Continental, which faces a 3.5 billion-euro debt payment in August 2010, will present a new strategy within 100 days, CEO Karl-Thomas Neumann said today at the annual shareholders’ meeting in Hanover, Germany.
“As long as the basic course has not been charted, Continental’s room for maneuver is very limited – in the worse case, paralyzing,” Neumann said in a speech. It’s “still not clear” how Continental will cooperate with its largest shareholder, Schaeffler Group.
Carmakers and suppliers are scaling back production as the global recession stifles demand. In Europe, where vehicle sales have fallen for 11 consecutive months, car manufacturers are likely to produce 25% fewer vehicles this year, according to the regional industry’s main trade association. Continental, also Europe’s second-largest tiremaker, estimates that global carmaking will contract by 21% this year.
Hanover-based Continental is burdened by debt from buying Siemens AG’s VDO automotive-electronics division in 2007. Continental, which eliminated 6,000 jobs in the first quarter, faces a “major challenge” to meet debt and earnings conditions under loan agreements for the rest of 2009, Neumann said.
Options for achieving the August 2010 payment include refinancing, share sales and divestments, Neumann said. Refinancing depends on the state of credit markets, while selling stock at the current price wouldn’t make much sense and needs Schaeffler approval, Neumann said. Disposals require better markets and depend on Schaeffler’s strategy, he said.
“It is becoming increasingly risky to continue to go in circles,” said Neumann. “We need answers and we need them as soon as possible.”
The annual meeting was the first since Schaeffler, the world’s second-biggest ball-bearing maker, bought 90.2% of Continental’s stock after a hostile approach that led to the resignation of Manfred Wennemer, Continental’s CEO, last year.
Schaeffler intends to present its own business plan “as quickly as possible, yet with the necessary diligence,” Detlef Sieverdingbeck, a spokesman at Herzogenaurach, Germany-based Schaeffler, said in an e-mailed reply to questions.
Board Nominations
The closely held company, owned by the founder’s widow, Maria-Elisabeth Schaeffler, and their son, Georg, nominated Chief Financial Officer Klaus Rosenfeld to Continental’s supervisory board. He will replace Hans-Joerg Bullinger, president of the Fraunhofer research institute, who stepped aside days before the meeting.
Schaeffler is limited to four board members under an August agreement with Continental that also limits its direct stake to 49.9%. Schaeffler, which is about one-third Continental’s size and strapped with 11 billion euros in debt, is already represented on the board by its two owners as well as CEO Juergen Geissinger and Rolf Koerfer, a partner at Allen & Overy LLP, the law firm that represents Schaeffler.
The ball-bearing maker, which manufactures engine and transmission parts as well as components for planes, windmills, and fishing rods, has said that Koerfer doesn’t count as a Schaeffler representative because he isn’t directly employed by the manufacturer.
The remaining 40.3% stake that Schaeffler purchased in Continental has been transferred to private German banks for possible sale later.
Car Market Forecast
Continental said today that carmakers worldwide will build 53 million vehicles this year versus 67 million in 2008. Pre-crisis levels may not be reached for as long as five years.
The company said last month that it plans to eliminate at least 1,900 jobs, or about 1.3% of its workforce, by closing a truck-tire plant near its headquarters and a car-tire factory in France. The company has also reduced hours for about 20,000 of its 45,000 workers in Germany.
About 2,000 employees protested outside the shareholders meeting. Neumann defended the plant closures as necessary. (Tire Review/Akron)
