Opinion: CEO’s departure could out spotlight on future of rubber at Conti

Germany: Just over two years ago, Continental unveiled a major restructuring plan which, despite many root & branch changes, envisaged that the group would retain full ownership of its Tire and ContiTech operations

Describing ‘rubber’ as “the nucleus and origin of the 147-year-old Hanover-based company,” the executive board then stated that both units “will continue to be owned by Continental.”

But there was also a caveat: the top management noted that it had previously taken steps “making it possible to create a new legal entity out of this business.” 

Their conclusion that “no further steps need be taken for this at present,” suggested that there the status of the rubber businesses – with combined annual sales of €18 billion and over 102,000 employees – could change further down the road.

Two years on, Continental’s Tires and ContiTech units are under increased pressure due largely to structural over-capacity and technology shifts in the automotive industry.

These pressures have, of course, been severely exacerbated by the impact of the Covid-19 pandemic on sales and earnings at the group, which is now seeking a new CEO following the sudden departure of Elmar Degenhart.

In response to the market crisis, the executive board recently announced a reorganisation plan to reduce costs by €1 billion at Continental, which currently employs 242,000 and generates sales of around €44.5 billion worldwide.

Degenhart, who has been Continental's CEO since 2009, has a contract through 2024. He has faced criticism for several missteps including communication around the closure of a German tire plant in Aachen as well as an unusually harsh letter to employees in September 2018.

Those actions have undermined some supervisory board members' confidence that he is the right executive at a time when the automotive industry is facing massive challenges in its shift to electric and autonomous vehicles, some of the people said.

So, the first task for Degenhart’s successor – reports suggest the 49-year-old current head of automotive operations, Nikolai Setzer, is the front-runner – will be to review the current strategy and consider whether further radical measures are required.

Any such analysis will likely look again at the role of rubber in the future of Continental. 

Continental's management board has nine members, an unusually large number for companies on Germany's blue-chip DAX index and a reflection of the 150-year-old company's sprawling portfolio of operations.

Chairman Wolfgang Reitzle, a former Ford Motor executive and a renowned deal maker at industrial gas company Linde and cement firm Holcim, has pushed to make Continental more nimble so it can react faster to technological changes in the industry, some of the people said.

Continental's shares surged to an all-time high in January 2018 after the firm confirmed a Bloomberg News report that the maker of tires, powertrains and conveyor belts was considering options to streamline itself.

Management has made little progress with that operational review in the almost three years since then, contributing to the erasure of almost two-thirds of its market value. The rout worsened when Continental and its peers suffered a major blow from the coronavirus pandemic as automakers shut showrooms and factories for several weeks earlier this year.

Investors have repeatedly criticized the lack of resolve and speed with which Degenhardt has addressed the firm's complex structure. A first step of the intended simplification -- the carve-out and listing of Continental's combustion-engine-powertrain operations -- was put on hold for an indefinite period.

Listing part of the powertrain division would be a step toward making Continental more agile and hone in on growth areas such as electric vehicles and self-driving features. The unit generated 7.7 billion euros ($8.9 billion) in sales last year and employed more than 40,000 people.

Automotive News Europe, a sister publication of European Rubber Journal, contributed to this article