The game changer – steering Continental to safety

27 May 2014

In the midst of a financial crisis and potential mergers, Continental looked to be on the losing end of the monetary scorecard. In a radical rethink of tactics and corporate strategy, CEO Dr Elmar Degenhart had to mould the company into a new formation.

He has moved Continental out of the crisis, and now he wants to make sure that the company maintains its creative spirit. The display in the Bochum conference hall looks like a pre-match tactical plan for the national football team. With his slight frame, neat crew cut and rimless glasses, Dr Elmar Degenhart could easily pass for a new-generation football coach in the mould of Ralf Rangnick or Markus Gisdol. But the 54-year-old Eintracht Frankfurt supporter is CEO of the world's second-largest auto supplier, Continental, and in this case, his team are 170,000 "Continentäler" from 46 countries.

Continental is known for products such as low-friction tyres, braking systems, engine electronics and tachographs, and for its expertise in hybrid propulsion. Degenhart's latest mantra is "grow faster than the market". To do that, he insists, one must strive to be innovative, always and everywhere. In business, as in sport, all players must be fast and dominate in a short passing game. This is what the boss regards as a "modern task" of the company as it celebrates its 143rd year.

It would have made for an awkward presentation if Degenhart had chosen this football theme when he took office five years ago. Survival was the priority in those days; the company faced extreme debt problems, difficulty integrating bought-in parts of the business, major customers threatening to jump ship, an alienated supervisory board and a rattled workforce. To make matters worse, the new major shareholder the Schaeffler family was pushing for a merger - all in the midst of the financial crisis.

Degenhart's appointment in 2009 was met with scepticism. Manfred Wennemer warned that the firm "needs a contractor and not bureaucrats". Among managers, trade unionists and workers at the company headquarters in Hannover, Lower Saxony, there was an uneasy reception. Degenhart had been recruited directly from the unfavoured Schaeffler of Middle Franconia, which had fired two previous Continental bosses. It didn't help to be thought of as "Schaeffler's favourite".

Although Degenhart was able to boast 16 years of experience in the automotive supplier industry, little was known about the Dossenheim native who achieved his diploma in air and space technology at the University of Stuttgart. He lacked the style of magnetic ex-Daimler CEO Jürgen Schrempp, who filled the room with his aura. Instead, Degenhart is a typical German engineer. He wants to solve problems and pursues his goals ferociously. He wants things to happen quickly, but never at the expense of quality. Expertise is what he feels counts most.

One of his idols is US management guru Peter F Drucker, who taught a whole generation of managers that a company can only survive in the long term if it is constantly innovative. Degenhart recalls that Hans-Jürgen Warnecke, his one-time boss at the Fraunhofer-Gesellschaft, had a similar mentality. In Franz Fehrenbach, who he encountered at Bosch, he admired the courage to tackle cultural change in a traditional company. That's what he aims to achieve now at Continental. Degenhart also recognises supervisory board chairman Wolfgang Reitzle as a different type of manager, whose diplomatic qualities were critical in establishing peace at the company.

Tactical decisions

Degenhart has been professionally trained for his speaking appearances; he tries to coordinate facial expressions and gestures perfectly with his statements. The Schrempps of the world like to make big statements, but Degenhart "says what he thinks and does what he promises", according to Artur Otto, who sits on the executive staff of the supervisory board. Furthermore, he has benefitted from dramatic breaks in his career. He worked at the now Conti-owned Teves subsidiary in Frankfurt for ten years, before clashing with a new board in Hannover, which forced his departure in 2003. Degenhart's subsequent role as president of chassis systems at Bosch was fleeting. He was CEO of seat manufacturer Recaro for three years from 2005, and then returned for a second term as president at Schaeffler in 2008.

"In sales, Continental has gained some ground on market leader Bosch; the debt has shrunk by roughly half and the workers now feel more secure."

Lasting improvement is the goal for this chief executive, who also serves as chairman of the executive board. In sales, Continental has gained some ground on market leader Bosch; the debt has shrunk by roughly half and the workers now feel more secure. With a share price increase of 82%, the market has celebrated Degenhart's achievements. In mid-2013, he confirmed his target of generating a free cash flow of more than €700 million by the end of the year.

Degenhart continues to plot his growth strategy for worldwide tyre operations. At the beginning of 2013, it was declared that Continental Tire the Americas would invest over €95 million in its Mount Vernon, Illinois, tyre facility, creating more than 100 new full-time jobs over the next three years. This move was inspired by increased demand for Continental brand tires, the need for better complexity management in the plant and emerging technologies in tyre production.

There are also plans to invest more than €100 million in India over the next three years, according to Degenhart. Rival Michelin has established a manufacturing centre in the country, and Continental has been looking to strengthen its presence there with the acquisition of Modi Tyres in 2011 and its purchase of Rico Auto's share in their Indian joint venture in April 2012.

In clean power, Continentals's new 48V Eco Drive system is designed to close the gap between low-end hybridisation, based on popular 12V start/stop systems, and more sophisticated high-voltage hybrid solutions. It is simple to install and realises NEDC (new European driving cycle) fuel savings of around 13%. Initial orders from customers hint at a full production launch in 2016.

The next step is autonomous vehicles, partly through the deal struck in March 2013 with BMW, which will run prototype testing until the end of 2014. In September 2013, Frankfurter Allgemeine Zeitung reported that Continental was working on partnership agreements with Google and IBM for self-driving cars. These partnerships would most likely involve pooled investments up front, followed by a shared revenue scheme. Since Continental has such a compelling track record with automakers and extensive experience in the industry, a partnership could help make Google technology more acceptable to international clients wary of over-dependence on the controversial Silicon Valley giant.

A solid roster

Continental has gained authorisation to test autonomous vehicles in Nevada, US, where it has logged 15,000 miles with no accidents. It has already formed a partnership with Cisco for connecting cars with networks. The company has injected over €95 million into self-driving car research, and its involvement in DARPA's self-driving challenge can be traced as far back as 2007. It has 1,300 researchers working on technology to assist drivers, and eventually take over completely. The company's road map is for partly automated cars by 2016 and highly automated cars for consumers by 2020.

"Continental believes a link to back-end services will be vital and that 4G LTE wireless network technology provides the most likely method. "

Continental believes a link to back-end services will be vital and that 4G LTE wireless network technology provides the most likely method. The company also espouses V2V and V2I communication - wireless links for vehicle-to-vehicle and vehicle-to-infrastructure data transfer. For actual navigation decisions, Continental will rely on integration with third-party technology; for example, TomTom units, selected by the automaker. Continental's own kit includes a heads-up display (HUD) interface that can spotlight on the windshield when a car in front is slowing down. It also has the means to interpret data from radar and from stereo photography, allowing for an estimation of the height and width of nearby objects.

Developments in self-driving, and in areas like scratch-resistant materials, will help Continental to adapt to "future needs", according to the CEO - and to supplement the faltering tyre business, which nevertheless managed to achieve a 2.9% sales gain to €2.47 billion in Q2 2013. Continental's game plan has seen a ramping up of investment in its infrastructure, and research and development by 4.4% and 9.7% respectively. Its success has seen the "team players" of the Continental workforce enjoy a €900 bonus for keeping the firm competitive.