Our 2018 business year was by no means an easy one. The economic environment for all major markets – in China, the U.S.A. and Europe – worsened significantly around the middle of the year. This was due in part to our customers’ lengthy transition to the new WLTP exhaust-gas test procedure, as well as to the U.S. trade conflicts with China and Europe. As a result, global automotive production – which had been expected to grow by two million passenger cars and light commercial vehicles in 2018 – was down by some one million vehicles.
On top of this, there were some challenges of our own making. For example, development costs in our Automotive Group were higher than expected. This was caused by the high order intake over the previous two to three years, which once again reached the record level of around €40 billion in 2018. Additional negative effects resulted from warranty cases as well as start-up costs for new products and plants. In the powertrain area, the changeover to products and systems for hybrid and electric vehicles increased our costs. This led us to lower our sales and earnings expectations once again in August 2018.
In response to weaker markets, we implemented additional measures in 2018 to optimize our production and process costs. We reviewed our planned investments and adjusted our expenses in line with the lower sales. And we strategically realigned the corresponding business areas and implemented personnel changes at the management level.
Against this backdrop, we achieved sound results in 2018, with all members of the global Continental team doing their part to make this possible. On behalf of my colleagues on the Executive Board, I wish to thank all employees.
I would also like to express my special thanks to my colleague José A. Avila, who left the Executive Board as at September 30, 2018. He took on the management of the Powertrain division in 2010 during a very difficult business phase, successfully establishing it as one of the world’s leading providers.
We continue to be geared for lasting growth. Our goal for the Automotive Group is to grow 3 to 5 percent faster than the respective markets, now and in the future. Our favorable order intake in 2018 confirms our expectations.
The first half of 2019 has gotten off to a turbulent start because of the persistently difficult market environment. As we look ahead to the second half of the year, we are cautiously optimistic, seeing potential for stabilization and slight upward trends.
Technologically, we are well positioned in the race for the future of mobility. Environmental protection, electric drive systems, automated driving, connectivity and new services for mobility and transportation are fundamental growth areas for us. Our customers will set the course for these technologies of the future in 2019. But to do this, they need strong and reliable partners like us.
Backed by our strong position, we are helping shape the extensive reorganization of our relevant industries. Our order books are well filled, and that is encouraging. So, despite the prevailing uncertainties, we will continue to maintain a high level of investment in profitable growth and in the future of your company.
We prepared for the transformation of our relevant industries early on, which is why we initiated our own transformation years ago. By the beginning of 2020, we will have realigned our organization with this in mind. Our structures will be clearer, simpler and more flexible, while our decision-making channels will be shorter and our processes faster.
The transformation of our powertrain business into an independent group of legal entities took place as at January 1, 2019. Preparations for a potential partial IPO in the second half of 2019 are on schedule. All of this gives us greater freedom in our business activities.
We are pooling a significant part of our research and development in the future Automotive area. Our goal is to be able to respond to customer demands in a faster, more flexible and more precise manner. We are doing this by developing software modules for similar systems centrally and then using them multiple times. Additional benefits are expected to result from standardized development processes and from the use of similar methods and tools. All in all, we are creating a technological development center to attract talented individuals, now and in the future. We are thus following a uniform roadmap and providing all business areas with globally competitive expertise in the architecture of systems and functions.
In this way, your Continental is underscoring its aspiration to be permanently in the lead when it comes to quality, innovation and financial performance, and to be seen as a pioneering technology company and an attractive and progressive employer.
We have set our sights high. Your global Continental team is extremely motivated. Fully committed and brimming with confidence, we are setting the course in 2019 and 2020 for the lasting success and future viability of your company.
Dr. Elmar Degenhart
Chairman of the Executive Board