The head of Bosch, Volkmar Denner, is forceful and persuasive when he uses technical arguments to demonstrate the industrial logic behind his actions. So it wasn’t too hard for the company chief executive to explain why Bosch agreed this week to buy ZF auto parts’ share in a venture that builds steering systems. In reality, however, the decision was a reaction and not much of a choice.
There are several reasons why ZF Friedrichshafen had to sell its part in the steering system venture it started with Bosch in 1999. First, ZF needed cash to complete its takeover of U.S. competitor, TRW Automotive. Second, TRW already makes steering systems – and by relinquishing its share, ZF avoided running afoul of antitrust regulations. The deal for TRW would create the third largest auto parts supplier in the world, behind Bosch and Continental.
As a partner in the steering system venture, Bosch had rights to buy ZF out. The Stuttgart-based company really had no choice but to seize the opportunity. Discontinuing production was not an option as electrical guidance systems gain ground in the marketplace.
Mr. Denner made convincing arguments on the technological logic behind the deal. Driver-assistance and automatic driving in the future will be closely linked to the steering component. It would be dumb for the market leader to hand over technology for the next big thing in electronic steering to a third party.
Mr. Denner's goal is that all of Bosch's products become Internet-enabled, and that small units open up new areas of business for the company.
On the other hand, the company’s industrial goals on steering systems would have been the same in any partnership. This is clear in Mr. Denner’s statement: After complete takeover of ZF’s share, he said, Bosch will not change its basic strategy for the steering-system division, which had sales of €4.1 billion last year, or $5.3 billion.
ZF’s share is estimated to be worth almost €1 billion ($1.29 billion) – and Mr. Denner needs that money for restructuring his company. His goal is that all Bosch products become Internet-enabled, and that small units open up new areas of business for the company. The chief executive wants Bosch to be faster and more creative, to better compete with Internet giants like Google and Apple. Over the long term, his plan is for Bosch to be less dependent on the auto business.
That’s why it would be more honest – regardless of how logical the purchase of ZF’s share is – for Mr. Denner to acknowledge that the investment was dictated by current circumstances. Because in the near future, he could be faced with a similar situation. Bosch’s partner Siemens, for instance, wants to pull out of the household-equipment business. If there were a deal with Bosch, Mr. Denner would be well-advised then to explain why he wants to spend money – again without getting strategic value in return.
The author, who grew up Karlsruhe, Germany, covers Bosch and other machine makers in the southwestern German state of Baden-Württemburg for Handelsblatt from Stuttgart: To reach him: firstname.lastname@example.org