HANOVER, Germany—Continental A.G. said it will increase cost-cutting measures this year after posting a net loss of $1.61 billion in 2008 compared with a profit of $1.49 billion in 2007.
The tire maker's 2008 sales jumped 45.8 percent to $35.5 billion due to its acquisition of Siemens VDO Automotive in 2007.
The company's rubber and tire group's operating result was “outstanding” in light of difficult economic conditions, CFO Alan Hippe said. The group posted sales of $13.7 billion and an EBIT (earnings before interest and taxes) of $1.44 billion.
Continental's automotive group achieved sales of $21.8 billion.
“The start into the first quarter of 2009 shows just how great the current year's challenges will be,” said Conti CEO Karl-Thomas Neumann. “The slump in sales, particularly in the automotive divisions, is likely to accelerate in the first half of 2009.”
Conti didn't specify where it will cut costs but noted it reduced its work force to 139,155 after laying off 12,499. Contracts with some 5,000 temporary workers were not extended.
The company also said it is in “constructive talks” with its controlling shareholder, Schaeffler Group, to find ways the companies can cooperate.
Schaeffler is a privately held firm owned by billionaire Maria-Elisabeth Schaeffler and her son Georg. It is seeking a German government bailout and over the longer term plans to raise capital from an investor when it can find one, according to Conti.
Conti's $1.6 billion loss likely will be a catalyst to accelerate cooperation between the two firms. “All options are being discussed” to boost synergies between the firms' automotive divisions, Neumann said.
Conti, burdened with a net debt of $13.4 billion, is not paying out dividends for the year. The two companies have formed a joint team to move the integration process forward, but it will be a few months before they have a plan that can be implemented completely.
There hasn't been a decision on whether the solution the team is discussing will entail cooperation exclusively or involve the integration of the two automotive units, Neumann said.
“We don't want to be part of the problem, but rather the solution,” said Neumann, who doesn't want to stoke the recent heated debates about Schaeffler's takeover of Conti.
Instead, he is emphasizing the short-term opportunities for action in purchasing and the development of technology.
For example, he sees possibilities in the joint purchase of steel. Since some of Conti's suppliers have fallen into financial difficulty, Neumann speculates there may be alternatives among Schaeffler's sources of materials and components.
There are a “handful or two of projects” where Conti and Schaeffler specialists work together, he said.
Neumann sees the joint development of systems as a long-term strategic goal. For example, he expects new products combining mechanics, software and electronics to be developed, especially for the powertrain area.
One obligation stands above all these measures: to continue to reduce the debt from Siemens VDO.
“Debt reduction has the highest priority,” Neumann said.