New reporting methods of IFRS (International Financial Reporting Standards) might suggest a downward spiral to Freudenberg NOK’s automotive business.

Not true, say its US leaders. Freudenberg’s North America auto business units contribute a huge portion to the company’s bottom line, according to Leesa Smith, ‎president and regional representative of Freudenberg North America.

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“Our auto business makes up 24% of total Freudenberg sales and represents the largest portion of its business,” says Ms Smith, a 24-year Freudenberg veteran. But that represents a drop in auto sales, from 35% in 2012, resulting from new IFRS reporting requirements, she notes.

 “I’m particularly bullish on the auto business” -- and the related economy, Ms Smith told fDi Magazine in June. The $2.1 billion NA Freudenberg group is on a growth spurt, she adds. 

One problem with new IFRS reporting methods is that in comparing Freudenberg’s auto share percentage in overall business from 2011 to-2013, it “provides a false perception that our auto business is decreasing, when in reality actual sales to our auto customers are increasing,” Ms Smith explains. The decrease is a result of direct changes in the reporting standards.

According to the new IFRS rules, 50/50 joint ventures are not counted in total company sales if the company does not have the casting vote, based on the new equity consolidation method, Ms Smith said. That rule affected Freudenberg’s 50/50 JVs, including an important Trelleborg Vibracoustic deal and NOK-Freudenberg Group China units, according to Ms Smith.

In mid-2012 Freudenberg formed a 50/50% JV with Trelleborg Vibracoustic. That action had a six-month negative impact on Freudenberg revenues, and in 2013, a full-year impact, based on IFRS rules, she says.

Otherwise, Freudenberg NA has been reorganizing to become even more efficient. Last year,Freudenberg consolidated its business groups to 12 from 15, boosting sales to $2.1bn, from $1.8bn in North America, the company said in a statement. Employment grew 4% to more than 8,000 employees.

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Meanwhile, parent company Freudenberg Group, based in Weinheim, Germany, posted sales of €6.6bn($8.8bn) last year, employing about 40,000 people globally.

Freudenberg makes products ranging from auto engine air filters to sealants for gas wells and household cleaning supplies. The company supplies all OEMS with parts and is heavily involved with the Detroit 3 – GM, Ford and Chrysler – and other automakers.

The company opened its new North American Regional Corporate center in Plymouth, MI, last fall (October), consolidating all corporate functions in Michigan, moving from Manchester, New Hampshire, located there since 2003. The move puts the Regional Corporate Center close to Freudenberg’s major businesses in the US and near Detroit Metro, a national airport hub. Freudenberg-NOK Sealing Technologies -- their largest auto unit -- is in Plymouth; ChemTrend Inc. in nearby Howell, MI.

“Automotive has always been a very important aspect of Freudenberg’s business, and that’s part of the reason we chose southeast Michigan for our regional corporate center,” Ms Smith says.

Freudenberg is rebounding nicely after the 2008-2009 economic crisis that crippled large swaths of American businesses, Ms. Smith observes. “We’re seeing systemic changes here. People are jumping back into the stock market. There’s a slow, steady recovery going on.”

The company’s 2013 NA sales rose 5.9% overall, fueled by gains in oil, gas and an expanding medical industry, Ms Smith told reporters in April. Freudenberg has reported global sales gains in the last four consecutive years, increasing sales a total of 21% in the period, she said.

Auto business has risen steadily for Freudenberg NOK Sealing Technologies, both in North America and Europe, Ms Smith notes. Sales increased on both continents and Asia.  

In fact, the Freudenberg NOK Group in China grew approximately twice as strongly as the overall Chinese auto industry, she says.

In 2013, Freudenberg invested more than $80mil in North America, from about $100mil in 2012.

“We expect to continue those investments,” Ms Smith says. “We are acquisitive, so we are looking for the right acquisitions that are focused in five green areas” offering growth possibilities.

These “green” areas include: chemical surface treatments, medical technology, oil and gas, industrial filtration technology and vibration control technology, focusing on wind energy and agricultural and construction machinery, she says.

"We've identified a few new fields where there are good [growth] possibilities. These include new forms of chemical surface treatment, medical devices and filtration technology for diverse applications, such as clean air,” says Freudenberg chief executive  Moshen Sohi, based in Germany. The US citizen and Tehran native joined the company in 2003, coming from US businesses including Honeywell, Allied Signal and NCR.

Sohi, who believes in a long-term business view, says, “We hope to increase sales in these fields by a greater amount than in the rest of the business.” But "we are not going to try to force a particular size on any specific part of the company, because we don't think this is the way to plan ahead."

Diversity is an important goal for their regional group. “There’s a drive toward entrepreneurship,” in its business groups. “We’re very driven to be entrepreneurial,” Ms Smith notes. That includes working on a “culturally competent leadership development” program. The first group began in late 2012 and graduated in April (2014). A second-gen group begins in January 2015.

Freudenberg also is pushing innovation and R&D. In 2013, Freudenberg Oil & Gas built a specialized lab for material and product testing for oil-gas applications in Houston, TX. They seek commonality in technology and ways to leverage synergies across groups.

Their updated Plymouth testing labs have unique spectral scanning technology that is worthy of CSI-type investigations. The applications are equal to or better than those analytical technologies used by some state forensic operations, according to Joe Walker, Freudenberg-NOK global director advanced material development.

Smith describes Freudenberg as a family-owned company that gives autonomy to individual business units. Employee involvement is important. “It’s a very modest culture deeply rooted in its guiding principles,” she says.

Freudenberg NA is a holding company of Freudenberg & Co. The 165-year-old family-owned German enterprise includes 320 shareholders; none hold more than a 2% stake, giving huge autonomy to individual business units. Its US auto business began in 1955 with Greer Hydraulics in New York, which changed names to Disogrin Industries and relocated to New Hampshire in 1963. In 1989, it became Freudenberg-NOK Sealing Technologies, a JV between Freudenberg and NOK of Japan.

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