Visit to ZF CEO Hans-Georg Haerter

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Hans-Georg Haerter, the CEO of ZF, a leading manufacturer of powertrain and chassis systems, has expressed deep concern over the financial struggles faced by several of its suppliers in recent months. In response, ZF has taken proactive steps by offering short-term loans or increasing supply prices to help those affected by the credit crunch. Haerter anticipates that the economic situation will worsen in the first quarter of 2009 and shared his insights on various industry-related topics.

Streamlining the U.S. Business Market Position Will Be Strengthened

Reporter: What is the status of ZF’s U.S. business?

Haerter: The U.S. market is currently a “problem” zone for us. While it accounts for about 8% of our total revenue, it no longer plays a central role in our overall operations.

My strategy for the U.S. market is to "cut down diseased trees and cultivate seedlings." That means we need to eliminate underperforming facilities and invest in new opportunities.

Reporter: What do you mean by "diseased trees" and "seedlings"?

Haerter: The "diseased trees" refer to factories that have been shut down. For example, the shock absorber plant in Florence, Kentucky, was closed at the end of 2008. We relocated the production to Mexico and moved another facility from Hebron to Florence. We also plan to integrate our production sites in the U.S. to achieve greater synergies. Instead of maintaining full-service organizations, we will focus on strategic production bases and shared services.

Reporter: How will the U.S. government's support for Detroit's "Big Three" affect ZF?

Haerter: I believe this will actually strengthen ZF’s position in the U.S. market. I expect the Big Three to survive, as it would be unthinkable for them not to. However, they are increasingly focused on fuel-efficient vehicles, which means more efficient drive systems and optimized engines and transmissions—areas where ZF is well-prepared.

I don’t think these automakers can rely solely on their own resources to sustain operations. This creates opportunities for strong, reliable suppliers like ZF. As credit availability for U.S. suppliers declines, having better financial stability becomes more important when securing contracts.

We plan to consolidate two or three U.S. factories. At the same time, we are also establishing a new automatic transmission plant for light commercial vehicles (LCV), which represents a significant investment. Additionally, we have a joint venture with Chrysler near Detroit, where we manage operations and provide all equipment to ease Chrysler’s financial burden.

The U.S. market remains attractive, with substantial potential. We are expanding our customer base, including Honda, Nissan, and Hyundai. Based on sales from these new clients, we believe we can regain a strong position in the U.S. market.

Some Supplier Projects Have Been Postponed

Reporter: What actions is ZF taking to support its suppliers?

Haerter: We are implementing temporary measures to assist our key suppliers, such as providing short-term loans and paying higher prices than before.

Reporter: Can you predict the market conditions for 2009?

Haerter: It’s difficult to plan right now because we don’t have solid data from our customers yet. However, I expect sales to decline, which may lead to workforce challenges, including retirements.

Reporter: Are you considering reducing your reliance on the automotive industry, similar to what Robert Bosch is doing?

Haerter: The automotive sector accounts for about 81% of our revenue and will remain our core business. However, we are also exploring growth outside of the automotive industry.

Reporter: Are you continuing to invest in new automotive technologies, such as hybrid and electric vehicle drivetrains?

Haerter: Yes, we established a phased production base for hybrid technology in Schweinfurt, Germany, in May 2008. We expect OEMs to launch the first batch of hybrid vehicles this year. For instance, Mercedes-Benz will use a new motor developed at the Sachs plant in Schweinfurt for its S400 hybrid model. This system combines a 3.5L V6 engine with a 15kW motor/generator and lithium-ion battery to recover braking energy. We are also working on drive systems for alternative energy vehicles, including electric cars.

Reporter: Have any of your customers canceled or postponed projects with ZF?

Haerter: Some projects have been delayed by 2–3 months, while others have been pushed back by 2–3 years. However, projects focused on energy efficiency and emissions reduction are still moving forward.

Reporter: What happened to ZF’s plan to partner with AvtoVaz in Russia to build an axle and chassis factory?

Haerter: The project was initially delayed but has since been revived. Volga Motors has chosen Renault as an investor, and both parties have re-evaluated their partnership. Although we haven’t signed a formal contract yet, we remain confident in the project. We expect results in the first half of 2009, which could involve setting up a production base in Togliatti, Russia, with an investment of tens of millions.

New Products Are Smaller, Lighter, and More Efficient

Reporter: ZF’s 8-speed dual-clutch transmission is about to launch. Are you developing a 9-speed version?

Haerter: We are exploring several options for future products. While a 9-speed transmission is a possibility, we are not confirming it yet.

Reporter: Is ZF aiming for more compact and lightweight transmission modules?

Haerter: Yes, we are focusing on optimizing weight, improving transmission efficiency, and reducing installation space.

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