CONTINENTAL'S GREAT WHITE SHARK
It was 20 years ago when ITT Corp. gave Hubertus von Grunberg, then just 34, his first shot at running a factory, a money-losing auto-brake manufacturer in Brazil. Since 1991, Von Grunberg has been chief executive of Continental, the German tiremaker that recruited him from ITT. But he still gets animated thinking about how he turned that Brazilian plant around. ''If you're the right kind of guy to run a profit-and-loss center, you'll never let go--like a wild animal once it gets its first taste of blood,'' he says.
Von Grunberg clearly is that kind of guy. Last year, he shut a Continental plant in Ireland, and he's in the process of closing another at the company's home base in Hanover. Now, he is warning unions that he may shut down another big chunk of European production, probably shifting it to a lower-cost country, such as the Czech Republic or Portugal.
BURNING RUBBER. In the past four years, von Grunberg has slashed Continental's total employment by 5,300 jobs, or 11%, making him one of Germany's fiercest cost-cutters. In the process, he has won accolades from investors, who have driven the share price up to $26.50--more than double its level 18 months ago. That's impressive given that Conti is scrapping with rival Goodyear Tire & Rubber Co. over market share. ''We both have the same goal--to be the clear No.2 in Europe behind Michelin,'' says Peter Blackford, Goodyear's European director of sales. That rivalry, plus rising competition from Korea, has caused tire price wars.
Yet Conti has made financial progress under von Grunberg. Last year, earnings jumped 24%, to $110 million, on sales up 1.7%, to $6 billion. Its net margin remains a slim 2%, but profits have tripled since 1993. One reason: Continental General Tire Inc., the troubled U.S. operation acquired in 1987, finally emerged from the red, earning about $54.7 million on sales of $1.3 billion in 1996. Analysts predict continuing improvement. Markus Plumer of Dusseldorf's WestLB Research figures Conti's earnings will double again by 1998, to $243 million on sales of $6.9 billion.
Higher profits--and accompanying share-price gains--are a key tool for motivating employees because von Grunberg is one of the few German CEOs who have instituted an employee stock-ownership plan. At the same time, his saber-rattling over factory closings is helping him squeeze concessions out of Conti's unions. That's important in a business where labor accounts for almost 40% of overall costs. In early July, workers at Conti's Hanover truck-tire plant agreed to increase their workweek by 75 minutes, to 383/4 hours, cut breaks, and make other concessions worth about $20 million.
By forcing his European plants to compete with one another for jobs, von Grunberg hopes by early fall to extract concessions worth $17.1 million from a Belgian plant and more givebacks from an Austrian plant where the workforce was already slashed last year. But even with lower labor costs, he wants about 40% of the 50 million tires Conti sells annually in Europe to be produced in low-cost areas, up from 25% now.
Von Grunberg doesn't want to be known only as an ax-wielder, however. To boost margins, he is moving Continental into higher-value-added businesses, such as selling ride-control systems, tire-pressure monitors, and wheel-and-brake assemblies to carmakers.
GOING MOD. Conti also is testing a new modular manufacturing system at one of its European plants, producing basic components at cheap labor plants in places such as the Czech Republic and doing final assembly in small, modular plants sprinkled around the globe. If it works, this system would pare inventories and get tires to market faster. Von Grunberg hopes to be producing as many as 10 million tires a year this way by 2002, and he predicts the system will save up to $40 million a year.
Von Grunberg doesn't think of himself as a tough guy. Tall and pallid, he still has the somewhat geeky mannerisms of the PhD physicist he was before joining ITT at 29. He admits that if ITT hadn't prodded him into learning about business, he probably would have stayed where he started, in product development. ''I try not to act tough,'' he says, ''but I do whatever I have to do to make this company survive.'' Lately, he has been doing that and then some.
By Thane Peterson in Hanover
Updated July 17, 1997 by bwwebmaster
Copyright 1997, Bloomberg L.P.