President, Magna Steyr

It has been 10 years since the $26 billion auto supplier Magna International bought the Steyr-Daimler-Puch assembly plant in Austria. With the acquisition, it developed the wherewithal to meet the manufacturing needs of as many as six automakers at a time. Magna Steyr is a useful case-study for India’s auto industry, which lacks an independent vehicle assembly facility dedicated to multiple OEMs. The Austrian company has built relationships with OEMs globally and demonstrated its manufacturing prowess.

Financial year 2007 was a mixed bag for Magna Steyr. While it bagged the coveted BMW Mini contract last Christmas beating competitor Karmann, it finished the year with a 4% drop in complete vehicle assembly sales. Such ups and downs, industry analysts say, are characteristic of sub-contracting, especially in the sluggish European and American markets today. Karmann too, for instance, faced the possibility of laying off more than 1,500 employees late last year.

For Magna Steyr, the new BMW Mini deal alone translates to annual production of 40,000 cars from 2010 onwards. The $4 billion firm has seven other projects under its belt from OEMs like Chrysler and GM. A spread like this provides the first lesson for any aspiring contract assembler: manufacturing efficiencies depend on the number of deals, the timeframe of each contract, and the volumes therein.

"Every product that the plant makes must be independently viable to help us weather changes"

"Every product that the plant makes must be independently viable," asserts Guenther Apfalter, President of Magna Steyr. "It helps us survive even if there is a change in other programmes," he notes. For instance, the BMW X3 is a seven-year contract (for 100,000 units per year) that runs out in 2010. A deal over an extended period of time allows Magna to also produce niche vehicles and low-volume runs like the Mercedes-Benz G-Class (7,000 units per year).

European automakers tend to sub-contract when confronted with low-volume runs, says analyst Ashvin Chotai. "If an OEM’s main plant doesn’t have the flexibility to handle low volumes, it sub-contracts vehicle assembly."

Experience suggests that a vehicle assembler requires two years from the point of identifying potential projects with OEMs up to bagging the sighted deal. The engineering, development, sourcing and production depend on the nature of the project, and call for discussions with the automaker. Typically, a project lifecycle works out between seven and 11 years. Magna’s vehicle-assembly arm has managed to produce more than 200,000 units annually over the last four years, contributing 14-18% to the group’s revenue.

The second major challenge for a vehicle assembler is developing a flexible workforce. Magna Steyr began with 4,500 people after the first plant acquisition; today, that number has grown to 12,000. "When business awarded and volumes are going down, headcount will also go down," says Apfalter. But by going global since 2002, Magna Steyr’s headcount has grown.

The most important thing is to have the right programme and project managers,

DRIVING CLASS: Magna Steyr’s assembly plant in Graz, Austria

says the Magna Steyr President. They must be able to define an entire project with prospective customers, and have the knowledge to manage internal resources.

The third task relates to the plant: building platforms for OEMs that can be used for more than one OEM. Four years after its foray into vehicle assembly, Magna Steyr acquired a second plant, Eurostar, from the erstwhile DaimlerChrysler. Interestingly, the buyout was driven by the BMW X3 deal. "The plant fit the BMW challenge perfectly in terms of bringing a new car to the market very quickly," recalls Apfalter, who began his career with Steyr-Daimler-Puch in 1985. "We had the people and equipment in surrounding areas." Brownfield investments can save vehicle assemblers time because most of the infrastructure is already in place.

Lastly, Magna Steyr’s engineering centers around the world—there are 14 such offices—are instrumental in paving the way for discussions and development activities with potential OEMs in new countries. They serve as its face in new geographies, and further the opportunity of building relationships with automakers.