Bosch set to expand in Australia

GIANT German parts-maker Robert Bosch has recommitted to its Australian subsidiary after a “gut-wrenching” restructuring period in recent years that saw the local chassis control manufacturing operations shifted to Asia, with the loss of 380 jobs.

Vigorous lobbying and the pitching of several business cases since then by local president Gavin Smith have seen head office make a series of decisions that will re-establish the Australian arm’s earnings growth despite the departure of the three local car-makers over the next two years.

Initially, that will involve the rapid expansion of its last remaining manufacturing operation, the production of power diodes for use in vehicle alternators. But other new manufacturing programs will follow.

Mr Smith, who was born in Scotland but has resided in Australia for decades, said all parts of the business were now growing, including the automotive parts division which took the heavy hit in 2011.

“After a gut-wrenching restructuring and five years of moribund sales and challenging business conditions, the business overall is expected to grow in 2015 by around six per cent,” Mr Smith said in an interview with GoAuto.

Apart from parts manufacturing and automotive engineering, Bosch Australia sells a wide range of products and services including appliances, power tools and hot-water systems.

Mr Smith said revenues were expected to reach $800 million this year, compared with $540 million in 2014, a depressed total that reflected the earlier closure of the factory making anti-lock braking systems and electronic stability control systems.

The 2015 revenues will also include about $200 million in sales of appliances that were previously booked overseas because the appliance division was a joint venture with Siemens. Bosch now owns 100 per cent of appliances and will book Australian sales in Australia.

Excluding the consolidation of appliances turnover, the growth in company revenue reflects improved performances from the trading divisions (primarily appliances and power tools) and the automotive components division, which now only has the power diode plant – the only one in the Bosch world.

Mr Smith said the power diode operation had been let off the leash and now held a licence to sell to anyone. It is about to receive a capital injection to expand capacity.

He also said the company’s automotive engineering division, which employs around 200 engineers working on chassis controls and ‘comfort electronics’, was going from “strength to strength” servicing its offshore customers, mainly in Asia.

In addition, Bosch Australia had recently been designated the group’s global “centre of competence” for trailer safety, which would entail the development and manufacture of new products.

But there is more expansion brewing at the company’s Clayton site, where Bosch in Germany has approved the construction of a €27 million ($A40.2 million) new head office and engineering centre.

“It’s something we are very excited about. It’s the single largest investment in the local subsidiary since it was founded in the 1950s,” Mr Smith said.

Bosch set up its Clayton site about 60 years ago to service the Volkswagen Beetle assembly operations, also in Clayton.

The new headquarters will house all on-site staff except the body electronics engineers and the diode manufacturing.

The now-empty Bosch factory and current head office building will both be demolished, but the resulting 50,000-square-metre area will not be sold.

Mr Smith gave the impression that there were proposals being made to head office that would occupy the site, but he could not say anything at present.

The major building block in Bosch Australia’s expansion plan is the decision to allow the local arm to resume selling diodes to third-party customers. Diodes act like a one-way valve for electricity and between six and 10 are used in a car’s alternator.

Bosch has also developed high-efficiency diodes (HEDs) in-house to improve the performance of vehicle generators, reducing emissions by up to 1.3 grams per kilometres and delivering five to seven amperes more at low engine speeds.

The Australian plant in recent years had only been allowed to sell to other Bosch divisions. Its 92 million diode annual production represents about 18 per cent of the total world supply.

Before Bosch closed down its larger diode plant in Germany, the Bosch group supplied 60 per cent of the world’s diodes.

“For a while they were protecting Bosch intellectual property,” Mr Smith said. “But we have lobbied pretty hard to be able to get the release to now sell diodes to external customers.

“The good news behind this is the team has done a great job over the last three years as regards competitiveness on diode production.

“Some great work has been done to improve processes and take cost out.” Mr Smith believes Bosch Australia can double its diode production to 180 million units a year within five years.

“So we are going back, revisiting opportunities with customers internationally,” he said, adding that the expected increase in production will require more production capacity and new equipment.

“We’re going to be up against a capacity wall fairly soon that will require additional investment.” As in all multinationals, every division has to fight for access to precious investment funds.

“We obviously have to make the case to attract that investment to this location. It is easier because we are the only plant that is making diodes worldwide, so incremental investment is a lot easier than setting up new,” he said.

“Everyone will want to have a crack at it. This is the thing about multinationals: you don’t get a free shot at the next investment.” Production of diodes requires a lot of automation and skilled production engineers, and includes the production of silicon wafers and chips like those used in computers. All this is all done on site at Clayton.

But Mr Smith said there is a problem with the diode plan: it requires a certain alloy of copper for the diode to work and, presently, this is all imported from Germany.

The imports date back to the time when Bosch in Germany operated a much larger diode plant and would buy all the copper needed for Germany and Australia. Now the German plant is closed, Mr Smith wants to source locally the approximately 900 tonnes Bosch Australia currently needs each year.

While Australia is one of the world’s largest producers of copper metal, at about one million tonnes a year, none of it matches Bosch’s requirements, Mr Smith said.

“When we looked at local suppliers, there was no-one who could produce the wire to the specification on which the diode depends,” he said.

“Could we find a local supplier who could produce the wire to the specification and in the quantities we require competitively? That’s still an open topic.”