Gian Maria Olivetti joined Federal-Mogul in 2007 as VP, pistons, rings and liners. He was previously at Fiat Group, where he was executive director, worldwide engines and transmissions, responsible for Iveco.
He talked to Simon Warburton at Federal-Mogul’s recent Media Technology Day at the company’s Wiesbaden plant near Frankfurt about key elements of the business including legislation, the future of ICE engines, CO2 emissions and materials.
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j-a: Do you view drives towards electric vehicles as a potential challenge for Federal-Mogul’s future business opportunities?
GO: Clearly the trend towards electrification is well-established. Every year I go to the Vienna Symposium [and] every year they are talking in ten years there will be 5%-10% – it does not mean full electric cars will not come but we are talking about…10%.
Hybrid is seen as more and more mandatory [in] cars of a certain weight and class. But there will still be 80%-90% internal combustion engines in 2030.
In buses, the penetration of hybrid is very much related to ability of the local government to pay a lot of money. The difference with cost compared to cars is much higher.
The future of heavy duty truck…is internal combustion engine 98% – that at least is our view.
j-a: Do you think the market has made up yet for ground lost during the downturn?
GO: If you speak about heavy duty, we think we have not still recovered what has been lost. North America was growing fairly well in 2013, around 11%, but is still not the level [of] three years ago.
In 2014, North America will grow around 3%, so the recovery is slowing down. The situation is far from what was the beginning of the crisis.
Cars are a little bit different – it depends on the country. 2013 was not a very good year for cars in Europe. We still think Europe will be weak in cars – maybe slightly higher in 2014 than 2013.
It was extremely good in China and North America was good. China is steadily growing – there was no real crisis in China.
We think by the end of 2014, North America will reach more or less the level before the crisis. We don’t think in the next two to three years we will have a similar downturn [although] volatility will still remain.
We are not pessimistic, but we are very well aware volatility will remain in the future.
j-a: Is there more restructuring to come as companies emerge from the recession?
GO: We were restructuring quite heavily in the downturn in the US and to some extent in Europe. Europe and North America, we are fewer people than in the past, not significantly, probably one digit, not two digits.
In 2014, we will be more or less at the level of pre-crisis, because of the growth in growing markets, Brazil, China, India and so on.
Going forward in Europe we have definitely an over-capacity. There is in the order of 10% over-capacity both for cars and heavy duty.
Some companies will be obliged to do some significant restructuring. Particularly companies not working with premium product range.
j-a: What is your prognosis for the internal combustion engine [ICE] as alternative fuels and powertrains come on stream? Do you see further emissions legislation?
GO: ICE will remain dominant for cars – this race to lower CO2 will not finish. After 95g [CO2 limit] I see probably something around 70g – it is just a question of time.
I don’t think at least for the next 20 years, full electric will significantly contribute to CO2 reduction. The percentage will be so small, there will not be a significant contribution.
We are very prepared for hybrid technology [and] lower consumption in downsized engines.
j-a: Do you think automakers’ points of view can influence legislators when it comes to emissions regulation?
GO: Historically, it was quite difficult to influence the European Parliament, but it will become even harder. In the US in the past, there was quite a good possibility to do lobbying, but I see now [it is] more and more difficult.
In Europe [people] will be less and less willing to have sports cars than in the past [but] more and more willing to have eco cars. I see that in young people and also in the middle and upper class.
I am in China every single month and every month I see what is happening. Sometimes it is difficult to see the hotel in front of you – that [pollution] will be a real issue in China. I see also an issue related to industry – not just related to cars and trucks.
Our penetration in China is related to emissions regulations in the sense our components are high technology content compared to local suppliers. We are involved as soon as new legislation comes.
j-a: There has been discussion of a slowdown in Russia – what is your view?
GO: Russia – to my point of view – is still a question mark. It was always a promise of [a] growing market and growing technology, but I see it growing very slowly. Emissions legislation is proceeding slowly.
j-a: What is your opinion of alternative materials and lightweighting?
GO: I don’t see a revolution in the direction of lightweight material. I see a trend continuing to downsize the engine. Look at how many three cylinders will be in the market in the coming years.
I think people are [prepared] to pay for consumption and also it means environmentally-friendly because consumption means CO2.
j-a: How does Federal-Mogul view the aftermarket at the moment?
GO: The aftermarket [is] challenging for a number of reasons. First of all because products stay for a short time so you have to renew your range of aftermarket very fast. The business model for aftermarket is changing.
There is more competition on the bigger players that go directly on the aftermarket and distribution channels. There is more consolidation so there is a modification of the business model and for us, it is a challenge. We are addressing [this] now.
j-a: What is your estimation of the lead-free drive?
GO: Lead free is absolutely a given for cars and more and more and more is a given for heavy duty. It is not just lead-free, it is also other legislation. It is also other legislation around the material – for example conflicting material.
We are very well equipped to handle…reduction of non-desireable material, not just what is really dangerous like chrome or lead, but also minerals where conflict is in progress [DRC for example]. Not just complying with legislation, but to push for legislation because for us it is an advantage.
j-a: Can you envisage Federal-Mogul branching out into other component areas?
GO: We are still very much focussed on engine components – all the components around the combustion chamber. Our focus is very much on the heart of the engine – we are able to offer something [a] bit more.
Other area [s] in the future, I cannot exclude, but we will try to stay in the area of powertrain because we need to keep focused.
j-a: Where do you stand in the steel versus aluminium debate?
GO: Aluminium is very expensive. There are competitive materials in the field of steel with high resistance. I don’t see in the future, aluminium winning the battles. Aluminium consumes heavy energy.
j-a: Can you envisage Federal-Mogul producing more of its own supply needs?
We have a nice balance in our manufacturing footprint between make and buy. I don’t see the need to make significant changes. We are relatively well vertically integrated.
We don’t have an issue with the supply chain – we are well-balanced.
j-a: Federal-Mogul has developed IROX polymer-coated engine bearings to address challenges with frequent stop-start vehicles. How has that initiative been received?
GO: IROX has been a big success – growth in volume has [been] incredible. We are now about to place our 17th line. More than 30% of our product by the end of this year will be IROX.
If you are first, you are first. Once the investment is done and production is done, after, it is difficult for other people…they have to fight on price.
The important thing for us is to be first in the market – that is the key.
