February 1, 2012: Karl Wagner, vice-president (sales), BorgWarner Thermal Systems’

How do you see India in terms of growth?
From a global perspective, India has always been a very important market for thermal systems and we localised in 2001. We gained momentum in terms of localisation of products and business growth in India especially compared to other regions and the market potential, which we recognised very early, is very sustainable for us. Our next focus is to grow our business in India into different segments, so our growth will be in commercial vehicles, off-highway including construction equipment and aftermarket as well as light vehicles.

What will be BorgWarner’s future growth strategy?
Firstly, we will penetrate different segments and have global migration plans for various segments in terms of technology, which means we will launch strategic products targeted at them. For CVs, we will launch fan drives and the latest technology of fans. The next big step will be electronically controlled fan drives that will go along with Euro 4 emission norms and we are about to launch them now. These will be localised for India within the 2013 timeframe. After that we will look at thermal management implementation that includes coolant flow management; so controlled coolant pumps will be launched in India.Typically we have a strong global footprint with seven locations in thermal systems globally, and will add a new location in Thailand this year for light vehicles and the CV segment. Our approach is that we supply products from other locations to a market till we reach critical mass and then we localise the components and products in that market. So the plan is to localise the products in India. Till then, depending on the product, they could come from Germany, China, Thailand wherever it is available initially.

What is the timeframe for localisation and will you assemble the products in India?
We plan to localise along with the implementation of Euro 4 emission norms in India, the timeline for which in India is 2014. By then we hope to have our products localised 100 percent. We have fans and fan drives with fans being moulded on plastic mouldings and this moulding is already done in Chennai. So with increasing cooling requirements, you have to increase the diameter of the fans that you use. Today, there might be restrictions in India in terms of moulding capacity; so the first step will be that the larger fan will come from a facility that has the capability and the next step will be to invest in a new moulding facility in India.

Can you elaborate on your plans for establishing a new moulding facility?
We have just made our biggest investment in a new facility at Sriperumbudur in Chennai. If we need more capacity, we will invest further depending on the size of the fans required. The plant’s current capacity caters to 70 percent share of the market in terms of light CVs and CVs. About 30 percent capacity is still available and we can use the existing infrastructure for further enhancements. Later on, we will see how it goes. We already have two big moulding machines that can take care of current sizes of fans but in 2013-14, we will require bigger sizes and then we will have to see what existing machines can do and what we need to add. By 2014 we will also add controlled coolant pumps. This will be a complete new product for India, which means a complete new infrastructure for the product line and an investment that that will be in line with market development and capacity requirements. The controlled coolant pump is a very important product because it changes the entire thermal management of the vehicle. And you might then add other components to the thermal management system for optimising the air flow in a vehicle that would bring a huge benefit and that is also in the pipeline. At present, the engine compartment in a vehicle is very dense, so air flow is not possible. So if you proactively manage the design of the under-hood in a way that you can manage air flow into the engine department, it will increase efficiencies by a huge percentage and therefore optimise cooling and reduce system cost.

What drives growth in thermal systems in India?
Advanced thermal technologies exist in mature markets but what drives the growth in the Indian market is the global customer consolidation. These customers are active in India and will increase the momentum and potential for increasing the new technologies in the market. The bus segment, in particular, will in future see different cooling systems compared to trucks because their architecture is different. That is why we are planning to set up a separate bus segment in our business globally. For BorgWarner, 75 percent business is generated by light vehicles and Thermal Systems, whose core segment is commercial vehicles, is targeting a stronger position in light vehicles using the latest product innovations. The new segment that we are looking at is of passenger cars.Most cars use transverse engine technologies – you cannot mount our products on the front end of the engine, so we do not have a product here. We are working on controlled coolant pumps for light vehicles and have presented these technologies to passenger car customers as they will lead to a fuel saving of one to two percent; so it has a huge potential. Our strategy is to start with the larger 3-litre engine that requires more thermal management and is similar to an engine used in a light commercial vehicle, so migration from large engines to smaller engines will be smoother. We perceive this as a new market for us.We are also developing next-generation technologies for coolant pumps, fans and fan drives, especially for hybrid CVs, that will enable electrically driven fan drives to combine with viscous technology resulting in hybrid fan drives. This will allow the driving of the fan drive when the engine is switched off. The potential of hybrid technologies is in general about 20 percent in M&LCVs, so there is a substantial potential globally in hybrid fan drives around 2014-15.

What are the new programmes BorgWarner is working on?
The Volvo Asia truck programme is of huge significance as BorgWarner is a partner in it. We are working on a couple of programmes for Volvo whose strategy is to have certain regions that are competent centres for trucks and maybe have India as a centre for medium and light duty trucks. We are working with all OEs and will also be associated with Daimler’s medium duty truck programme for Euro 4. We have also been working with Ashok Leyland on a number of projects since 2003-04 and will be associated with almost all its new medium duty vehicles.

Are you also looking at growth via the inorganic route?
We are looking heavily in terms of mergers and acquisitions for growth in light vehicles and passenger cars and a lot of activity is in the pipeline for it. It will strengthen our global footprint and make us locally strong.

What is the biggest challenge in an emerging market?
The biggest challenge is to establish yourself as a technology leader in emerging markets as there is a lot of pressure from local suppliers. But they are constrained in terms of competencies and state-of-the-art products and that is where we score. We hope to become a technology leader in all segments in emerging markets by 2014-15.