Colorado Springs, Colombia – When Andreas Gerstenberger returned to the US to lead ContiTech AG's Industrial Fluid Systems global business unit last November, he didn't expect to find the hose business exciting.
But after spending 21 years in Continental AG's tire business, holding a variety of positions both in Europe and the US, the ContiTech executive vice president liked what he found in the business, as well as what he sees as a bright future.
“My first impressions are different from what I thought in the beginning,” Gerstenberger said during an interview at NAHAD's annual convention in Colorado Springs.
“Hose really is an exciting business field to be in. In the industrial fluid arena, we basically are working with so many different industries that the variety I have experienced since I started positively surprised me.”
His road to the Industrial Fluid Systems headquarters in Fairlawn, Ohio – the first ContiTech global business unit located outside of Germany – started when he joined Continental in 1994. Gerstenberger spent his first four years at the tire maker's headquarters in logistics. Then he moved into the original equipment side of the business and was responsible for business with Ford and General Motors.
After two years, he relocated to Auburn Hills, Michigan., to oversee the OEM business with all US auto makers, both domestic and transplants. From there it was on to Charlotte, North Carolina, where he led the US sales and marketing aftermarket team, a post he held until 2009. After nine years in the US, he moved back to Europe and oversaw a retail unit that operated sales and service outlets in the Europe, Middle East and Africa region.
Then he was approached in July 2015 to gauge his interest in returning to the US, change divisions and lead the industrial hose business. That was not long after ContiTech had closed on the Veyance Technologies Inc. acquisition, and it was determined the hose unit should be based at the former Veyance headquarters because the industrial business was larger in North America than what ContiTech had in Europe.
Gerstenberger said there has been more movement in recent years of staff within Continental, particularly between its two rubber businesses. There were several solid reasons for him to get the nod to lead the unit.
He had strong ties to the US, was familiar with business practices both in Europe and the US, and had learned quite a bit from when Conti had worked to integrate General Tire into the company early in his career.
“I also have a pretty broad business perspective,” he said, “from the OE side, from the headquarters side and from the aftermarket. I've basically worked in all parts of the value chain. So I was very honoured and glad to be asked to take over this newly formed business unit.”
Learning the ropes
During 2015, ContiTech accounted for about $5.9 billion of Conti's $42.1 billion in overall sales. The hose business – both automotive and the industrial unit that Gerstenberger leads – made up the biggest slice of ContiTech's sales. And the parent company's goals include both to increase the percentage of its industrial related businesses to be closer to its automotive revenues, and also nearly double ContiTech sales by 2022.
“The tasks I have are to continue the integration of Veyance into Continental and, in an appropriate time period based on our strategy, to grow the industrial business within ContiTech faster than the market.” That will be accomplished both through organic growth and future acquisitions.
With the integration of Veyance into ContiTech still ongoing, the executive said there remains potential for further efficiencies in such areas as the plants, IT functions and product development.
“What I experienced is a great optimism and positive mindset on the American but also on the European side to develop the unit further,” he said. “It's enthusiasm about a better and bigger future than what we had as single entities before. There is a positive spirit and mindset you can feel almost everywhere you go – on the customer side as well as inside of ContiTech.”
Most of the ContiTech industrial hose business is sold through distribution, and Gerstenberger was pleased with what he heard.
Nearly every customer said the Veyance purchase was positive for both sides; they were pleased to see Veyance under a strategic, rather than private equity owner; and they were surprised how smoothly last year's conversion from Goodyear-branded products to the Continental/ContiTech brand went.
“Even though we have changed on the retail side, there were no major hiccups in that brand change,” he said. “Goodyear has good brand awareness in the US, but thanks to our engagement in automotive and tires over the last decade, the ContiTech brand has a by-far better awareness now than it had five to 10 years ago.”
Strategy going forward
Gerstenberger also found a customer base that had heightened expectations and wanted to know the firm's strategy for future growth. And with the diversity of markets and the inherent need to convey fluids, he sees much potential.
“There's a broad land of opportunity to operate a business within that landscape,” he said. “The challenge is, "How do you do that so you provide solutions to the customer?' “
Gerstenberger knows this for certain: the key to tapping into that potential doesn't include operating under a status quo centred merely on developing and selling hose products.
“I think we need to transform from the proven business model we have to a new business model, which is providing industrial fluid solutions,” he said. “The proven business model works very well, but like in other industries, I firmly believe that a good company challenges itself on an ongoing basis.”
That means to follow the mantra to be “in the market for the market,” he said. “The way our business is done in the US is a little bit different than it is in Europe or Asia, but the fundamentals are the same everywhere.”
Gerstenberger said the strategy is to act more market-driven, or work from the outside in, rather than the other way around. “You develop, produce and provide solutions, which are more than just products,” he said, noting that can include supplying predictive maintenance services, using digital tools and relying on data for guidance. “We want to do that together with our distributors and other partners.”
He talked about connecting the old world with the new world. “The old world is we develop, produce and sell. The new world is you connect, you use information, you digitise. You have smart factories, you use automation, and you work with the internet and e-commerce.”
Manufacturing footprint
One aspect of the integration that remains ongoing is what philosophy will be followed in factories around the globe. Gerstenberger said Veyance – particularly in North America – often operated factories that were 100 percent dedicated to industrial fluids. ContiTech in Europe, on the other hand, often had “zebra plants,” where several different business units shared one plant.
“That is something where we as a company have to decide in which market does which production process make sense,” he said. “We have not yet 100 percent defined what that will look like. What we have defined in my unit and ContiTech in total is that our production process needs to be transformed from the old way of doing things to new.”
Gerstenberger's unit has room for improvements in its product portfolio. He said it is unrivaled in terms of rubber-based industrial hose, but it needs to make progress on the hydraulics side of the business and in polyvinyl chloride products.
The business climate in some sectors – particularly oil and gas – also has brought about changes in ContiTech's industrial hose operations. Gerstenberger said a hose plant in Turkey was closed earlier this year, and production schedules were adjusted in North American factories that had a high dependency on oil and gas.
“Besides all the optimism, we also have some tough homework to do,” he said. “We have to look at our manufacturing footprint and how it serves the market and industry, and we have to decrease our dependence on the petrochemical industry.”
He likened the diversification strategy to that of a chair, which starts to be stable with three legs, is better with four and is really safe with five.
“So if your business portfolio has four or five strong legs to stand on from an industry, customer, product and global/regional perspective, then it is easier to balance uncertainties.”
Gerstenberger said the oil and gas sector was so strong from 2012-14 that many firms understandably focused on that business while neglecting other opportunities.
Those particularly serving the production side of oil and gas were hurt, while those on the demand side weren't impacted as much.
But many suppliers to the industry, including ContiTech, were caught by surprise when plunging oil prices led to such a precipitous drop in business.
“That led to a very rough wake-up call for everybody,” he said. “We will balance our portfolio of business activities and focus more than in the past. It doesn't mean we don't like petrochemicals, but there will be other industries that we put more focus on.”