Man Aktiengesellschaft Business Information, Profile, and History
Federal Republic of Germany
History of Man Aktiengesellschaft
MAN has taken a complicated path to become one of Europe's largest engineering and heavy-vehicle manufacturers. Operating as a subsidiary for much of its history, the corporation is today comprised of several midsize companies. Decentralized management has always typified the organization, but during the 1980s management decided to distance itself even more from the production process. MAN's challenge is to remain an effective competitor in the European markets it built steadily during the booms and recessions between 1960 and 1990 and to capitalize on its research investments as interest in mass transit and alternative fuels grows worldwide.
Segments of MAN originated centuries ago, but the core of what is today the MAN Group began in 1844 when Carl Buz and Carl August Reichenbach leased Ludwig Sander's four-year-old engineering plant in Augsburg. The partners purchased it outright in 1855. Each pursued his own markets, and their respective divisions are still among MAN's largest.
Reichenbach's uncle, Friedrich König, had invented the first flatbed press, in 1811, which allowed printers to keep pace with the industrial age. Reichenbach developed his uncle's invention and produced the company's first flatbed letterpress in 1845 under the name of C. Reichenbach'sche Maschinenfabrik.
Considered the company's oldest division, Reichenbach's branch grew with the industry. In 1873 the company introduced Germany's first rotary press, which increased printing output exponentially--eventually to 8,000 eight-page newspapers each hour. Six years later Reichenbach expanded into producing presses for commercial printing. By the turn of the century the company's presses printed in six colors, and by the 1920s the company offered offset printing and rotogravure. The company automated manufacture of printing plates, called stereotyping, which hence became much faster.
Although 19th century printing developments were dramatic, engine technology like that produced by Reichenbach's partner moved even faster. Buz used the same facilities simultaneously to develop steam engines and driving systems. He called his business Maschinenfabrik Augsburg. Heinrich Buz, Carl's son, ran both divisions from 1864 to 1913. When he took over, the company already produced heavy-engineering products like water turbines and pumps in addition to the engines and presses.
It was Heinrich Buz's emphasis on engine research that by the turn of the century positioned the company for decades of growth as a vehicle producer. Anticipating the transition from steam to combustion engines, Buz provided facilities for Rudolf Diesel and helped fund his engine development from 1893 to 1897. At first used in stationary factory automation, diesel engines were increasingly used in water vessels and, by 1918, in submarines. The company raced the industry to expand applications to land-based moving vehicles.
Buz expanded internationally through a tactic still used at MAN. Rather than pay heavy start-up costs, Buz licensed partners worldwide. In an era of escalating industrialization, finding such partners was not difficult due to the sound reputation of the company's steam engines and printing presses.
The company renamed itself M.A.N. (Maschinenfabrik Augsburg-Nürnberg) in 1898 when Maschinenfabrik merged with Maschinenbau AG Nürnberg. The latter company provided additional mechanical and engineering expertise, with which M.A.N. developed more efficient fuel pumps that could be used in larger moving vehicles.
M.A.N.'s solid-fuel injection methods made engine construction simpler and less expensive. In 1923 the company introduced the first diesel engine with direct injection, which greatly improved fuel efficiency. It made land-based commercial vehicles with diesel engines possible and provided M.A.N. an early lead in a dominant industry of the 20th century.
The costly race to improve engines led to additional consolidation of research efforts. Gutehoffnungshütte Aktienverein AG (GHH) bought an interest in M.A.N. in 1920 and acquired a majority interest the following year. GHH--literally the Iron Works of Good Hope--had been the basis of heavy industry in Oberhausen on the Ruhr River since 1758, when the first of three foundries that merged in 1873 to form the company was established. GHH and M.A.N. shared information but pursued separate strategies and markets for 65 years. GHH's interest in M.A.N. continued to grow, reaching 75% by the early 1980s. M.A.N. had become larger than its parent after World War II, when Allied law forced GHH out of coal mining and steel manufacture. From that point until the companies merged, in 1986, M.A.N.'s earnings determined those of GHH.
Between the world wars, M.A.N.'s engine research and development led to higher-output engines for small spaces as well as for large-scale power stations. The German government used M.A.N.'s 11-cylinder, double-acting two-stroke diesel engine in its fast marine craft in 1935. During World War II U-boats used M.A.N.'s turbocharged engines with increased fuel-consumption efficiency. This wartime production led to advances that would one day be used in commercial vehicles, and it also aided M.A.N.'s large-scale engineering works like shipbuilding and plant construction.
Wartime industrialization affected the printing division too. After World War II the sheet-fed press superseded the letterpress. M.A.N. introduced its large-format Ultraman press, which could use up to seven colors. Yet the leading position in the company that the engine and mechanical works gained during the war continued to improve after the war. In 1989 printing sales were DM1.8 billion, which is only 10% of the corporation's total.
In 1955 when the commercial-vehicle division moved its headquarters to Munich, it was the corporation's most prominent division. Postwar growth had solidified M.A.N.'s position as one of Europe's largest engineering companies. M.A.N. opened a Hamburg plant in 1955 to make and repair diesel engines, ship boilers, steam turbines, and mechanical and engineering devices for more general applications. By 1990 these areas represented about 19% of sales. In 1969 M.A.N. purchased what would become its plant-construction division. Sensitive to international business cycles, it also represented 19% of sales by 1989.
Hans Moll became group chief executive in 1973. He had risen through the commercial-vehicles division, where he more than doubled sales from 1968 to 1973. Moll's postwar predecessors had placed great value on M.A.N.'s nonvehicular divisions. As a result, during the 1970s sales and research had been evenly split between commercial vehicles and engineering products. Under Moll, however, engineering products, diesel engines, and printing equipment shared a marketing department while commercial vehicles had one of its own. Although vehicle contracts could be more lucrative, M.A.N. would be stung by this new emphasis in upcoming recessions.
Sales skyrocketed in 1976 even as overseas orders began to drop. The recession of the late 1970s hurt most Western capital-goods manufacturers, but M.A.N. fared somewhat better because few of its divisions suffered from business cycles simultaneously. In response to rising labor costs, M.A.N. rationalized by automating. Starting in commercial vehicles, management reduced the entire work force 3% to 39,000 employees. While sales decreased 60%, the labor cuts kept earnings stable around DM35 million for 1976 and 1977.
Despite these measures, M.A.N. could not stave off declines in the late 1970s. In 1977 orders fell off 12%. While printing-equipment, commercial-vehicles, and stationary-diesel-engine markets were steady and growing, marine-equipment and power-station-equipment divisions operated well below capacity. Foreseeing trouble, Moll decided to market components to supplement company earnings when there were few finished vehicle contracts. This strategy, however, was not pursued effectively for another ten years, when it was not timely enough to help.
M.A.N.'s most significant competition in the late 1970s came from Third World engineering companies, which threatened its traditional markets. In response M.A.N. pursued markets for its sophisticated technology more aggressively. The ten-year-old research division began to introduce production techniques and produce experimental vehicles for the long-term alternative-fuels market by 1978. By developing more advanced technology, M.A.N. hoped to remain immune to fledgling competition for several decades.
While the company researched alternative energy sources, more efficient transit systems, and uranium enrichment for nuclear power, however, it also created more bureaucracy. These new bureaucrats changed the way the company, used to active managerial participation in production, worked. Communication became more formal, and attempts to coordinate traditional information networks with expert specialists increased segmentation. Like its biggest competitor, Daimler-Benz, M.A.N. built up its foreign presence through regional manufacture and assembly. Short-term returns from foreign expansion proved slim because of M.A.N.'s reliance on large, finished-vehicle contracts in these markets.
M.A.N.'s overseas expansion normally proceeded conservatively. In a typical venture, M.A.N. held a one-third share of a Turkish plant, allowing the company to keep the largest share of the Turkish market for trucks and buses and to supply lucrative contracts in the Middle East. Eventually, M.A.N. helped establish an engine plant there, of which it also held 30%.
Almost half M.A.N.'s sales came from abroad as the 1980s began, when a European recession led the company to increase attention to Asia, North America, and OPEC nations. The increasing value of the Deutsche mark made M.A.N. products less attractive to foreign buyers, however. In addition, the currency difference led to competitive imports, eroding the once-solid domestic share.
The company's sales efforts in the Middle East paid off in 1981, when it signed contracts worth DM270 million with buyers in Iraq and Jordan. While demand for heavy trucks continued to drop internationally, M.A.N. continually increased its market share by relying more heavily on its African and Middle East business.
In the United States, domestic manufacturers shied away from renewed demand, giving European manufacturers of commercial vehicles an entry. M.A.N. set up a plant in North Carolina to build articulated buses in 1980, spending DM20 million in start-up costs. The company hoped the return on its overseas investment would make up for the expiration of long-term military contracts. Instead, lagging vehicle sales caught up with M.A.N. despite specialized management, new products, and new markets.
The first in a series of setbacks occurred in the United States, where the federal government cut subsidies to urban transit programs in the early 1980s. The most detrimental blow came when Iraq canceled its nearly completed contract for 1,000 trucks. It took M.A.N. several years to recover since these vehicles did not meet European standards. At the same time, an especially long recession in shipbuilding left cargo space unused, put 10% of the global fleet in storage, and shifted the production center to East Asia. As Taiwan and South Korea became the dominant regions for shipbuilding, the secondary market for European engines and parts also declined. M.A.N. had to close one of its two marine diesel engine plants in the Federal Republic of Germany. The company was also hurt by currency fluctuations and buyers' needs for long-term financing during a period of high interest. Its divisions' down cycles finally coincided.
For the two years ending 1984, M.A.N.'s losses totaled DM477 million and half of that figure came from the commercial-vehicles division, where sales fell nearly 27%. The division cut 1,700 of its 59,000 employees in 1983. The heavy-vehicle and diesel-engine divisions also suffered. Truck production fell one-third to 16,000 and M.A.N. operated at only 20%-25% capacity. Although reduced demand from developing countries caught other European truck manufacturers as well, M.A.N. was especially dependent on exports. In 1981 M.A.N. sold 25% of its trucks in the Middle East. In 1983 the region purchased fewer than 50 trucks. The general engineering operations also suffered from dependence on exports. Unable to handle payment programs, developing countries cut industrial installations.
The failure of an Argentine engine venture and problems with other overseas affiliates led GHH to reassess M.A.N.'s ability to adjust to market fluctuations. While GHH held more than 75% of M.A.N., the relationship was financial, not managerial, and the parent found it difficult to implement change in its powerful subsidiary. The GHH response at first was to replace its own personnel. Feeling chief executive Manfred Lennings did not respond quickly enough, GHH replaced him with Klaus Götte. Like Moll at M.A.N., Götte had worked in several firms before coming to GHH, contrary to the traditional West German career path within one organization.
Even as Lennings departed, M.A.N. was showing signs of revival. Job cuts, 25% of M.A.N.'s overall work force, alleviated some of the losses from the continuing export recession. A renewed domestic market reduced exports to one-third of sales from a high of 50% in the late 1970s. European demand for trucks was improving, and the formation of the European Economic Community allowed the company to pursue those markets more competitively. Since these countries were more reliable customers and were easier to serve than those overseas, M.A.N. began to categorize them as domestic. As the 1980s waned, M.A.N. reduced its overseas expansion. In the United States, even though M.A.N. was the market leader in articulated buses, its plant operated well below capacity. M.A.N. held on to it, however, eventually hoping that it would prove to be a fruitful toehold in U.S. markets.
In 1985 M.A.N. made its first dividend payout in three years. It turned in a marginal operating profit of DM32.5 million, but gained DM375 million from selling its holdings of Motoren und Turbinen Union to Daimler-Benz. The sale helped M.A.N. avoid acquisition by General Motors, which would have captured M.A.N.'s 10% share of the West German heavy-truck market and its extensive service network, giving it a significant entry into European Economic Community markets.
Daimler-Benz was not the only West German interest prompted into action by this near-deal. A competitor's unusually favorable offer prompted GHH to take stronger action. In 1985 GHH announced plans to merge with M.A.N., regroup their divisions, and move headquarters to Munich. Although the Middle East, China, and U.S. affiliates were still viewed as potentially strong contributors, the consolidated group hoped to sell 80% of production in Europe.
The merger was executed in 1986 and the resulting company became MAN Aktiengesellschaft. Otto Voisard, Moll's successor as M.A.N. chief executive, stepped down, and the two companies reorganized into five new ones: MAN Nutzfahrzeuge (heavy vehicles), MAN Roland (printing equipment), MAN Gutehoffnungshütte (plant and engineering equipment), MAN B & W Diesel, and MAN Technologie (research and development). Each supplied a representative to the company board, headed by Götte.
The costs of the merger kept profits flat for three years, and the company cut its work force by another 15,000--to the lowest level in 12 years. MAN emerged more profitable with a lower break-even point in commercial vehicles. Under Moll, 25,000 units had to sell to meet costs. By 1989 the company not only sold more but also required only 20,000 units to be sold each year to cover costs.
In order to keep its share of the new crucial European market for heavy trucks, MAN began to invest DM130 million, or 2%-4% of sales, in research annually. Still hesitant to expand sales extensively outside Europe, the new commercial-vehicles division sold 94.3% of its vehicles in Western Europe in 1987, up from 88.1% the year before. The change reflected MAN's new European emphasis, but was also partially due to continued decreases in overseas demand, where two foreign operations posted losses totaling DM60 million. The overseas growth MAN once saw was a thing of the past.
In the late 1980s MAN emerged from a 15-year period of cutting its workforce and assuming overseas losses, while simultaneously becoming stronger in Europe. To capitalize on the recovery, the MAN companies will become more independent in the future. For instance, MAN Nutzfahrzeuge, now a nearly independent midsize entity, will pursue more joint ventures producing components and finished vehicles, rather than its own large-scale contracts where the risk is larger. With a reorganization to reflect its more narrowed focus and increased strength in markets close to home, MAN has become one of Europe's largest and most efficient engineering companies.
Principal Subsidiaries: MAN Nutzfahrzeuge GmbH; Ferrostaal AG; MAN Gutehoffnungshütte GmbH; MAN Roland; MAN B & W Diesel GmbH; MAN Technologie GmbH; RENK Aktiengesellschaft; Deggendorfer Werft; SMS Schloemann-Siemag AG; Battenfeld GmbH; SMS Hasenclever; Kabel-und Metallwerke; Kabelmetal Messing GmbH; Schaltbau GmbH; Schwäbische Hüttenwerke GmbH.
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