Continental Chief Executive Manfred Wennemer also said he sees the global auto industry growing 2% to 3% in 2008, as double-digit growth in China and other emerging markets offsets a deepening slump in sales in the U.S.
The world’s fifth-biggest auto parts supplier is on track to complete its integration with the VDO business it bought from Siemens in 2007 by the end of the year, including the planned cut of 2,000 jobs in the automotive electronics unit, Wennemer said.
"We have to come to pain-sharing with all of our customers. They have to take their fair share of those raw material cost increases. There’s no alternative to it," Wennemer told Reuters in an interview.
"We need money for investing in new plants, money for research and development."
Auto parts suppliers across the world are feeling the pinch of rising prices on natural rubber, steel, copper and other raw materials. Continental raised tire prices in the U.S. in April and plans increases in Europe from June.
The pressure for higher prices comes at a time of slumping demand in the U.S. auto market, the world’s largest. U.S. automakers are cutting production of slow-selling trucks and SUVs and trimming inventory with industry-wide vehicle sales on track to drop by about 1 million units this year from 2007.
Continental executives said the supplier expected U.S. production to hold above its current projection of 14 million vehicles this year.
"Overall, globally this is a growing industry. If you look at China, the growth rate is 20% there," Wennemer said.
Continental makes 21% of its sales in North America, while Asia accounts for 8% of its revenue. It has said it will raise the share of Asia to 20% to 25% by 2015.
Wennemer said the immediate priority for Continental was to pay down debt after the 11.4-billion euro purchase of VDO and reduce the company’s debt-to-equity ratio to between 80% and 100%.
Continental currently draws about 30% of its sales outside supply deals with major automakers, and Wennemer said future acquisitions could play a role in supporting the company’s drive to increase that share to 40%.
"We do want to remain a little bit independent of the automotive cycle," Wennemer said. "Yes, we are in a growing industry. Yes, the industry worldwide is doing well. But nevertheless it’s good…to have the possibility to say we would like to have this contract but under those conditions, sorry, we cannot take it."
Continental, which had relied almost solely on the tire business just a decade ago, has used a series of acquisitions culminating in the VDO deal to carry it into components ranging from brake systems, vehicle stability control, fuel injection systems and auto electronics.
Wennemer said it would take several years for Continental to return to the market for another major acquisition.
"First of all we have to reduce our indebtedness," he said. "That will take two or three years. Then it depends on how the opportunities are – whether we can grow fast enough and whether we can make an acquisition." (Tire Review/Akron)
