Pex has belonged to the German Prettl Group since 2012. Its Hungarian subsidiary Pex Automotive Systems Kft. has its headquarters in the Budapest suburb of Szigetszentmiklós where it produces original and spare parts for the automobile industry. Pex Automotive Systems Kft. has been headed by Stefan Fritsch for the past year. His first major task was to restructure completely the previously stricken company and bring it back into the black.
Since when has your owner, Prettl Group, been present in Hungary and in which fields?
Since the change of regime. It began with an old metalworks in Szekszárd, which was bought by Prettl and where switchboards were made for the earlier Hungarian Telekom. Today drawn, stamped and bent components, as well as seat frames for the automobile and utility vehicle industry, are manufactured there. Increasing numbers of orders from the parent company ultimately led to the establishment of a further factory, where cable sets and sensor cables for the lorry and utility vehicle industry were chiefly manufactured. Three years ago Prettl bought a factory in Érd from the company Dräxlmaier and significant parts of the production of Prettl Electronics were moved there from Radeberg. Electronic components and inverters for the solar industry are produced there. In addition Prettl Lighting und Interieur, which designs and produces high-quality light modules and systems and plastic modules and systems, moved to this location. With Szigetszentmiklós Prettl now has around 1,000 employees in Hungary.
How did the fourth site here in Szigetszentmiklós come to be established?
Pex has been present at the Szigetszentmiklós site since 1996. A Swabian businessman built up the company but then had liquidity problems during the financial crisis. When the German parent company became insolvent, the Hungarian subsidiary became available. Since the owners of Prettl, Rolf and Erhard Prettl, saw potential in Pex in Hungary, they bought the company. They have a penchant for acquiring stricken companies and putting them in order. They do so according to the “Prettl principle”: they buy a company, then find a new manager for it and invest sufficient money for business to get going. However, that’s where it ends. Part of the principle is that the business must then generate sufficient revenues itself. That’s what happened and is happening here. Unlike the notorious “locusts” that buy companies just to sell them again quickly either as a whole or in parts at a profit, Prettl is in it for the long term. That was one of the reasons why I came to Prettl. Prettl aims to develop business models that are successful long term and finance themselves. The top managers of these companies are given a lot of freedom in the interest of achieving that goal. Instead of the subsidiaries being kept under a rigid holding structure they enjoy a high degree of autonomy. That’s why the owners seek entrepreneurial types to lead such companies.
Is the high degree of autonomy also the reason why the company is still called Pex despite the change of owners?
The main reason was that Pex had acquired a good reputation in the automotive spare parts field. Pex has produced spare parts of the same quality as original parts for the automobile and utility vehicle industry for many years. The reliable quality of Pex products is highly valued by original equipment manufacturers and spare parts dealers, not least because there are more and more products on the market, mainly of Chinese origin, that do not fulfil their original function at all or not fully.
How is that?
For example, brake wear indicators are sold that don’t signal when the brake pad is worn out, simply because they are wrongly designed and cheaply copied. Such products are naturally extremely dangerous. In some cases they have the same external form but are quite different inside. Nevertheless such parts are sold on the European and American markets like fully fledged spare parts. It’s surprising in fact that it hasn’t been legislated against. In such a situation companies like to be able to rely on products that actually live up to what is promised, such as the products of Pex. These are somewhat less expensive than comparable products of the car brands but are nevertheless high-quality and functionally absolutely equal.
How is that possible?
Thanks to our many years of experience and our knowhow. We know, for example, that if a certain cable was silver-plated in the original, we can offer a nickel-plated version without any loss of quality and functionality.
How do car manufacturers react to the competition from companies like yours in terms of spare parts?
It’s less about competition than a symbiotic relationship. Car manufacturers need companies like ours because from a certain age of vehicle it’s no longer worthwhile for them to produce original spare parts, or they cannot get away with charging the original prices for products with their brand name on the market. At the same time they can’t expect their customers to acquire a new car immediately just because their old vehicle has reached a certain age. In that situation the original parts manufacturers offer a platform to sell their products in a neutral and somewhat less expensive form, for example under the brand Pex, to open up additional business without risking the price position of their own brand products.
That’s good for customers too.
Yes, naturally. The older a vehicle is, the more likely the owner is to go to an independent repair shop rather than the authorised repair shop because the former tends to be cheaper. Independent repair shops are subject to higher cost pressure and tend to use the spare parts of a less expensive manufacturer rather than original parts. The owner of a 20-year-old car doesn’t necessarily want to spend EUR 100 on original brake pads if there’s a considerably cheaper alternative. Ultimately all manufacturers work together with cover brands like Pex. Essentially it’s the same concept as in supermarkets where the products of well-known producers are often behind the cheap own-brand products of a chain. In the automotive field, as a cover brand we have very different access to the car parts market and serve totally different company customers, which is why our market as described is also termed the independent aftermarket (IAM), simply because we are independent of the original equipment manufacturers. The two markets are completely different with different philosophies, pricing policies and profitability. Pex is one of the few firms, however, that is successful on both.
In other words, you are not just tolerated by the original manufacturers but are a natural and vital part of the whole system.
Yes, we’re part of the business model that involves providing a vehicle with spare parts as long as it still runs. Without companies like ours the model wouldn’t function. It’s also a big opportunity for all those concerned. Many of the original parts manufacturers don’t have proper access to the aftermarket and lose a lot of potential business as a result. We actively approach the manufacturers and offer to manufacture and sell certain parts, possibly with slight design adaptations, entirely neutrally under our name. For me, being in charge of winning orders, after my previous functions as site manager, is an exciting new challenge.
After taking over an insolvent company presumably other tasks were right at the top of your agenda at the start.
Yes, certainly. Pex first had to be optimised, which unfortunately involved job cuts. I benefited from my earlier experiences as CEO of the Hungarian subsidiary of W.E.T., where I had to create and cut production capacity, and therefore also jobs, in parallel. W.E.T. had almost 2,000 employees in Hungary at one time. We had to reduce that number to 250 when we moved production capacity to Ukraine. During the difficult crisis years I also learnt at W.E.T. to reduce costs elsewhere and optimise cost structures, for example with lean manufacturing and lean engineering tools. Those experiences are helping me now to turn Pex around and get it back on course. We’ve changed a third of our factory to the lean principle already, which will increase to 80 per cent by the end of the year. What’s nice about my current task is that Pex, if it succeeds, will maintain its prospects as a Hungarian production location. However, in the past year I’ve had to reduce the number of employees by around 45 per cent. Now I’m in the process of cutting costs by another 20 per cent in other ways. Using the lean principle I aim to increase efficiency by another 30 per cent by the end of the year.
Why were job cuts necessary despite the long-term prospects of the location?
The excess and the time pressure were simply too great. The problem was that the Pex insolvency was on the horizon as early as the beginning of 2011 but Prettl didn’t buy the company until November 2011. A lot of valuable time was lost during which trade in car parts was not performed properly. When there were indications of the Pex insolvency, some customers sought new suppliers because of the risk and Pex lost around 40 per cent of its order volume within a short time. That couldn’t be recovered so quickly. Turnover fell by almost 40 per cent last year. The team had to be adapted quickly and drastically. There was no other way. When I arrived some important managers had already left the sinking ship because of their fears, some suppliers insisted on advance payment and some customers could no longer be supplied to. My first and most important task was to ensure liquidity, to pay the suppliers, to no longer be required to give advance payment and to be able to supply to customers again. That succeeded. When I came to the company, we had delivery reliability of just 40 per cent. Within a year we have reached 98 per cent.
Were you aware of what you were letting yourself in for?
I was aware that it would be a tough task but I wasn’t afraid because the W.E.T. world was also very tough, but it was also a time during which I learnt a great amount, except, naturally, how to get an insolvent company back on its feet, but now I have experience of that too. The initial problems didn’t deter me because the owners had very clearly assured me of their long-term commitment. That’s why I was happy to take on this challenge. In the case of an insolvent company, providing you take the right measures, things can only improve. Being part of such a development can even be fun. For a manager there’s nothing better than applying everything you have learned and seeing it result in success within a very short time.
How can you handle such extensive job cuts without all employees drastically losing their motivation?
By forging close ties with your management team and acting together with it, rather than from a position of power in a top-down fashion. Such changes need broad-based support and transparency. That’s the only way a company can survive such processes without major injuries. I’m still working closely with my extended management team. Everyone knows what direction we are taking and knows where we still need to change the system. Everyone understands the new Pex world, and so they’re willing to take this hard path. And ultimately they know that only we can create the future prospects that the new owner has enabled.
Is it just a question of cutting costs?
No. At the same time we are also pursuing quality improvements. The lean world requires a different way of thinking and management. For six months I trained my extended management for a whole day a week and showed them what direction we need to take. Now my management team has internalised that knowledge and can pass it on themselves. This principle can only be implemented optimally if everyone plays their part. I also engaged an external lean coach to train us in certain details. We’re changing everything: new wage systems, a new training system, a completely new organisational structure including how we deal with our suppliers. We want them to supply in a more precise way based on our needs and persuade them to adopt the lean principle too. We’ve also established an energy-saving programme, with the help of which we have reduced energy and water consumption.
What plans do you have with regard to sales?
We see potential when it comes to brake pads, especially for lorries. We are sitting down with the key players and considering how we can develop expertise at Pex with new technology and how we can enter new markets with that expertise. If a company has little expertise, then it’s just one of many and is exchangeable. That means low margins and high dependence on the customer. We want to give our customers added value through our expertise, not least to protect ourselves from the competition. We’re also interested in orders for cables, injection moulding, electronics and metalworking.
Have you already benefited from the large Mercedes and Audi investments in Hungary?
We’ve heard that Mercedes plans to have 80 per cent of materials supplied from within a radius of 120 kilometres. We’re within that radius. So far, however, that hasn’t resulted in anything because responsibility for the purchasing of production materials is still predominantly in Germany. There are only production factories in Hungary and those don’t have the freedom to decide on sourcing, except perhaps when it comes to non-production materials such as cardboard packaging or office supplies. That’s why I’m curious to see the extent to which Mercedes keeps its promise to the Hungarian government of involving as many Hungarian suppliers as it possibly can. I see the Prettl Group in Hungary as a Hungarian supplier because, aside from the ownership structure, we are creating production capacity, jobs, knowhow and long-term thinking right here in Hungary.