Privately owned Bosal is one of the industry’s leading manufacturers of car exhaust systems and is growing. The firm has also taken over Oris to become Europe’s number one towbar producer and maintain momentum. There’s also plenty of investment in emerging markets. Dave Leggett recently spoke with Karel Bos, CEO of Bosal.
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DL: How is business this year?
KB: We thought that business would be more difficult than it is. From a sales and results point of view we were satisfied with the way the first quarter ended.
DL: What are the positives?
KB: The good things have been the aftermarket in exhausts and also towbars. OE in towbars has been positive too. We acquired 51% of Oris [a towbar manufacturer] in a joint venture last year and they make some other products too – like windstops – which are selling quite well. There are also roof-racks for cars and delivery vans which are selling very well.
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By GlobalDataBut there are issues for us to deal with too – such as price compensation for steel price increases. That’s very difficult. The increases have been very significant both from a surcharge point of view as well as from a base material point of view.
That doesn’t make life easy, but if I compare our situation with that of some of our competitors, I think we’re doing better.
DL: So Bosal’s OE business is subject to some pressures?
KB: Volume-wise it is doing okay overall, but in the United States it’s depressed – from both a sales and profitability perspective. And steel price compensation is an issue. When you have a raw material component in your sales price that accounts for 70-80%, you can’t just absorb a 15% rise in base metal price from the steel industry – there is just not enough margin for that. Even if it’s split 50:50 that’s 8% and if you have 20% added value and profitability then taking 8% out is just way too much. It’s still too much if it’s 4%.
DL: What about Bosal in emerging markets?
KB: There is plenty going on.
We have started production in the Ukraine for ZAZ and we have also acquired a majority interest in a towbar manufacturing business in Russia.
We’re setting up a new factory near to Moscow for the manufacture of the [Renault] Logan exhaust system.
Our factory in Iran is starting up and apparently all the Logans that they are planning to manufacture in Iran this year have already been sold – which is good news for us.
We have also started up a trading company in China and we’re building a new plant in Brazil for our jack business.
We have also been asked to quote on additional Honda motorcycle business in Brazil and we are seriously thinking about a new plant there for that.
In addition, we are building a new plant in Turkey and one in Hungary – there’s a lot going on at the moment.
DL: Do you personally spend a lot of your time visiting these places?
KB: Since new business development is part of my responsibility, then yes – it’s what I do.
DL: The signs look good for the Renault Logan in Iran?
KB: Yes, very good. But Iran is not an easy place for a Western firm to set up a business. It’s the most difficult place that we have encountered.
But I think Renault is following exactly the right strategy with that car. I was in Morocco recently and there are large numbers of Logans there – also made locally. With local manufacture in emerging markets they will take big market share. And we’re following Renault wherever it is made, of course.
If the volumes are on the low side and we can’t set up a plant, we look for a licensee. But if the volume is large, we set up a plant ourselves. And we can use that plant as a platform to supply other OEMs or the aftermarket with other products that we have in our portfolio.
DL: How are things looking with your Ukraine operations in terms of business development and the market?
KB: ZAZ is the largest car company in the Ukraine and we have a joint venture with ZAZ. They have got very ambitious plans to expand into Russia. They have also bought the FSO business. We’re very happy with that partnership.
DL: Turning to Bosal’s alliance with Delphi, what are the main benefits for Bosal?
KB: In North America we were knocking on DaimlerChrysler’s door for a very long time and never got in. Delphi introduced us and now we supply the Jeep Wrangler platform with an exhaust system and we supply some parts for the Dodge Ram. We’re in through the door there and now we are quoting on all new business at DaimlerChrysler.
Delphi has also given us a global footprint. We are not present in China and Japan and they have given us the possibility to support business in those places. If we land business there, we can also manufacture in their plants – so we can quote on new business now. The entry barrier to those markets – for us – is therefore lowered.
China makes a lot of cars, but the volume per platform is often not very large. It is difficult to set up a plant for 30,000-50,000 exhaust systems. Working with Delphi gives us presence, gives us coverage and gives us possibilities if we land a contract.
In Europe I think they [Delphi] have benefited more from the alliance than we have, because we have very good contacts with the European OEMs.
But if you have an alliance there must be benefits for both parties. It has given us benefits and we are happy with that.
Of course, Delphi is a very much larger company than we are, and they are not family-run, are publicly quoted…there are strict procedures that such firms must follow and that is sometimes somewhat tedious to work with. We knew that from the beginning and we never considered having cross-equities holdings with Delphi. We wanted to keep our independence with regard to making decisions.
DL: How much integration with Delphi is there?
KB: For the customer, our sales teams are fully integrated. In R&D, teams are integrated and work together on systems that we have landed as contracts.
Our manufacturing is still separate, because there has been no need to integrate that side of things.
We act in the market as one entity: Bosal-Delphi Complete Exhaust Systems.
DL: Does Delphi’s Chapter 11 status in the US create any problems?
KB: It’s a problem with some customers – Nissan, for example. But it doesn’t hinder us in our relations with Nissan because our agreement allows us to pursue business independently if a customer has a problem with Delphi – and vice versa.
DL: You already mentioned emerging markets, but if we consider Bosal’s overall investment fund, where is it being mainly spent at the moment?
KB: It’s going a lot into Ukraine and Russia – and plenty to Brazil.
I’ve already mentioned Honda motorcycles in Brazil. They make over a million Honda motorcycles a year and we do all the toolkits – it’s closely related to our jack business there. We also make toolkits for cars and for Yamaha motorcycles. Honda wants to bump up output and they are capacity constrained. We are experts with regard to exhausts, but we are also well situated for motorcycle frame work – a lot of it is tube products, like handlebars, with stamped parts also welded and assembled – that’s all part of our expertise and we’ve been asked to quote on that work and we will look very seriously at that.
In Mexico, we are moving into new premises due to our growth – it’s a new 100,000 sq ft facility that we are moving into.
DL: What do you see as key new technologies and new product developments for your business?
KB: We are continuing to develop our radial-flow catalytic converter. We see that as a product that we can sell in emerging markets because there they often require local content and with that product there we only have to bring in coated strip and everything else can be produced locally. We are quoting that in emerging markets and in markets where the Logan is manufactured and the exhaust system is currently imported.
We use a lot of our lightweight exhaust system technology in our quotations to the OEMs; the next Megane, for example, will incorporate that technology as Renault seeks to take full advantage of it. By reducing weight, you reduce energy consumption and CO2 emissions, as well as other emissions. That’s a technology which we continue to push.
General Motors is extremely happy with our fabricated manifold, which is lighter and has very good emissions and heat management properties – we’ve had to bump up production on that particular manifold because that engine is a high seller.
We have just signed a development contract with BMW for their turbo steamer project, which is about recouping heat from the radiator as well as the exhaust via heat exchangers to improve engine efficiency – which can yield an improvement I believe of 10-20%.
We make high temperature heat exchangers for several different applications. We’re working with lots of companies – some automotive and some non-automotive (including a Combined Heat and Power – CHP – project for homes). It’s all grown out of our know-how in metal substrate radial-flow catalytic converters.
I should also mention the new retractable towbar from Oris. It’s a beautiful product that replaces the need to remove and refit towbars. It swings under the body of the car. We will exploit that product in the aftermarket too and there are plans to make it fully electrically powered, too.
There’s plenty happening across the board.
DL: How profitable is Bosal?
KB: As a privately held company we don’t really get into talking publicly in detail about our level of profitability. What I can say is that we aim to hit a profit target and we are expecting to hit that target this year. And we are profitable. Some segments are more profitable than others, of course.
We continue to grow and reinvest in the business. We have just built a brand new R&D facility in Michigan – we are constantly investing for the future. All the plants that we are building around the world are being financed internally, so we have no need to go to equities markets to look for capital.
DL: What do you think about the difficulties that some automotive supplier companies are in, particularly in North America?
KB: I think it’s a consequence of short-term strategy, of focussing on short-term profit rather than long-term and in doing that they have seriously endangered their continuity prospects.
And some of those companies have got into trouble and gone Chapter 11.
What I do feel as a competitor in the market is that I’m not very happy with the whole Chapter 11 business in the United States.
Look at what happens: a company that does badly – and hasn’t been run responsibly – goes into Chapter 11. They’ve not looked at long-term strategy, long-term profitability and long-term survival of the business. They then go into Chapter 11 and reorganise, all the shareholders lose their money, all the creditors lose their money – raw materials suppliers, banks, you name it – and the assets get sold for a fraction of what they’re really worth.
And that falsifies the competition because then you get a competitor who comes back into the market with a low asset base or low level of investment who can offer products at lower price than the company that has run its business responsibly throughout the whole period.
I feel that it is grossly unreasonable and unfair.
DL: Stepping back a little, what do you feel are the big challenges facing the vehicle industry globally?
KB: We all have a value proposition to make in the market and so do the car companies. A car company must design and manufacture cars that people want to buy. I believe that a lot of car companies are in trouble because they haven’t done that as well as they should have done.
Just look at Fiat – a couple of years ago it looked like it was heading for bankruptcy. If you look at Fiat now I think they are doing a great job getting out of the hole. Why is that? Because they are designing and making cars that people want to buy. And that’s their value proposition.
Look at some of the models that Ford brought out five, six, seven, eight years ago or General Motors in the late 1980s and 1990s. They were very bland.
And look at the difference Lutz has brought to GM. He and his teams are designing cars that are much more appealing for the public and as a result GM is – though not out of the woods – doing better. The question of course is, can Ford turn around their business as well? It will mainly come down to whether or not they are capable of bringing models to the market that people want to buy.
There are car companies that do that well: Toyota, Porsche, BMW, Audi and Volvo. These are the companies that are able to design cars and brand their product in such a way that they can still make money making cars.
And what do they focus on? They focus on the cars, not on squeezing the last drop of blood out of their suppliers. On the contrary, they build good relationships with their suppliers.
Profitability has far more to do with designing a car that people want to buy than squeezing your supplier base. It must cost the car companies an absolute fortune managing those suppliers that have gone into Chapter 11 in the US to ensure continuity of supply. There are whole departments dedicated to that.
If you add that cost to the general cost of buying components, maybe these guys should close those departments and allow suppliers a more reasonable price.
Here in Europe there’s the issue of the consolidation of the steel industry that the EU has allowed to happen. Price rises have followed the consolidations that have been allowed to happen. Component manufacturers who use steel are getting no or very little compensation from their customers to deal with that. It’s an extremely dangerous situation and the EU should be reviewing the big profits that steel companies are now making in Europe on the back of price rises that have followed industrial consolidation.
