Strategy Interview with the CEO

INTERVIEW WITH
WOLF-HENNING SCHEIDER

The CEO provides insights into what the technology company is doing to adapt to change and explains how ZF is currently doing in business terms.

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Mr. Scheider, what do you have to say about how the business has been performing over the last year?

2019 was a difficult year for the automotive industry. The overall economic trend and the challenges arising from the ongoing transformation of the business have brought enormous challenges to the fore. However, opportunities also presented themselves. We took advantage of them as they arose and won important contracts for the future. For example, we were able to attract significant new business in the areas of electromobility, AD/ADAS and conventional technology, with the latter continuing to give us the backing we need to make investments.

Investments in innovations ...?

Exactly, there in particular. We were resolute in continuing to push forward with our transformation in 2019. We spent more than seven percent of our sales on research and development.

And what did the year look like from an economic standpoint?

Thanks to our determined efforts, we were able to improve our performance in the second half of the year. We reduced costs and adapted our capacity to our sales volume, bringing income data to within our expectation corridor, which was corrected mid-year. However, our objectives differ from where we are, so it is necessary for us to continue to work on our costs in particular.

With the planned purchase of WABCO, ZF would grow very significantly for the second time within just a few years.

The possible integration of WABCO represents an important milestone for us. We expect the acquisition to take place shortly. With WABCO’s products, we would be able to demonstrate autonomous driving in commercial vehicles much more quickly. We could offer our customers an overall system from driveline with electric drive and chassis to axles with brakes and steering system. In addition, this planned acquisition gives us even more strength, which we will need to continue down our chosen path. And with our #MobilityLifeBalance campaign, we are clearly demonstrating that we want to contribute our ideas in order to shape the mobility of the future.

The acquisition is costing ZF around €7 billion...

Last October, we were able to raise a total of €4.8 billion on the capital market in order to make the purchase. Significantly more investors than we needed wanted to subscribe, which means that the market sees the potential of this acquisition.

How do you get a company as broadly positioned as ZF up to speed – given the faster pace?

Our decentralized structure means that we are already significantly faster than it might appear at first glance. This is necessary just due to the high level of quality in our industry. Nevertheless, we too need to increase our speed. To make this possible, we are currently implementing a number of programs to improve operational fitness and are once again greatly increasing our efficiency and agility.

Are the employees backing this approach?

I am well aware that successful implementation of such projects requires a great deal of commitment in the Group units, which is why I am pleased that the corporate units, as well as the employees, are providing full support as we go down this sometimes difficult path. It is understandable that fear of the unknown is sometimes stronger than curiosity about the new and unknown, but it is precisely these steps into an unknown future that we now need to take. The speed of change requires that we improve and simplify processes, evaluate our portfolio of goods and services, make changes to locations, integrate companies into the Group, discontinue some activities and systematically develop new fields of knowledge and technology. We are doing all these things – with a great deal of determination but also with a sense of proportion.

The global climate is now also presenting ZF with significant challenges.

ZF fully supports the objectives of the Paris Climate Agreement. We pursue a clear strategy that involves using our technology in order to be part of the solution to climate change. However, we also need to do more to reduce our own carbon footprint. Despite the weak economic situation globally and the many campaigns with which we are currently reducing our expenses and adjusting cost structures, we will continue to invest in sustainability in 2020. In doing so, we will concentrate our effort on areas in which action is needed now. We will utilize every possible approach to reduce CO2 emissions. It is my opinion that there is no alternative to investment in a sustainable future.

The climate debate is giving momentum to electromobility. Will we be traveling primarily in electric vehicles in the future?

Electrification is a key path for the future, of course. Nevertheless, we are convinced that an essential requirement for real innovation is technology neutrality. Our strategy therefore includes more than just one drive technology, such as battery electric vehicles and plug-in hybrids. We believe in purely electric drivelines in passenger cars and commercial vehicles for customers in markets with suitable infrastructure and favorable geography.

And what about hybrid technology?

We see plug-in hybrids as an important solution for bringing electrification to the mass market. The plug-in hybrid offers the best of both worlds: local zero-emission driving and the ability to cover long distances. The coming generation of plug-in vehicles will provide a purely electric range of around 80 kilometers and more. This will result in complete electrification of city traffic and daily commuting without fear of limited range. It’s a great solution for households with just one car that has to serve all mobility needs.

What does this mean in terms of jobs?

It is hybridization in particular that is the lever needed to transform our industry and secure jobs. If the EU’s Green Deal is to be a success, plug-in hybrids must be a key component of its strategy. In other words, if we set the right political focus, the Green Deal could even trigger many new jobs.

In your opinion, how far along is the industry on the path to automated driving?

Automated driving will come bit by bit, first in commercial vehicles by mid-2020, and then in individual passenger transportation, once people have overcome their understandable reservations.

And where is ZF in all of this?

As an example, we are currently putting a great deal of resources into the development of autonomous shuttle vehicles because they strike a chord in urban areas. Such vehicles can solve primary problems of traffic congestion and emissions while simultaneously increasing the comfort and availability of public transportation on highly frequented lines. This new means of transport has the potential to fundamentally revolutionize mass transit.

However, automated driving is also changing the way we think about the safety of passengers. New seat positions require safety technologies with the ability to adapt. That’s why our engineers are currently redesigning technologies such as seat belts and airbags to meet the requirements of the future realities of travel. In the future, active and passive safety technologies will operate hand in hand. We have committed ourselves and our company to making “Vision Zero”, i.e. zero accidents, a reality.

The first months of the new year are already behind us. What does ZF plan to achieve in 2020?

We will seamlessly continue to work on the measures and topics of the previous year. We will keep up the pace, continue to work on improving our performance and intensively invest in the technologies of the future. Our “Next Generation Mobility” strategy will show us the way forward. In parallel with this, we will forge ahead in adapting our structures and reducing costs. Campaigns are underway in all areas to make the company even more effective and faster. This is crucial, as revenue will remain the same and we need to save elsewhere to compensate for higher expenditure on safeguarding our future, that is, R&D, electromobility and automated driving.

What else will be keeping you busy, and how do you plan to achieve your ambitious goals?

We want to get even closer to our customers in the future. Our decentralized positioning and new offers in the areas of service and customer support will help us achieve this. An important milestone here was the restructuring of our sales organization, which was completed in 2019 and is to take full effect this year. We can only achieve all of this with motivated employees who are willing to make changes. If we want to help shape the future of mobility, this future must first move our hearts and minds. That’s how ideas are born, and that’s how we will acquire the strength we need.

“It is my opinion that there is no alternative to investment in a sustainable future.”

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Wolf-Henning Scheider communicated the ideas of the #MobilityLifeBalance initiative at numerous events.