Family values

25 April 2008

There has been a lot happening in the road building equipment sector over the last few years. Despite the relatively small size of the industry there have been plenty of mergers and acquisitions, and deals like the Fayat Group's acquisition of Bomag and Caterpillar's purchase of Bitelli have brought much wider ranges of machines under one roof.

As well as these acquisitions, there have been some interesting organic developments that have seen companies like Dynapac and Ingersoll Rand get back into the milling machine niche, again to offer a fuller line of equipment to their customers.

This idea of a one-stop-shop makes a lot of sense. It means road building contractors and rental companies can work with one suppler for all their equipment needs, making life easier when it comes to arranging servicing, maintenance and support, and perhaps giving a bit more leverage when buying new machines. It also makes sense for the manufacturers - it means they have the opportunity to sell more equipment to any given customer.

But while many in the industry are now moving towards this model, the Wirtgen Group has been operating it successfully for several years. The company was founded in 1961 by 18 year-old Reinhard Wirtgen as a haulage and road building company. In the early 1970s it developed its own hot milling machines and in 1978 brought out a cold planer.

By the early 1980s Wirtgen had stopped its contracting activities to concentrate on building milling machines and surface miners. The late 1980s and 1990s saw the company take the big leap into other sectors, with the acquisition of SGME, a Belgian slipform paver manufacturer and Vögele, which makes asphalt pavers. In 1999 it acquired compaction equipment manufacturer Hamm, giving the group a presence in all the major niches within the road building equipment sector.

Following Reinhard Wirtgen's untimely death in 1997, management of the group was taken over by his two sons, Jürgen and Stefan, who today share the responsibility. They are joint presidents of the Wirtgen Group - the holding company - and Wirtgen GmbH, the milling machine, surface miner and slipform paver subsidiary. In addition, Stefan is responsible for Vögele and Jürgen for Hamm.

Today the Wirtgen Group is the largest player in the road building equipment sector, with sales last year of € 830 million (US$ 1.07 billion), and 3500 employees. But consolidation in the industry means the company's competitors are closing the gap.

Acknowledging this Jürgen said, “We are not the only company that can supply the complete product package anymore. But at the same time, we have an advantage because the group is well balanced - we're leaders in recycling, paving and compaction. If you look at our competitors they tend to have one strong area, but only one or two machines in the other sectors, so they're not really full liners in the way we are.”

Stefan added, “We've filled all the gaps in the product lines. We have big and small rollers within Hamm now. In Vögele there are two new small pavers, and on the Wirtgen side we've got things like small slipform pavers. So we've made sure we can provide everything the customer could ask from us.”

According to the brothers, business “couldn't be better” at the moment. “Everyone knows the construction industry is booming, and of course it's booming for us. It's an unusual situation in that every country is on the way up. In the past we've had to deal with things like the Asian crisis or the Russian crisis. The challenge for us is to keep everyone happy while demand is this high,” said Stefan.

But like other parts of the equipment industry, the unprecedented buoyancy of the last few years has seen demand far outstrip supply, leading to long waiting times and price increases due to the higher cost of raw materials and components.

Jürgen said, “The unexpected wave of orders from around the world means our order book is much fuller than normal, and that of course leads to longer delivery times. We're trying to do everything possible to keep delivery times down - things like working three shifts, working on Saturdays and sometimes even on Sundays. We have a very good and flexible team in our production facilities helping us to do that.”

“We're quite optimistic for 2007, but at the same time it's clear it won't be the enormous growth we've seen in the last few years. In the medium term the market will calm down. We don't think the market will decline, but at the same time we know those huge growth rates are impossible to sustain.”

New markets

Wirtgen may not have much in the way of products to add to its line-up, but growth in emerging markets like China and India is seeing the company branch out in other ways. “Both countries are building up their infrastructure, and the road construction sector is very much affected. Our approach is to be in both countries with our own organisation. In China we have built an assembly plant in Beijing. We have our own people in all the Chinese provinces - both sales and services,” said Stefan.

There is no assembly plant in India at the moment, but Wirtgen has still had a lot of success there in recent years as an importer. The Vögele 1900 paver has done particularly well on the back of the 5800 km Golden Quadrilateral road project. The company may start assembling machines in India if the growth continues.

“We have our headquarters in Bangalore, and we have offices in five cities offering sales and services. Our existing sales and service centre is getting a bit too small, so we'll build a new facility to take that over. The piece of land we want to buy for that should be big enough to give us the option to do something more in the future,” said Stefan.

Although many European, US and Asian manufacturers have broken into the Indian and Chinese markets through joint ventures with local companies, Stefan is adamant that Wirtgen will always go down the wholly-owned subsidiary route. “Our experience is that you have to do it yourself and you have to do it properly,” he said.

Challenges

As well as presenting opportunities for companies like Wirtgen, the emergence of China in particular has brought new names like Sany, Shantui, XCMG and Zoomlion to the road building equipment sector, adding to the competition with low-price machines. “There are more competitors emerging each year, and it's difficult to follow them all. The first challenge will be to keep a good market share in China, but the second stage, and this has already started, is that the Chinese manufacturers will start to export. Some of these companies already have 10% exports, and that will be a challenge for the US and European manufacturers,” said Jürgen.

But despite these threats, the brothers remain focused on what they want to achieve, and are not tempted to start building cheaper, ‘second tier' machines. Summing up this philosophy Stefan said, “We want to keep our high standards and the high quality of our products. The other thing is that we want to keep the continuity in what we do. We are a family company and we are committed to the market. If you buy a Wirtgen group product, you know what you're getting, you know it will be well supported, and you know the company will still be around in five years - we're not a financial company that's going to sell-up. We're a family company that's been around a long time.

Latest News
Access rental takes many paths to continued growth
Is the gradual move to a generalist rental model inevitable in mature and maturing markets?
€1.7bn Stonehenge tunnel project in UK faces fresh legal battle
The tunnel project was due to begin next year