Earlier this month, middle-ranking exhaust suppliers Bosal and Delphi joined forces to offer complete exhaust systems for the global OE market. While Delphi brings expertise in the ‘hot end’ of the exhaust (from manifold to the catalyst), Bosal’s know-how lies in the ‘cold end’ (from muffler to tailpipe). Matthew Beecham talked with Bosal’s Karel Bos Jr and Delphi’s John Fuerst about the new venture and its prospects
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The non-equity based alliance, to be known as Bosal Delphi Complete Exhaust Systems, will bring together the specific expertise, facilities and resources of each party to offer a total customer solution around the globe for any vehicle programme and all current fuel options. Prior to the deal, Bosal and Delphi operated medium-sized exhaust businesses in a sector increasingly dominated by larger companies.
In separate interviews, Karel Bos Jr, CEO of the Bosal Group and John Fuerst, Delphi Corp’s business line executive for exhaust systems talked in one voice about their newly formed venture.
just-auto.com: What attracted the world’s largest components supplier to team-up with family-owned Bosal?
John Fuerst: Delphi is in many businesses. In some businesses we have significant market share. For example, we are a global leader in the diesel FIE [Fuel Injection Equipment] market. In the exhaust market, however, we are a relatively small player ranking alongside Bosal. So we feel that we match up well with Bosal in terms of size, scale and scope and are complimentary in terms of our cold end and hot end focus. Our geographical base and customer portfolio also fits well. One of the main motivators for the alliance is the trend for customers’ desire to source a full exhaust system. We wanted to be able to provide that full system from a single source.
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By GlobalDataKarel Bos: For the past 20 years, Bosal and Delphi have been talking about the ways in which we could work together. Besides the complimentary product portfolio in exhaust catalytic converters, there has always been also quite a large geographical fit. Delphi has got a global reach whereas Bosal is concentrated in Europe, Southern Africa, North America and South America. But we are not at all present in Asia. This gives us the reach to support our customers worldwide in terms of sales, engineering and manufacturing from engine block to tail pipe. There is virtually a 100% complimentary fit.
just-auto.com: What makes this alliance so unique?
Karel Bos: It is unique in several ways. First of all, it is a non-equity joint venture. We would rather not call it an alliance but a non-equity joint venture because we want to have it look, feel and smell to the outside world as if it is a joint venture. Another point that makes it unique is the fact that we don’t have the integration issues that are involved in a merger. It means that we keep the strength of both companies without having to deal with the problems often associated with an equity joint venture. We have landed our first contract in Europe and also won several contracts together in the US.
John Fuerst: Our discussions didn’t really catch fire until we started considering how much of a single entity we could be without going through the equity exercise. That is really what hatched the non-equity joint venture concept. As we talked through how we would deal with customers, use each other’s plants and the type of economic agreements we could put into our contractual alliance that would help us work together seamlessly like an equity venture but without the cost, oversight and structure that would be required in terms of reporting. So we concluded that we could get most of the benefits of a non-equity joint venture without the costs. We spent a lot of time putting this together. Bosal and Delphi had initiated a teaming arrangement in 2001. Under that agreement, we have won some business in North America and Europe. The non-equity joint venture is an extension of that in terms of our ability to integrate and be faster to market. So we have worked together a lot over the years. Even so we worked long and hard to come up with very detailed arrangements with the non-equity joint venture that could act as a single entity in the market place.
just-auto.com: What is the non-equity joint venture’s advantage over its competitors?
Karel Bos: Our competitive advantages are that we keep the character of our business in cold-end such that we are a family-business – we can still make very quick decisions. We are very flexible. We also now have access to an unrivalled sales, engineering and manufacturing international network.
John Fuerst: We shall also be able to offer some cost advantage because we are not going to be looking at greenfield sites for cold-end in Asia Pacific as we have got those sites for Bosal and we are not going to be looking at a greenfield site for hot end work in Michigan or Georgia because Bosal has those sites already. From a customer interface standpoint, we now have a complete global footprint to deal with customers worldwide. We are able to work with them in all the regions of the world. On the technical side, we have the expertise in our company to help customers solve exhaust system problems related to the engine management system. And on the Bosal side, we have the technical innovations such as their lightweight exhaust concept.
Karel Bos: In addition, we can now consider smaller contracts in emerging markets. For instance, let’s look at India and China. The contracts being offered there are in the range 20,000 – 30,000 units. It is very difficult to set up a factory for that number of units. But with our non-equity joint venture, we can use one of Delphi’s facilities and profitably manufacture a contract for that number of units. It is a very exciting opportunity.
John Fuerst: That is absolutely correct. One of the principal benefits of the alliance is that we have created agreements on precisely how Delphi could invest capital in a Bosal plant to produce hot end products, potentially very close to a customer such as in their Bethune plant in France or Michigan plant. Although we don’t have a plant in Michigan, we could put investment into Bosal’s Michigan plant for hot-end work and then leverage the existing footprint. By the same token, in Asia-Pacific where we have a footprint and Bosal does not, they will be able to buy cold end capital, consign it to us in our plant, train our people to operate that cold end work and use our infrastructure in Asia Pacific to represent both systems to the customer. So we will be able to use our sales organization and the customer will be able to use our footprint and manufacturing people but it will be Bosal capital and investment in the plant in order for the cold end to be produced. On that invested capital basis, Bosal will receive their share of the return.
just-auto.com: The joint venture is a one-stop-shop for existing and new customers. How will it be organized and managed in terms of sales, engineering and manufacturing?
Karel Bos: We have targeted and prioritised the contracts and customers that we want to go after. We have looked at our sales resources in both our companies and allocated customers to those sales resources. So in certain regions, Delphi will be representing Bosal and in other regions, Bosal will be representing Delphi.
John Fuerst: Based on existing footprint, capability and headcount, we have identified which one of us ought to be taking the lead with certain customers. Initially, we will have some overlap as we transition because there are customers that we both call upon right now, for example General Motors. But that is the direction that we will go. We shall have cross-trained and capable sales people in both companies that will be competent to represent both companies.
Karel Bos: In terms of engineering, we will try to integrate it as much as possible through project teams responsible for delivering total exhaust systems. Those teams will be staffed by Bosal and Delphi in order to ensure we reach an optimized design and achieve the specification for the contract. I wouldn’t be surprised if at some point we move our development or engineering facilities into a Delphi facility of vice versa.
John Fuerst: We also see it evolving in both directions. Right now we don’t have plans for consolidation but I can say that in our Flint technical centre, we have desks carved out for Bosal people. Bosal’s technical centre in Michigan also has office space where Delphi people will be working. There will also be an exchange of personnel at our European technical centres.
Karel Bos: Again, the non-equity joint venture should look, feel and smell to the customer as if they are dealing with one company.
just-auto.com: Who are you targeting?
Karel Bos: The big automotive OEM customers have been targeted. We will be defining some more customers in Asia. So we have prioritized them but can’t say the order. The sales and engineering resources have been allocated. So we will now go after the business.
John Fuerst: Our first priority in terms of growth will be pursuing on a full systems basis those customers which currently only one of us currently has a position.
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Global market review of exhaust systems – forecasts to 2011 – 2nd edition
