ROAD AHEAD

ZF Accelerates in Car Tech Race

Giorgio Behr plays the game. Source: Handelsblatt
Giorgio Behr plays the game.
  • Why it matters

    Why it matters

    • The German company is betting that future innovation and growth are worth big debt and risks that come with the €12.5 billion acquisition.
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  • Facts

    Facts

    • ZF acquired TRW, based in Livonia, Michigan in May.
    • The company specializes in transmissions, chassis parts and axle systems. It now has about 230 locations in 40 countries.
    • ZF is not listed on the stock exchange. The Zeppelin Foundation, which is administered by the German town of Friedrichshafen on Lake Constance, holds 93.8 percent of shares.
  • Audio

    Audio

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Giorgio Behr is founder and chief executive of  Behr Bircher Cellpack Group, the Swiss industrial conglomerate. Since 2008 he has also chaired the supervisory board at ZF Friedrichshafen, the world’s third-largest car parts supplier following its takeover earlier this year of TRW Automotive.  Mr. Behr talked with Handelsblatt recently about the takeover and how the company intends to pursue market leaders Bosch and Continental.

 

Mr. Behr, what is the position of ZF on the 100th anniversary of the company?

The takeover of TRW saw us move up into the elite group of industry suppliers worldwide. It puts us in position to help promote the development of autonomous driving.

Whose idea was it actually to take over TRW for $12.5 billion?

Our chief executive Stefan Sommer had the idea.

You are an entrepreneur and strategist and have implemented a few takeovers of your own. What is your role?

As supervisory board chairman, I ask questions of management – and that is what I’ve been doing for some considerable time.

Which questions do you ask?

How is mobility developing on our roads? What role can ZF play in autonomous driving? And how can the company expand its technology portfolio to catch up with the very biggest suppliers?  They are the same questions that were asked a good deal earlier, about sensor technology and electronics.

Former chairman of the board, Hans-Georg Härter, already made the company lean. He divided it into four divisions to focus on the market and acquired the Cherry Corp. for its electronic competence. That was the first move. Stefan Sommer has now shown with TRW what his strategy is to catch up with the big players in one fell swoop.

Was that one of the reasons for Mr. Sommer’s appointment in 2012?  

Not specifically, but Mr. Sommer had two decisive advantages. Under Mr. Härter he was already head of the strategy department, and he came from Continental a few years back. He knew exactly where ZF needed to catch up with Conti and Bosch in autonomous driving.  It was clear to him that it would have taken far too long with smaller incremental steps.

Couldn’t an outsider have done that?

It would have taken an external person a year just to know his way round the company, and that would have been time we lost. In principle, I think it’s better to build strong second and third levels in a company, and to recruit board members from there.

ZF is mostly owned by the Zeppelin Foundation, which holds 93.8 percent of shares and is administered by the town of  Friedrichshafen. How did you go about convincing Mayor Andreas Brand to agree to the $12.5 billion deal for TRW?

In principle, he was very open-minded.  I had two meetings with the town council to go through all opportunities and risks with them. There was also a long discussion with Mayor Andreas Brand. It was a long evening, and we even had a bottle of red wine.

Did you have to drink him under the table?

No, the mayor is very professional. He looked into everything very thoroughly and conscientiously and, of course, took external advice too.

The takeover left a mountain of debt – about €8 billion. If it goes wrong, is Mr. Sommer the first victim?

I would like to make one thing absolutely clear. Three people were involved in the takeover – the chairman of the executive board, myself and the owner. They agreed on the way to go, and in the final analysis, bear the responsibility. It is always that way with innovation:  You either get it right or wrong.

There is a decent chance we got it right.  We built in a few safety features, with a price limit, financing and reduction of debt.

 

 

All change at Friedrichshafeb. Source: Felix Kästle/dpa
All change at Friedrichshafen. Source: Felix Kästle/dpa

 

And what are Mr. Sommer’s most important tasks now?  

 It’s not just the chairman of the board, but his whole team that is under pressure. After the takeover was done and dusted in eight months – that is incredibly fast – the real work is just beginning. Apart from the integration of TRW, we have to rapidly reduce the level of debt.  It is about reducing costs. And TRW will certainly be a point of orientation here. And Mr. Sommer has to keep a watchful eye on cash flow, so interest can be paid and debts reduced. We can also be more restrictive with investments without endangering innovation.

You bought at the high point of a cycle. Risky?

Yes, as a university professor I always said it was better not to increase capacities at the high point and make acquisitions. It is better to hold on to the money – so there is enough cash available in the next downturn.

And why did you go against your scientific methods?

Because I’m also an entrepreneur. The moment was right. Both companies complement each other perfectly and are very profitable. We paid attention to the maturities in our financing package and also borrowed part of the money in the United States, to protect against currency fluctuations. I was able to bring in my experience with such situations. ZF can afford TRW and has the advantage as a foundation company of not having to pay excessive dividends to stockholders or justify itself with the stock price.

But you cannot influence the economic cycle of carmakers.

Up to now, fortunately, it is relatively stable. And the weaker dynamic in China will not lead to a complete slump.

But there is a big industrial problem: ZF is known as an innovative quality supplier of premium clients; TRW made its name more as a fast follower, churning out high volumes inexpensively with passable quality. The automobile manufacturers will now want ZF quality at TRW prices.

I cannot let the word “passable” stand here. The quality of TRW products is comparable with those of ZF. But, of course, the partly different concepts are a challenge. The logic of the takeover does not consist in putting future ZF products with reduced quality on the market. It is about a systematic approach. TRW has technologies that we didn’t have. And TRW gives us easier access to U.S. clients, which we also didn’t have. We will present a vehicle at the International Automobile Exhibition that shows what both companies together can deliver – and how they will complement each other in future.

 

ZF Friedrischshafen-01

 

 

So it will take another two years before there are common systems?

 Yes. But how long would it have taken if we had just bought small sensor manufacturers here and there? At least five years.

But how will you deal with the new pressure from clients?

At ZF everything has to be 100 percent. But in production matters, ZF can also learn from the cost-efficient methods of TRW. With an innovation, sometimes 80 percent is enough if a particular market is to be conquered quickly. The market dictates prices, and costs have to be controlled. The margin defines the level of success.

But in the workforce there are big worries that the spirit of the ZF family could be lost – the very spirit that was responsible for quality and success in the past.  

I do not believe in a completely uniform identity and “corporate culture.” In Friedrichshafen it is different from Schweinfurt or Saarbrücken or in foreign factories.

And now in Livonia, Michigan. That doesn’t make things easier?

I am of course being ironic when I claim to be one of the best-paid students in the world. Because I am always open to new things. At both ZF and TRW, everyone can learn from other people. I speak four languages fluently and can make myself understood well in three others. In a global company, languages allow a look “behind the scenes.” Different mentalities can be managed well.

But for that you need common values?

In my own company there are four values: courage, team spirit, involvement and integrity. We take an honest look in the mirror and do not embellish anything. That’s how we find out what we want to do, what hurdles there are on the way to success and, perhaps even more importantly, what we shouldn’t be doing any more.

 

189 ZF Friedrichshafen-01 WTB resume

 

And what does a look in the mirror tell you about ZF?

 The ZF employees certainly need a little more courage. The great British racing driver Stirling Moss once said: “If I have everything under control, I’m possibly driving too slowly.” You cannot always control everything 100 percent. You have to press on.

That is unlikely to calm the workforce.

But there are markets where we have to act like this, if we want to grow quickly.

Perhaps you are referring to the ZF competitor Getrag, which can manufacture its double clutch transmissions so cheaply that clients can put them in compact class cars? Would that be a market for ZF in future, using TRW methods?

That would be one of the possibilities. To find the right balance while striving for perfection is not just a challenge for ZF. It also applies to many engineer-driven German companies.

Another unpleasant topic: The public prosecutor is investigating the head of the workers’ council for allegedly defrauding ZF with invoices.  In your view, when would he have to step down as head of the workers’ council: If and when he is indicted? Or only if an indictment is found admissible or he is convicted?

Are you asking for an expert opinion? I will cross that bridge when I come to it. I am just keeping informed. But it’s not up to us at the moment.

So you are leaving it to the judiciary?  

That is where the case is. We have no reason to comment on it now.

You used to play first-class handball in Switzerland. What is the difference between sports and the business world?  

 Sports is digital, the business world analog.

What does that mean?

 In sports, you either win or you lose. You are up or down. You’re either number one, or nothing. In the business world, results are not quite that clear. You get close to an objective, in terms of revenue or profit. You surpass it or you don’t. It is all relative.

 

Martin-Werner Buchenau reports from Stuttgart as Handelsblatt’s Baden-Württemberg correspondent. To contact the author: buchenau@handelsblatt.com

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