leadership, Kozyra says, “Having it and maintaining it comes from recognizing that you need to have a number-one or number-two market position in each segment you operate in.” He says that the addition of Siemens VDO helps this endeavor, but he goes on to point out: “Today Continental invests 7 to 8% of its sales in R&D.” It should be noted that not all of this shows up as profitability, at least not necessarily in the short term. For example, he admits, “We are investing heavily in hybrid electric vehicle technology, and we’re not making any money on it. But we have a vision and a path to get to a volume level and a cost level where we will be able to make money, create value and make up for the losses we’ve incurred by the investments we’ve made.” In other words, they are fairly confident that hybrid vehicles will be increasingly important in the market and so they’re playing the long game, developing the technology that will put them in a strong position should that come to be the case. (Kozyra foresees the North American region as where hybrids will break out in a big way, but that it will be a technology that will find acceptance around the world.)

But it is not just technological product capability that a strong supplier needs to be successful in Kozyra’s estimation. “We also need globally competitive manufacturing,” he points out. He goes on to explain that in the NAFTA region Continental Automotive has more than 50% of its manufacturing in Mexico, and this low-cost country siting is also carried out in the Far East and Eastern European countries. He goes on to say, however, “Today while we have significant manufacturing in mature regions, we are very pragmatic with our employees: we need cost-competitive manufacturing. That takes a commodity mentality, even though the products we produce aren’t a commodity.”

Commonality.
Kozyra says that one of the things he and his team are doing is trying to convince vehicle manufacturers that there needs to be greater commonality on components that end customers don’t see. This could range from seat heaters to electronic control units for braking systems. He suggests that while there was greater commonality in the past, as vehicle manufacturers established platform teams there was a proliferation of different systems. For example, while there was once, say, a “brake team” that developed the brakes for a company, when the platform team structure arose, there wasn’t the same level of cross-company commonality. Consequently, economies of scale suffer.

Kozyra also thinks that given the nature of the auto industry it will be important for suppliers to collaborate with...other suppliers. “The real key is to find the right partnership where both parties have a vested interest and a dependency on one another.” He cites, as an example, the partnership that Continental has established with ZF Friedrichshafen (Stuttgart) on the development of chassis and driveline components for hybrid systems.

Things are changing fast and will continue to do so. As Bill Kozyra assesses the transformation at Continental he muses, “We’re a supplier transforming itself for something that it can be really good at for the next 100 years.”Beyond ESC
Continental Automotive Systems has been aggressively promoting its ESC—electronic stability control—technology for the past several years. But now they’ve upped it: ESC II. Essentially, ESC provides braking to specific wheels and a reduction in engine torque in order to keep a vehicle moving in the direction that the driver intends (i.e., it minimizes skidding). With ESC II there is the addition of steering torque, supplementing the braking. This additional function is said to provide more optimal handling.

Hybrids in Gear
The double-clutch transmission (DCT) is a unit that is pretty much like having one’s cake and eating it, too. That is, in a six-speed transmission, one clutch is assigned to 1st, 3rd and 5th gears and the other to 2nd, 4th and 6th. What this means is that when gear changes are effected, there isn’t an interruption to the flow of power between the crankshaft to the drive wheels, as is the case with manual transmissions; nor is there any slip in the torque converter lockup clutch, as can be the case with an automatic. So there is efficiency and performance (e.g., Audi uses this system in vehicles including the new TT, which is a spirited performer). Continental is proposing the use of DCT technology along with hybrid powertrain systems. The company suggests that when used with a parallel hybrid system, advantages can be realized not only via smooth acceleration, but also during deceleration, as there can be a match between the requirements of the wheel brakes and the electric engine.