Turbulent Times for Conti’s Dr. Nikolin

Dr. Nikolin, responsible for both Continental AG’s passenger tyre and commercial vehicle tyre divisions since the departure of Alan Hippe, is in the bad books with a sizeable chunk of the company’s workforce. He is, of course, the man who recently simultaneously announced the closure of two facilities – the first in Clairoix, France and the second in the company’s home city of Hanover, Germany. Since this time the road along which he’s travelled has been, to put it nicely, a little bumpy. High-level politicians both in France and Germany, with the saving of jobs in mind, have grabbed hold of the issue.

The blame for the planned closure of the Clairoix facility can’t really be pinned on Nikolin; this was already in the pipeline at the end of last year. But regardless of whose decision it was, the response from Paris is that the French President, a popular target for demonstrations during his two years in office, really can do without further news like Conti’s in the Paris region. Sarkozy’s economic policy is geared towards enhancing the country’s competitiveness, and amongst other measures this includes a future extension of weekly working hours. Such increased demands on the French workforce have also come from management at Continental, and have to a large extent already been implemented – around two years ago workers agreed to a longer working week to boost production when demand was high. Yet the very clear signals coming from “French politics” in recent times appear to have been enough to make Hippe hesitant and relegate the matter to the backburner for the time being. Vehement protests now seem to be inevitable. It looks like Continental will at any rate have to weather serious damage to its image in France, and perhaps there is nothing it can do about it.

The situation in Hanover is entirely different. While fears for the truck tyre plant go back some years, such talk seemed no longer to be an issue following the hard-fought strike over the elimination of passenger car tyre production there several years ago. A further factory closure in Hanover seemed to be, politically speaking, a remote possibility. In addition, ending production at the Stöcken factory in Hanover would mean the closure of a highly modernised truck tyre plant. An investment programme to bring the plant up to scratch was only finished last year, thus now it seems the end will come when everything is running smoothly.

So what led to the decision to cease production in Hanover? Overproduction of passenger and commercial vehicles is occurring worldwide, and overproduction of tyres for these vehicles is also taking place. The negative fallout from this is being sharply felt, and is only being kept in check through the adjustment of production capacity. Production, somewhere, must be cut. Therefore, following a 30 million euro investment in modernisation and automation to enable cost-effective production, Continental is abandoning the factory insiders appraise as “Europe’s most modern truck tyre facility” – because it claims the plant to be the company’s most expensive production facility. There is no arguing this fact, but Conti has overlooked that in recent times this ‘expensive’ plant has contributed 80 million euros to the company’s profits.

An aversion to sites with higher operation costs indicates that Conti is looking elsewhere in the world for its future needs to be met. And while Dr. Nikolin has publicly stated that the machinery from the Hanover facility will be sold and not transferred to other Continental factories located in lower cost countries, some believe this to be a half-truth. In the recent past the company has considerably ramped up production capacity in low cost countries at the expense of capacity in Hanover and elsewhere. Factories in relatively expensive and relatively affordable locations these days no longer complement each other. Competition between them has become fierce – and this is something that management wanted.

This has not always been the case. One of the arguments used to justify the construction of the Continental Matador Rubber truck tyre factory in Puchov, Slovakia was that it would help preserve jobs in Hanover and other plants in the company’s German home market. But such loyal thinking lies long in the past – since the days of Manfred Wennemer the sole focus has been on the bottom line, and the company’s outlook has been that a global player should think globally and not owe anything in particular to its home country.

Yet not everything is currently rosy at the large Puchov factory, either. Its maximum capacity of around three million truck tyres is not utilised, a 30-hour week is currently in place and those in charge are waiting and hoping they can make it through the present difficulties. Numerous machines in Puchov stand idly awaiting further use, and many are questioning the sense of this. In the future Puchov must not only produce more tyres; in terms of complexity it must grow in leaps and bounds – something that will occur at the expense of efficiency. Another black mark for Puchov is the unlikelihood that truck tyres produced could be profitably sold in Russia, a market offering great growth potential. Instead, Puchov is dependent upon the western and central European markets.

Turbulent times lie ahead of Dr. Nikolin. His business area has been hard hit by the business crisis and the prospects of recovery are moderate. Patience is called for, at any rate. Nikolin’s position on the three member Conti Executive Board has, for the moment, been strengthened through his taking on responsibly for Conti’s entire tyre business, even if his leadership of the passenger car tyre division is speculated to be only a transitory measure. Should another person take on this role, the outcome would be difficult to place. Next to the strong positions held by Heinz-Gerhard Wente, who is responsible for the ContiTech division, and board chairman Dr. Karl-Thomas Neumann, how would Nikolin be able to justify his position, only being in charge of a small commercial vehicle division?