Bosch, a leading manufacturer of automotive components, had a particularly tough 2009, both globally and in India. Car sales were down, but more than that, companies stemmed production which hit suppliers directly. 2010 looks to be better, says Bernd Bohr, chairman of the Bosch Automotive Group. The company, which supplies parts to the Nano, is betting big on the car’s diesel version. Bohr, who also holds regional responsibility for India, shares his thoughts on the rapidly growing Indian market, particularly the entry of small cars, with Vikram Johri
Considering that India is now known as a small car hub, how much of your business, now and projected, is likely to come from this segment?
The sales per small car are lower than those for a large car—in Asia right now, that figure is close to ¤100 and we hope to take it to ¤200 over the next three to four years. Business success in the small car segment is a game of volumes, ie, multiplying this x-hundred euros per car by a large number. With low-priced vehicles (LPVs) opening completely new market segments, such as the current two-wheeler consumers, we are hopeful of large numbers. We are still in the phase where we are developing the business, we are investing in this segment, but it’s too early to put numbers to it.
What sort of briefs do you get from small car manufacturers in terms of design, pricing etc?
There are extremely tough cost targets that must be met for success in the LPV market. They are only doable by adapting the technology to the real needs of the customer. The experience with the Nano shows that we had much more leeway as a supplier to come forward with proposals to meet these targets. For instance, the software complexity of the engine management system can be reduced to about one-third, ie from 100 per cent to 30-35 per cent, which means the controller does not have to be that powerful, the memory kit can be smaller etc. All this means less power consumption, less cooling requirements—which in turn can be translated to reduced costs. These are the significant steps which need to be taken, and that for us is the big difference between working on LPV projects and working with some of the more established original equipment manufacturers (OEMs). Of course, the market opens new challenges but it is also technically very exciting for us.
Speaking of challenges, there is uncertainty about the implementation of Euro IV emission norms, since the government hasn’t upgraded refineries to supply eco-friendly oil. Have you made significant investments in this field?
All our systems are prepared for Euro IV, which entailed significant engineering changes. The uneasiness that we feel at this point of time is not so much on the development side, but on the production side. In the March-April time frame, are the customers going to order Euro-X or Euro-Y? The high volatility in this is a big headache. So, we hope the government comes up soon with a milestone plan that is reliable and can be taken as a reference by us and our customers.
What sort of pricing pressures do you face from car companies, given that they have the option of importing cheaper parts from China?
The good thing is that we not only started early in India with our industrial activities over 50 years ago, but also in China. So, in China we are the market leader in gasoline injection and diesel injection. We are well placed with antilock braking systems (ABS) through local development centres and local production. I always say, if anything develops in the market that could be extremely competitive, let’s go there. Many years ago, we went to Japan, we went to China, and now we are in India—well, we have been here a long time—but we are glad to be well-established here at this time. With the automotive industry in India growing, of course local competitors will also grow in size and power. Customers in the European and North American markets are looking very keenly at the emerging markets and that motivates us to be competitive. So, to answer your question, quite on the contrary, we want to make use of the growth potential of India and of China.
What is the nature of your collaboration with car companies? Do they merely share inputs or do they work with you closely on design details?
The components that Bosch typically delivers are very much the heart of the car, such as the engine management system and the ABS system. For such systems, customers involve us very early in the design phase, and it’s basically co-development work—what in industry parlance is called co-creation. For instance, the customer may do the design of the combustion system and we do the parameters for the injection system. So, it’s growing together over a two- or three-year time frame.
Speaking of emerging markets, one of our strengths is we go in early with development capacity. When we talk about globalisation, a lot of competitors say, we put factories. I always say, let’s put development centres first, work together with the customer, and the factories can come after that.
More From This Section
You have six units operating in India. Any plans to bring them under one umbrella?
No, I think we are happy with the current structure. We have different shareholdings in the different units, but functionally, it’s like one company.
Are you leveraging Indian capabilities for your global business, in areas such as computer-aided design (CAD) and testing?
Very much so. We started 15 years ago with software development in India for our projects in Europe and the US, and we have expanded that every year. We currently have 6,000 engineers in Bangalore and Coimbatore working mostly on projects outside India. We are not only using Indian expertise and capacities in software but have moved step by step into other engineering functions—developing hardware and mechanical design. Overall, we have a third of our global engineering force in Asia. We are a bit ahead of western competition here.
Bosch is working on the Nano’s diesel version. Does that include working on the heart of the car, as you say, or do other components also come into the picture?
For the Nano, we supply the engine management system for the gasoline and diesel versions. We supply the larger share of the brakes, the generator, and the injection-starting device known as glow plugs, which are specific to the diesel engine.
How badly was Bosch affected by the slowdown in the global economy last year, and specifically, operations in India?
Globally, what really hit us was the downfall in car production, which was more badly hurt than car sales in 2009. So, all the OEMs reduced their inventories. In 2008, they produced more than they sold; it was the other way round in 2009. Worldwide car sales were down 8 to 9 per cent last year and production was down 18 per cent. That 10-per cent differential hit suppliers like us, because for every car that’s not built, we don’t sell anything. This, of course, is the average number—we were more badly hurt in the European, American and Japanese markets, which are our major centres. And within those numbers, bigger cars were affected much less than smaller cars. All this came together and we were down 20 per cent in 2009 on top of being down 8 per cent in 2008. So, the last quarter of 2008 was really terrible.
The good news is it picked up from April 2009. We hit the bottom, about minus 40 per cent, in March; since then, it has started to pick up. For next year, I would probably see 10 per cent growth, but that means we are still way below 2007. Taking 2009 levels, we would need nearly 35 per cent growth to come back to 2007 levels. So, 10 per cent growth helps, but it’s still a tough road to go.
As far as India is concerned, in the first quarter of 2009, we were about 20 per cent down year-on-year. Then April onwards, Indian markets started stabilising, so that by the second quarter, we were almost at the same level as the second quarter of 2008. So, for the first half of 2009, we ended up with a decline of roughly 10 per cent. Third quarter onwards, we saw the Indian markets developing well, even better than the previous year’s third and fourth quarters. So in the second half of 2009, we improved by almost 18-20 per cent. Overall, therefore, our growth for the year has been close to 5 per cent, which seemed almost impossible when we started 2009. As for 2010, with the tail wind from the last quarter of 2009, we are quite optimistic.
How does Bosch plan to leverage alliances in the auto space, such as the recent one between Volkswagen and Suzuki Motors?
All such alliances are trying to generate synergies which, for them, are synergies in purchasing, so they combine volumes and compare prices. That has an influence on our business and we try and adjust to it. The good thing for us is that we have a global presence. Both Suzuki and Volkswagen are good customers of ours, so if the two go together, we are not left out. That is a strength pure Japanese or pure German suppliers don’t have.
Bosch has strategic tie-ups with IOC and BPCL in India. Do you plan to have more such alliances?
We basically use their retail networks. We distribute spark plugs and other automotive after-market products through them. It’s part of our after-market strategy, which also consists of Bosch Car Service. It’s a tactical move on which we deliberate from time to time, depending on market conditions.