Year in Review: Conti restructures with eye toward e-mobility

HANOVER, Germany—When Continental A.G. began its restructuring overhaul in 2019, a plan that was to take 10 years and be conducted in phases, it was with an eye toward a sustainable, environmentally friendly e-mobility market—one with assisted, automated, connected and zero-emission driving, and a continued focus on tire, industrial and end-customer businesses.

But when the coronavirus pandemic and subsequent decline of the automotive industry hit suddenly in the first and second quarters of 2020, Continental was forced to rethink its massive restructuring program once again, this time to align with the unexpected estimate that it would be at least five years before the automotive industry recovers.

Pushed by the pandemic beginning in February, the 232,000-employee company said in late September that its plans will affect thousands of jobs in North America and at least 30,000 jobs worldwide.

At least four North American facilities, numerous German plants and other international plants have been or will be shuttered, a plan that is expected to save about $1.17 billion per year by 2023, according to Continental. Toward the beginning of 2020, the company initially said the overhaul would affect 20,000 jobs globally and save the company more than $580 million per year.

"The current crisis is the largest, most severe one we have seen in the past 70 years," Elmar Degenhart, Continental's CEO at the time, said in September. Degenhart stepped down from the top post at the tire maker in November due to health reasons.

"So the aim of our plan is now to prepare for our sustainable success and to ensure the future viability of our organization," he said. "As important as these resolutions are for our future, the consequences can be just as painful for the employees affected."

The Supervisory Board of Continental A.G. approved the newest restructuring plan Sept. 30, adding a German tire plant in Aachen (to be shuttered in 2021) to the list of affected facilities, and disclosing that it would terminate a joint venture with Osram Licht A.G., signed in 2018 for LED and laser-based lighting modules, sensor solutions and associated electronics.

Conti said in September that it does not expect the passenger car tire market to grow in the foreseeable future—a market change that has been exacerbated by the coronavirus pandemic.

In North America, thousands of jobs will be affected by Conti's restructuring, between the initial, non-pandemic related restructuring disclosed in September 2019 with the closure of a hydraulic engine component facility in Newport News, Va., (740 employees) and a hydraulic brake component plant in Henderson County, N.C. (650 employees).

On Sept. 1, 2020, Conti said it would close a Vehicle Dynamics plant in Culpeper, Va. (200 employees), after saying in July 2020 that it would close an infotainment system and automotive electronics plant in Nogales, Mexico (2,000 employees).

While some of those "affected employees" will be laid off, others could be shifted to other facilities or re-trained for future technologies and locations, Conti said this year. The auto supplier added that the plan does not take into account the number of jobs that will be created in the coming years, such as those related to the projected growth in mobility, though the number of jobs that could be added in the coming years has not been disclosed.

The Nogales and Culpeper locations will close sometime in 2024. The Henderson County and Newport News locations, the latter of which is part of Conti's former powertrain division, a carve-out soon to be known as Vetesco, also will close in 2024.

Not all doom and gloom

On the expansion side, earlier this year Continental detailed plans to build a new manufacturing site in New Braunfels, Texas, to produce Advance Driver Assistance Systems—part of its focus on innovation and the opportunities available with the dawn of AI and EVs.

The greenfield facility will retain approximately 450 jobs in Texas and create an additional 130, Conti said this summer.

Continental Tire the Americas, citing the continuous growth of its executive staff, disclosed a $20 million investment in its Lancaster County headquarters in South Carolina for an office building for up to 400 employees.

At 88,000 square feet, the new structure will nearly double the amount of office space for Conti at the South Carolina campus.

In addition, the company is automating its processes, with the implementation of Industry 4.0 training for its global work force. Training will be offered in digitalization, plastics and rubber technology, additive manufacturing, 3D printing technologies and new drive concepts.

"The automotive industry is changing and development cycles are getting shorter," Conti said in late July.

As such, Continental established its own supercomputer for AI in late July of this year. It is operating from a data center in Frankfurt and offering computing power as well as storage to developers in locations worldwide.

AI enhances advanced driver assistance systems and makes mobility smarter and safer, bringing autonomous driving within reach of mid-term business plans.

And in early July, two major automotive OEMs made their bid to work with Continental for the production of innovative telematics and antenna solutions. Both projects build on Conti's 5G Hybrid V2X platform.

As it pertains to the ongoing restructuring, the focus on e-mobility will impact four Continental locations:

• The Roding, Germany, site that employs about 540 people in the production of hydraulic components for gasoline and diesel engines (high-pressure pumps). Closure is set for 2024, with about 320 production jobs to be affected. About 220 jobs will be transferred to "similar functional areas;"

• The Limbach-Oberfrohna, Germany, location, which employs about 940 people in the production of hydraulic injectors for gasoline engines. Closure is set for between 2023 and 2028, with 860 of those jobs to be affected. About 370 jobs will be transferred to similar areas;

• The facility in Pisa, Italy, which employs about 940 people in the production of hydraulic injectors for gasoline engines. Closure is set for between 2023 and 2028, with 500 of those jobs to be affected. About 440 jobs will be transferred to similar areas; and

• In North America, the Newport News facility, which employs about 740 people in the production of hydraulic injectors for gasoline engines. This closure was detailed pre-pandemic, in the second quarter of 2019.

In addition to the welcome news regarding e-mobility contracts, cooperatives and industry training, Conti did see an uptick for its third quarter earnings in 2020.

Its tire business reported relatively strong results for the quarter ending Sept. 30, with pre-tax operating income up nearly 18 percent on nearly flat sales driven by strong performances in China and the U.S.

Europe remained the lagging region, down 8 percent, with the key German and French markets down by 16 percent and 23 percent, respectively, according to the company.

Conti said OE sales of consumer tires were "significantly" below the comparable 2019 period, while replacement market sales of both consumer and commercial vehicle tires were below 2019 levels.

Conti received some validation for its tire segment in late June, being named a GM Supplier of the Year by General Motors during a virtual ceremony June 24.

Degenhart steps down

A surprising change in Continental A.G.'s top post was disclosed in early October, when Degenhart said he would step down as CEO due to health reasons.

The supervisory board of Continental A.G. appointed Nikolai Setzer, 49, head of the firm's tire business from 2011 to 2019, to succeed Degenhart, who officially stepped down Nov. 30.

"Continental is in the process of transforming into a technology and software company that, together with vehicle manufacturers, is laying the foundation for the sustainable mobility of the future," said Wolfgang Reitzle, chairman of Conti's Supervisory Board. "Nikolai Setzer has our utmost trust and confidence. The Supervisory Board is certain that he will push forward with and successfully shape this transformation."

Setzer's term runs through March 2024. He will continue in his position as spokesman of the Automotive Board, Conti said.

Christian Koetz, a 24-year Conti veteran, heads up the firm's tire division as Setzer's successor.