What is your primary industry of focus? What are the top off-road industries you are investing in for 2012, and why?
Federal-Mogul is a leading global supplier of powertrain and safety solutions to the world’s foremost original equipment manufacturers of automotive, commercial, aerospace, marine, rail and off-road vehicles; industrial, agricultural and power generation equipment; as well as the worldwide aftermarket.
The diversity of our business – in terms of the industries we supply, the products that we offer and the locations where we operate – has been a cornerstone of the company’s success. Federal-Mogul products are on more than 300 vehicle platforms and 700 powertrains, with no single customer representing more than five% of total sales.
The commercial vehicle and off-road industry is an important market segment for us, and it represented $1.2B or 18% of our global revenue in the last 12 months. The commercial vehicle and off-road global markets are forecast to grow 23% and more than 4%, respectively, in the next five years and are a key part of Federal-Mogul’s strategy for sustainable global profitable growth.
Which would you consider to be your strongest market? Is that also your largest for supply? Do you plan to grow your presence in that market, or is the demand not there?
Federal-Mogul’s sustainable global profitable growth strategy is based on customer, region, market and product diversification. Considering our global business, OE sales represents about 65% of the company’s sales and aftermarket sales, about 35%. Approximately 70% of our business is in light vehicles, 20% in commercial vehicles and 10% in the aerospace, rail, alternative energy, power generation and industrial sectors.
From a regional standpoint, sales in Europe represent about 43% of our total sales, the U.S. and Canada represents about 39%, with 18% being sales primarily in the BRIC markets.
Federal-Mogul’s total sales are growing rapidly in the BRIC markets, and the company’s growth has been consistently stronger than these markets. Comparing the first half of 2011 to the first half of 2010, our combined CV and LV OE sales in China are up 22% while the China market has grown 5%, sales in India are up 30% while the Indian market has grown 16%, sales in Russia are up 149% while the Russian market has grown 51%, and sales in Brazil are up 8% while the Brazilian market has grown 7%. The BRIC markets offer much opportunity for suppliers, and as these developing markets continue to grow, there is great opportunity for Federal-Mogul.
Federal-Mogul’s growth is driven by customer demand for our leading technology and innovation in core vehicle and powertrain technologies. Products that we supply to the CV and off-road markets include pistons, piston rings, cylinder liners, ignition components, bearings, sealing systems, fuel pumps, friction, lighting and systems protection products.
We are seeing similar demands for our products in the BRIC and other fast-growth developing markets, as we are experiencing in the mature markets, due to increased regulatory requirements and overall market expansion. We are well-positioned to deliver our leading technologies that improve fuel efficiency, reduce emissions and enhance vehicle safety in these developing, high-growth markets through our regional operations or through strategic joint ventures.
Where have you expanded internationally? Which emerging markets are you keeping your eye on for future growth potential?
Federal-Mogul already is a global leader in all main markets, and we plan to keep strengthening our position in each. We have a solid growth plan, diversified business model, leading technology innovations, and a competitive global manufacturing base. We are growing organically as we differentiate ourselves through our advanced technology, superior brands, and manufacturing and distribution excellence. We also are evaluating potential acquisitions to increase our portfolio diversification and to increase our technology in alternative energies and electrification by acquiring new innovations or technologies that can be developed across our global product lines.
Last year, we opened a state-of the-art Asia Pacific headquarters and technical center in Shanghai to better serve customers in the region. We supply powertrain and vehicle safety components to several CV engine manufacturers in China, and having a technical center in Shanghai enables us to host customers in the region as we work collaboratively to develop powertrain and vehicle safety technologies that address their challenges. With a projected 6% increase for China OE production of on-highway CVs and off-highway equipment from 2011 to 2015, our continuous growth in this market is important to us and to our customers.
India also is a country where we forecast strong market growth. Indian on-highway CV production is expected to increase 24% from 2011 to 2015. We are currently supplying powertrain components including pistons, rings, bearings and ignition products from seven manufacturing locations in the country. We are constructing a new manufacturing facility in Chennai, which will produce environmentally-friendly brake friction materials for the OE and aftermarket segments for construction, industrial, automotive and railway customers. The Chennai plant will first produce friction products for the CV market and will subsequently manufacture products for other markets.
This newest facility will enable us to better serve brake friction technology requirements for existing and new customers in several markets in the region and globally. Once the Chennai manufacturing facility is on-line by the end of this year, we will have the ability to manufacture our market-leading brake friction products in every major geographic market around the world.
What is your domestic distribution vs. Exports to foreign markets? How do you see that changing in the next 5 years?
Our market, customer and footprint is regionally diverse, and we have a global-leading position that allows us to combine, at any given market, domestic and export sales with a very efficient supply chain management. Federal-Mogul is a global company with 18 technology centers, 112 manufacturing facilities and 21 distribution sites operating in 35 countries. Part of our strategy for sustainable global profitable growth is developing our ability to manufacture and distribute our leading technologies within the regions near our customers. We position our operations in close proximity to our customers, and our recent facility developments (e.g., new Asia Pacific headquarters and technical center in Shanghai, expanded technical centers in Brazil and India, and 12 new greenfield sites in the past 5 years) support this strategy. Having operations in the regions where our customers are located provides us the best ability to serve our customers’ needs while enhancing our ability to balance our global manufacturing requirements. Today, about one-third of our manufacturing is in North America, one-third in Europe and the remainder in global best-cost locations such as China, India, Brazil, Russia and other countries.
Are you prepared for an upswing or are you maintaining production to fill the orders that the demand warrants?
We are operating with a strong order book. Our manufacturing strategy and footprint flexibility enables us to increase our production as needed to keep pace with increases in demand as we continue to secure additional customer orders and grow our market share.
In what ways have the Tier emissions regulations affected your company and its products?
Federal-Mogul product technologies are specifically aimed at improving fuel economy, reducing emissions and enhancing vehicle safety. We have 18 globally-networked technical centers continually working to develop new innovations and technologies that constantly raise the bar for each of these performance attributes. Many of our powertrain technologies, such as our new Magnum Monosteel pistons and our award-winning LKZ oil control rings, help OEMs improve fuel economy and will contribute to meeting the new global regulations for CV emissions. Stricter regulations actually provide us with additional opportunities to add design content, coatings, specialized processes or other innovations to meet the increasing regulations for fuel efficiency, emissions or braking performance.
Have you had any dramatic changes in design or technology demands from the customer? What do you think has spurred these requests?
There are several key technology drivers, which include regulations and customer requirements pertaining to fuel efficiency, emissions and vehicle safety. Product compatibility with alternative fuels and variations in fuel quality around the world also are important factors for suppliers and OEMs. The technology we present to customers, however, must be appropriate and relevant for the nuances of each market. We are seeing demands for increased technology in many regions of the world, but not every market is developing at the same rate. Our deep breadth of experience in the technologies within our portfolio and in helping customers identify the most appropriate technologies for their specific requirements enables us to develop and deliver the right products and services with the right capability for each market.
A few examples of several new component designs that Federal-Mogul has introduced in recent months to help OEMs improve fuel economy and reduce emissions are:
- Magnum Monosteel Piston – The new design reduces piston mass by up to 7% and includes design features that reduce friction for improved fuel economy and lower emissions. Its patented dual friction-welded construction enables large cooling galleries for superior high temperature resistance and strength to withstand the highest cylinder pressures found in modern commercial vehicle engines. The key differentiator for the Magnum, however, is its unique “double-band” piston skirt design—a first for modern diesel pistons. The double-band skirt helps reduce frictional drag and reduces the overall piston skirt area by 40%, making this innovative design feature the primary contributor to the Magnum’s overall friction and mass reduction. Extensive engine testing has shown piston friction reduction of up to 17%, compared to conventional steel piston designs. Click here for more information.
- IROX Coated Bearings – IROX is an innovative polymer coated engine bearing shell that helps reduce fuel consumption and CO2 emissions. This technology protects both the crankshaft and the bearing shells from damage where metal-to-metal contact would otherwise occur. Our IROX bearing overlay can help increase the life of crankshafts and bearing shells by more than five times in more extreme applications.
- Brushless Fuel Pump – an electrical brushless diesel fuel pump for on- and off-highway engines with significantly improved durability to help keep heavy-duty vehicles working longer. This technology suits 12V and 24V applications and is available for diesel engines typically used in the medium- and heavy-duty on-highway sector and in the construction, stationary, marine and agricultural sectors. Durability field tests of Federal-Mogul’s electrical brushless pump showed that the product can last approximately 20 times longer than a conventional pump. The pump’s efficient electrically-driven design also reduces the load placed on the engine when compared to conventional belt or gear driven pumps, thereby improving fuel economy and reducing emissions. Federal-Mogul’s electrical brushless motor’s universal design also provides ease of installation in existing fuel pump packages to replace current brush-style motors. Click here for more information.
- MicroTorq Crankshaft Seal – The innovative ‘dual-hinge’ lip design reduces friction by up to 70% versus conventional lip-type seals. MicroTorq seals can provide an improvement in vehicle fuel economy of up to 0.49% and a reduction in CO2 emissions of 1-2 g/km compared to traditional seal designs. MicroTorq seals also are easier to install, more accommodating of shaft misalignment or eccentricity and require less package space. The many benefits can be achieved relatively simply, even on existing engines as the MicroTorq seal can be utilized without changing the design of adjacent components.
We also have introduced to the CV and off-road markets our flat-blade, profile wiper technology, which is a unitized design that presents a lower profile for improved aerodynamics and evenly distributes the pressure to all contact areas between the blade and the glass, delivering improved clearing, across the entire length of the wiper blade.
A recent lighting innovation that we are bringing to market is our ultrathin interior lamp module, which combines LEDs and a specially designed lamp lens to reduce the profile of interior lamps by up to 60%. In addition to improving headroom, facilitating reduced power consumption and enabling greater interior styling, this new lighting module provides consistent and even illumination without “hot spots.”
What product features and enhancements have you focused on, and will you focus on, in the coming years to stay competitive in both domestic and global markets?
Federal-Mogul products help improve fuel economy, reduce emissions and enhance vehicle safety.
Improving powertrain efficiency by reducing engine friction is one of our core technological areas of expertise as evidenced by our recent innovations for diesel engines, such as our Magnum Monosteel piston and our CarboGlide piston ring coating, which delivers a direct improvement in fuel economy and CO2 emissions by reducing ring friction by up to 20% as compared to nitride or other commonly used coatings. We also recently introduced an Advanced Corona Ignition System that enables up to a 10% improvement in fuel economy and reduced emissions by enhancing vehicle or equipment makers’ ability to run engines with leaner air-fuel mixtures or with higher levels of exhaust gas recirculation. We are testing with several customers this breakthrough technology that also extends ignition service life, and we believe it will provide new levels of efficiency for light- and heavy-duty equipment manufacturers. Our customers know us as a valued partner that can readily assist them in achieving their fuel economy and emissions targets.
In both the LV and CV markets, there are new ecological challenges relative to friction materials. The majority of the Federal-Mogul formulas for CV half blocks on the market meet new state copper legislation to take effect in 2021 and 2023, yet we are incorporating copper-free technology into new formulation development. For CV air disc brakes, Federal-Mogul continues extensive research and development activities to refine low-copper and zero-copper materials to achieve the regulation with minimal impact to existing material performance.
These are just some examples. We will continue to innovate and develop leading technologies that enable ever-increasing levels of vehicle performance.