Magneti Marelli: Use technology and flexibility to achieve the sustainable development

An Interview with Mr. Luca Biagini, CEO of Magneti Marelli (China)

Gasgoo.com：In the year 2010, Chinese automotive market has had a dramatic growth which shocks the world. How does Magneti Marelli think of the Chinese automotive industry in 2011, what will the automotive market act this year? What is Chinese market’s position in Magneti Marelli, global market?

Luca Biagini: Last year was a marvelous year, and we all hope the situation will continue in this way. Concerning to 2011, there are some factors that I consider to be positive. In particular, we think the market will continue growing. So far in China there are only about 55 cars among every thousand habitants, against 186 average of the world, 600 for Europe and 800 for US. So there should be a lot of space for increase, especially considering the 1.341 billion population of China. In this case, it will grow. Probably it will not grow as fast as last year, because the principle last year could be seen as incentive, especially for small cars. But I think the principle would still pull the market to grow, since some new regulations from government would have influence in some way. Concerning Magneti Marelli, last year in China we grew up at a plus of 44%. All of our business lines are growing accordingly. So that was a good result. We are growing with all of our customers—currently we have 20 customers. We are quite satisfied with the relation with our customers. Regarding Magneti Marelli global market, last year was a favorable year for us too. As a global player, we were affected by worldwide financial crisis for two years except in China. From last year we embraced a worldwide growth again.

In consideration of Chinese division of Magneti Marelli, we had an expansion, so we put all the sources that we need to grow up. Our approach is to keep certain profitability. So we put the right source at this moment. It’s not different from the approach of other suppliers in China since they are also putting in place all the sources immediately that they need. Now we are growing slowly and control our profitability. The same strategy is made in the rest of the world. As I said effect of before, in the last two years, increase of source and investment was a little bit controlled due to the the crisis. Anyway, we succeeded in stand the ever bad situation and we continued growing.

Gasgoo.com: What are the proceeds of business distribution in Magneti Marelli in 2010? Currently there are some large auto parts suppliers frequently stripping out some low revenue, low competitiveness business divisions to achieve a high output-input rate. How does Magneti Marelli, keep the fast growth and find the balance among all its major business sections, such as the light system, chassis and suspension systems, power train, electrical systems, exhaust system, racing and so on? How does Marelli apply the advanced technology into the mass production car?

Luca Biagini: We are not distracted at all, since all of our business lines are focusing on vehicle. And vehicle is our scope and target. Things related to vehicle are what we are interested in. Compared with some of our competitors, we even have less business lines than them. But as a strategy of our company, we mainly focus on electronics and lighting. That’s why we are being treated as Electronics Company; we also have a special feeling of mechanical. We have diversified our portfolio, and quite well established specialty in our historical customers.

For example, in China we have 4 business lines so far: electronics, lighting, powertrain and exhaust. We are valuating the presence in other business line in China because the market is requesting us. A lot of our historical customers are coming here, and we want to provide them our service the same as the service we provide to any other corners of the world.

Then we shall mention the race car. Marelli is a historical player of race car or race motor. Each year, we are the winner in all the competitions. Taking part of car race has double value: the first one is the image (of our company); the second one is we use the racing as a laboratory on the road. We applied our top technology to the racing cars or motorbikes. According to the result, we derived the technology for the normal car. All our components were developed from this method, e.g. the AMT. That was firstly applied on F-1 cars. The other examples such as electric motor, we also applied first in F1.

Gasgoo.com: As we all know, Magneti Marelli is a company which pays more attention to the innovation, so what is the R&D share in 2010 total operating income? What is the R&D plan in 2011? Are there any new technologies or new products lunch plan in 2011?

Luca Biagini: In average, Magneti Marelli invests around 5% to 6% of total income in research and development. It is an average level, because there are some business lines like automotive lighting or electronics and powertrain that would invest more in research and development in some area, while in other business it would be lower. We will invest more in some business like powertrain for emission & consumption reduction or lighting for new technology related to LED, or electronics related to GPS, especially all the products those are related to the final consumer. The consumer’s need is evolving very quickly, so we need to invest much more in R&D. Concerning the new technology, we are developing all the new technologies requested by the market. The new technologies above such as lighting and navigation are already delivered to China. Concerning powertrain, it is very important because according to the new regulation that the government is going to issue, a lot of new components to make the car cleaner and more energy saving must be brought here in China. We have already brought GDI system, hybrid system together with electric motor and batteries, new solution for AMT, DCT, and Electrical MT in China. So a lot of technologies will come soon according to the new regulation being important gap of CO2 reduction until 2015. By then all the new technologies must be available. Normally it will take two to three years to implement new technology, so we need to start from tomorrow.

Gasgoo.com: Recently, the development of new energy vehicles has captured the special attention of Chinese government. As for Marelli, what are the difficulties and challenges of developing new energy vehicles in China? How do you think of the trend of new energy vehicles in the coming 3 to 5 years?

Luca Biagini: Last year China accepted to reduce one quarter worldwide of CO2, so China has to do its own job as well as all over the world, which needs to reduce the CO2 emission over 20%. In China now there are 74 million running vehicles. There are people saying that this year the market would reach 20 million vehicles. It will continue to grow in the next years, someone said it will reach 25 million, and someone said 30 million. Considering it as 30 million, that means in 2020 there will be around 450 million cars. Considering it as 20 million, then the figure would be 200 million. Just make an assumption that 200 million cars and consider the average consumption is 8.9L/100KM, the average of olio will be the 55% of the olio equivalent, but the government allows only the average of 45%. So if you continue to use the car technology, we have to destroy cars. Or we can make the car cleaner, which is the reason why new regulations of the carbon from 8.2L/100km to 5.9L/100km in 2015, in 2020 down to 4.7L/100km. We need to introduce urgently now, it’s a big driving force in the development of new energy vehicle, and it’s costly. So as a foreigner, we need to understand how much Chinese market is available to buy, how much Chinese customers are available to buy. This is a big debate and is running around government, car maker, supplier and so on. It could be a critical moment, something must be done very quickly, quicker than in other parts of the world. To development such kind of technology in Europe usually takes 10 years. But now they want to do it within 2 to 3 years. So the time shrink and we have to be ready at every minute.

Gasgoo.com: According to the reliable statistics, during the “Second Five-Year” period, China's top 30 automobile enterprises will have exceeded 40 million capacity planning. Then, there will be a serious overcapacity situation. Can Magneti Marelli share some understand about this topic?

Luca Biagini: First I think it’s not in general over capacity. Some car makers have over capacity, but others have not. And even some have to extend their capacity in China, which is still not enough. The over capacity problems arise from the fact that some car makers (mainly Chinese) are lack of planning skill, they make the investment in production capacity much higher than the market needs.

From a supplier point of view, I feel the same. Some companies like us, feel the investment is less than the need. Marelli is quiet lean, flexible compared to those who have big investment. So over capacity is not a problem for Marelli.

Gasgoo.com: With the increase of car ownership in Chinese market, what is Magneti Marelli’s opinion on the after market in China? Does Magneti Marelli have its developing plan in after market?

Luca Biagini: As more cars are running on the road, more cars need to be maintained and repaired. However the maintains of the cars are not well developed in China. The cars become more and more complicated, not only they need to keep running, but also they need the periodical maintenance. I think the after market will boom quiet soon. And also we are cooperating with one of our competitors on the field of after market. We were doing a very good job together last year and hope this year we will also have a good job.

Gasgoo.com: As an Italian company, how does Magneti Marelli promote the localization process in Chinese market? Does Magneti Marelli has some kinds of development strategy of Chinese talents?

Luca Biagini: Our localization process is quiet advanced. Our supply chain is lean. We believe in the Chinese talent. We are working very hard in nourishing the Chinese talent. And we launched two important talent programs with the Chinese university, one in Guangzhou, and one in Shanghai. In Shanghai, we work with Tongji University and have already started the program systematically on internship. We will continue doing it. Marelli is a Chinese company and full of Chinese people and so far we have 1400 people and only ten are foreigners, and we wish to reduce this part.

Gasgoo.com: How to maintain a leading position during the competition?

Luca Biagini: We arrive in China a little later than other competitors. We started at 1996, but always we keep two approaches: technological advance and service to customers. Concerning the technology advance, we launch our latest technology in China. We never take the old and past technology to China from the other part of the world. This is why we are a company less copied than others. Because our technology is too advanced and too difficult for them to copy. Our approach is to be flexible in following our customers. We don’t impose them our wish or plan but we try our best to understand what they want and try to find the win-win solution. So these are the two approaches: technology and flexibility.