German Manager Magazine: Schaeffler: Leadership problems – auto supplier is heading into a difficult future003751

There are days when Georg Friedrich Wilhelm Schaeffler (60), owner of the automotive supplier of the same name, becomes a small medium-sized company again. For example, when he greets the newcomers. There he stands – like at the end of October – with a Schaeffler green tie in the middle of dozens of trainees and raises his right thumb in the air. “We’re great!” is what that means.

In fact, the Schaeffler company has never been bigger than it is today. 120,000 employees, 25 billion euros in sales, more than 100 factories. Within 25 years, a medium-sized ball bearing specialist has become a group that sees itself on an equal footing with the global giants of the guild. Especially since Georg Schaeffler and his mother Maria-Elisabeth Schaeffler-Thumann (83) – who has since retired – also own 46 percent of the shares in the Dax group Continental control. Including this de facto majority, the lawyer who moved to Dallas, Texas, rules the world’s second largest empire in the industry. Only Bosch is even bigger.

The coronation has just followed. A few weeks ago, Schaeffler finally completed the Vitesco takeover. The drive division previously spun off from Conti will be added to the family’s core company for around 2 billion euros, giving it the expertise in electromobile drives that it previously lacked. Georg Schaeffler thought he had reached his goal. In a freshly printed special issue of the employee magazine, he presented his employees with the prospect of taking over a world-class “motion technology company”. And as if to reassure him, he promised, in the best patriarchal manner, to “hold a protective hand over the company in case of doubt and to ensure continuity and reliability, especially for the employees.”

The reality is different. Instead of celebrating the enlarged group and calmly integrating the new parts with at least 40,000 new employees into the existing structures, the Schaeffler top management around CEO Klaus Rosenfeld (58) now has to restructure. There is a sense of alarm in the company.

Just a week after their visit to the headquarters in Herzogenaurach, Franconia, some of the trainees welcomed by the owner took to the streets to demonstrate against job cuts. 4,700 jobs will be lost, like Rosenfeld announced at the beginning of Novemberwhen he presented the disappointing quarterly figures. Around half is accounted for by the weak industrial sector.

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Spider in the web: CEO Klaus Rosenfeld pulls all the strings at Schaeffler

Photo: Daniel Vogl / F.A.Z. photo

According to the plans, 700 jobs will disappear at the headquarters, as well as hundreds at the second main location in Schweinfurt. 5,500 people there build rolling bearings for large industrial customers, used in wind turbines, railways and aircraft. At the beginning of December, the workforce there was actually supposed to go on short-time work, but now the even bigger shock comes. A factory in Homburg is about to close completely, 230 jobs are history; The Melior Motion plant in Hameln, Lower Saxony, a manufacturer of precision gearboxes for robotics, which was only purchased in 2022, is to be completely passed on.

Even at Vitesco in Regensburg, which has just been taken over and has been repeatedly praised by CEO Rosenfeld for its “pioneering spirit and innovative strength,” Schaeffler wants to cut 734 jobs, according to the union; More than one in five of the 3,300 jobs are at risk. Rosenfeld has repeatedly emphasized that he will realize 600 million euros in synergies through the Vitesco takeover. But that it comes so quickly? Trade unionist Rico Irmischer (35) speaks of an “unprecedented breach of trust”.

“The management invoked the slogan ‘stronger together’, and now thousands are worried about their jobs,” he also criticizes IG Metall Thomas Höhn (45), who sits on the Schaeffler supervisory board. The union will not simply accept this, conflicts will be resolved – explicitly also in the upcoming Vitesco integration. The major project, which is also a strategic bet anyway, is threatened with delays.

It’s the classic Schaeffler problem. The auto supplier has been acting like a shackled giant for years. Georg Schaeffler and his top manager Rosenfeld did a lot of things right; after all, after the takeover attack on Continental in 2008, the entire company was temporarily at risk. But they also missed many opportunities and neglected innovation. Working together with Conti would have offered Schaeffler some opportunities – but the duo let them slip by. Sometimes there was a lack of entrepreneurial courage, sometimes there was a lack of capital – and all too often Georg Schaeffler himself slowed down, probably out of concern that taxes would be too high.

In the crucial years for the German auto industry, when the transformation from combustion engines to electric drives began, Schaeffler made little progress. The family company remained trapped in its history.

The original problem: the Conti attack

Central to the misery is the never really happy relationship with Continental. The then Conti supervisory board chairman Hubertus von Grünberg (82) had already launched Operation “Cohiba” in 2006. While the large manufacturers and suppliers around him were armed with foundations or strong shareholders against hostile takeovers, Conti was at the mercy of the capital market. The experience of a takeover attack by the Italian tire manufacturer Pirelli, which was only fended off with great difficulty, ran deep. The Schaeffler family seemed like the ideal anchor shareholder.

At that time, Georg Schaeffler already owned 80 percent of the company shares that his father, who died in 1996, had left to him; but he played no role in the company. His mother Maria-Elisabeth and the then CEO Jürgen Geißinger (65) dominated, and they saw the opportunity to turn Schaeffler into one of the world’s largest auto suppliers. The problem: Your bid fell just during the financial crisis, and the price was suddenly fantastically high. They didn’t end up with the calculated 40 percent of the shares, but with more than 90 – and a near-fatal debt burden of around 23 billion euros.

“We needed bankers,” says someone who experienced the struggle for survival that followed. So they brought Klaus Rosenfeld from Dresdner Bank. As assistant to former boss Bernhard Walter, he learned how to manage mergers and acquisitions. In Herzogenaurach he sold around half of the Conti shares in tranches to maintain the share price. He refinanced the loans, ensured that the subsidiary in Hanover paid a proper dividend, and in the meantime took Schaeffler public. To date, he has reduced the group’s debt level to just under 5 billion euros.

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The bell has never sounded sweeter: Maria Elisabeth Schaeffler-Thumann celebrates the IPO in October 2015 with her son Georg (l.) and Klaus Rosenfeld

Photo: Arne Dedert / dpa / picture alliance

However, Rosenfeld was unable to properly exploit the investment for Schaeffler. He repeatedly reached his limits. Early on, for example, when it came to a possible merger of Schaeffler’s industrial business with Contitech, the industrial division that specializes in conveyor technology. A company with double-digit billion sales would have been created, and at the same time the car business could have been combined. “We would have ended the coexistence of the companies,” says a Schaeffler thought leader. Supervisory board chairman Wolfgang Reitzle (75), a Schaeffler intimate, is said to have been in favor of it. But the plans came to nothing.

The two companies lost ten years due to the back and forth, complains one who unsuccessfully urged both sides. Development teams were conducting parallel research into the finer details of electric drives, and both sides expected massive sales as suppliers for autonomous vehicles. But the know-how remained separate.

The Conti board preferred independence. And Rosenfeld, they suspect in Hanover, still senses the danger that Schaeffler will be taken advantage of. Only recently, when considering the spin-off of the automotive division, did he, a manager recalls, behave as a Conti supervisory board member, “as if he were the actual ruler,” worrying about the dividend and annoying everyone with questions and objections.

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Hunting friendship: Schaeffler-Thumann (l.) with supervisor Siegfried Wolf and his wife Andrea at the Vienna Hunters Ball 2013

Photo: RGE / People Picture

Siegfried Wolf (67) didn’t exactly reduce the distrust between the protagonists. The close confidant of the Schaeffler family with excellent relationships with oligarchs

was on the supervisory board of both companies for several years and was chairman of Vitesco’s supervisory board until the final takeover. But you never knew what account he was acting on. When the Vitesco drive division was spun off from Conti, Wolf bought 5 percent of the shares – which gave him around around 1,000 shares when it was later sold to Schaeffler brought in 100 million euros.

The eternal tax question in the USA

And Georg Schaeffler? The formally most powerful actor in the entire situation kept hesitating – which is also due to his very personal situation. He spent the first years of his life in kindergarten on the factory premises. After joining the company in the early 1990s, he felt the pressure of his overpowering father – and broke out. He went to work for a US subsidiary of the company in South Carolina, later studied law in North Carolina, settled as a lawyer in Dallas, married and became a US citizen. To this day, this creates an almost bizarre problem.

After joining Conti at the latest, the US tax authorities became aware of the new citizen’s incredible wealth, who currently has an estimated fortune of almost 8 billion euros the richest list of manager magazine

is in the top 25. At times there are said to have been more than a billion dollars in taxes on investment profits. Schaeffler largely averted this with many lawyers and years of litigation. But since then he has acted cautiously – some say overly cautiously.

It feels like there is almost always a tax auditor at the table when big decisions are made or assets are moved within the Schaeffler empire. It even sometimes happens that Klaus Rosenfeld gets on a plane to settle a tax matter in Texas, his companions report. “He’s basically the only one who manages the family’s finances,” says someone who knows both of them well.

How caution paralyzes decisions has only recently become apparent again. Driven by Supervisory Board Chairman Reitzle, the Conti leadership has been working on this for more than a year Exit from the car business

. The board, led by Nikolai Setzer (53), thought back and forth and examined partial sales and IPO scenarios. Finally, in August, the decision was made: they wanted to spin off the automotive division and take it public as quickly as possible. However, all that was published in August was that Continental was “reviewing” the independence of Automotive. Georg Schaeffler is said to have raised an objection: His lawyers would first have to go through and examine the tax implications of a possible spin-off.

It was like that before. And it was particularly painful when Conti’s drive division was split off, initially merged and later floated on the stock exchange as the new company Vitesco and independently. It took four years from the first scenario to the IPO in 2021, seven until the complete takeover by Schaeffler a few weeks ago. Also because of Georg Schaeffler. Where in other companies people get angry about bureaucracy, here the owner is the personified authority.

Only the boss is irreplaceable

Unlike in Hanover, only one person rules in Herzogenaurach: Klaus Rosenfeld. In 2014 he took over the chairmanship of Schaeffler. “I would never have thought that a non-technician would make it to the top of Schaeffler and stay there for ten years,” marvels a former top manager. But Georg Schaeffler lets him have his way. Surrounded by hand-picked like-minded people, Rosenfeld leads a fairly contradictory life as CEO and has made himself irreplaceable.

He really blew up the board. Twelve managers and one female manager sit there, four more members than in the much larger one Volkswagen-Group. Astrid Fontaine (55), the only woman, came from VW Commercial Vehicles at the beginning of the year as the new human resources director

. She has to connect 40,000 new Vitesco employees with the Schaeffler culture – and that too in step with Rosenfeld and in the storm of job cuts.

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In the storm of job cuts: Human Resources Director Astrid Fontaine is new on board

Photo: Volkswagen

There is only one remnant of the six-person Vitesco management – just five weeks after the takeover was completed: Thomas Stierle (55), who is responsible for e-mobility. Like everyone on the committee, he works in a matrix organization that is divided into divisions, functions and regions. In the end, the decision is usually made by the same person: Klaus Rosenfeld.

And he is no longer as obsessed with innovation as Geißinger and his long-time deputy Peter Gutzmer (70) once were. He always demanded that Schaeffler be one of the three most innovative companies in the country. In front of Mercedes, in front of Porsche, before Siemens. In fact, it worked brilliantly for a long time.

When Rosenfeld took office in 2014, only Bosch had registered more patents than Schaeffler. When Gutzmer retired in 2019, it was the same. Today, five years later, Schaeffler’s patent applications have halved. That still means seventh place in the ranking. BMW, Mercedes and even Ford have overtaken Schaeffler.

Not enough has happened, particularly when it comes to electromobility. Rosenfeld might have wanted to, but he couldn’t. There was no money for takeovers, and the debts from the attack on Conti burdened the balance sheet; For a long time, entry into the new technology was too expensive for Schaeffler.

However, where Rosenfeld struck – usually for little money – he sometimes missed the mark. In any case, we haven’t heard much about the autonomous shuttle service joint venture with the Dutch supplier VDL Groep since he presented it at the IAA more than a year ago. And when Schaeffler took over Melior Motion in 2022, the now retired industrial director Stefan Spindler (63) enthused that they were taking over “a highly innovative company in the field of robotics that is on a strong growth path”; A further increase in staff is “firmly planned”. But since the beginning of November it has been clear: despite the huge demand for highly automated robots, the situation is now over. Another 100 Schaeffler employees without prospects.

The billion-dollar takeover of Vitesco is basically the first major acquisition for Schaeffler since the Conti attack. And the pressure for integration to succeed is extreme.

Rosenfeld is no longer able to deliver the usual stable figures. In 2014, the return on sales was 12.6 percent. In 2023 it had shrunk to 5.1 percent. The share price has fallen to a third of its opening price since the 2015 IPO. The group has gone through four rounds of austerity so far, with Schaeffler most recently closing its plant in Luckenwalde, Brandenburg, in 2023. Now comes the next job cuts, which the company justifies with “the current weakening of new programs for electric drives in Europe”.

Schaeffler is not alone in this; the supplier industry is in crisis, just like its major customers. Bosch is stumbling, as is ZF and so is its French rival Forvia. But the legend that Schaeffler is getting through the crisis better than others has been history since the beginning of November at the latest.