DHB is not only one of the leading manufacturers of steering system components in Latin America, it is also the only Latin American company amidst a sea of multinationals. As Michael Sommers discovers, this proximity to – and understanding of – the domestic market explains the Brazilian company’s unique ability to offer innovative “tropicalized” solutions that address local needs.
Latin America’s largest manufacturer specializing in steering systems, DHB has taken several right turns over the years, all of which have led to its becoming an important player in Brazil’s thriving automotive market. Based in Porto Alegre, capital of Brazil’s southernmost state of Rio Grande do Sul, DHB began life in 1967, producing steering gears that were basically copies of imported products (at the time, Brazil had no manufacturing segment of its own). Initially, its principal clients were from the trucking and agricultural sectors.
A KEY PARTNERSHIP
Although DHB eventually developed its own hydraulic cylinders for agricultural equipment, a major breakthrough for the company took place in 1984 when it joined forces with Saginaw (GM/Delphi). Previously, Saginaw had been a client – DHB had imported its components and sold them to local assembly plants – but once DHB teamed up with the GM subsidiary, together they began developing their own hydraulic steering mechanisms and selling their products to GM for its Chevrolet Monza, which at the time was one of the top selling cars in Brazil.
“This was a major milestone,” recalls company director José Roberto Silveira. “Before this joint venture, we had only imported technology and products. Now, suddenly, we could make our own – and for the Monza, no less, which was considered an icon of modernity, and the symbol of Brazil’s forwardlooking automotive industry.”
Although the partnership with Saginaw only lasted until 1999, it gave DHB enormous impetus. The company had started off manufacturing racks and pinions for automobiles, but over the years, it gradually added new components to its mix, including hydraulic steering pumps, steering columns, integral gears, tie rod ends and inner tie rods. It even started exporting steering cylinders for boats to the U.S. market and hydraulic systems to Korea.
Today, the company’s biggest international clients are located in the Middle East. Its most profitable market has been Iran, which DHB has been supplying with hydraulic systems for the last seven years. As one of the main manufacturers of hydraulic systems in Latin America, it has also supplied products to neighboring countries as well. While Latin America continues to be a big focus, more recently the company has set its sights on more far-flung emerging markets such as Russia and Eastern Europe, whose automotive markets have a lot in common with Brazil’s.
“Much of the Brazilian car market is made up of what we refer to as ‘entry-level’ vehicles, i.e. basic, functional vehicles whose low prices are affordable to large portions of the population,” explains Silveira. “Such vehicles rely on technology that’s different from those manufactured for European and North American markets, but this technology is compatible with cars used in other developing countries. And so we look for niches. At the moment, we sell reposition parts to over 40 countries. But we’re always on the lookout for more opportunities, both in the OEM and aftermarkets.”
Currently, exports comprise 16 percent of DHB’s business (this figure was actually much higher before the global economic crisis of 2008). The remaining revenues, all derived from the domestic market, come from the aftermarket (15 percent) and OEM (69 percent). “Our goal is to distribute our business, as evenly as possible, through these three areas of sales: exports, aftermarket, and OEM, in order to attain stability and equilibrium,” confesses Silveira. “On one hand, there are always fluctuations in the Brazilian market. But last year, exports plunged due to the economic crisis. What sustained us, and even allowed us to grow – last year, we earned revenues of R$250 million (roughly US$142 million) – was the domestic market.”
Indeed, in recent times, growth has never been a problem for DHB. Between 2000 (when it took in US$46 million) and 2009 (US$139 million), the company has seen it business grow by over 200 percent. Today, the company is Brazil’s number one producer of hydraulic steering pumps, with a 55 percent market share (and a current annual production capacity of 1.9 million pumps). In terms of mechanical mechanisms (360,000 a year) and hydraulic mechanisms (840,000 a year), the company is ranked second in the market (after U.S.-based multinational TRW Automotive), with a 20 and 25 percent share of each respective segment.
Although, traditionally, most Brazilian cars rely on simpler mechanical steering systems, sales of more complex hydraulic systems (featuring both a mechanism and a pump) are on the rise. Meanwhile, one of the characteristics that really sets the company apart from its rivals is the fact that DHB is one of the segment’s few players that manufactures entire steering systems (both mechanical and hydraulic) as opposed to most other companies, which specialize either in pumps or mechanisms, but rarely both. As a consequence, DHB is in the privileged position of not just selling products, but providing complete solutions that, while taking into consideration the latest global industry trends, are customized to the very specific needs and conditions of the Brazilian market.
Right now, for example, spearheaded by the Europeans, one of the industry’s major concerns is economizing fuel – both for economic and ecological reasons. With this in mind, DHB developed two new products. The first, which it intends to launch within the next 12 months, is a high-performance hydraulic steering pump made of very light aluminum. It boasts 30 percent more energy efficiency and results in a 5 percent decrease in fuel consumption. Another innovation is a low-cost electric steering system that replaces a hydraulic system, and which is expected to be launched in September, 2012. Although this technology exists in North America and Europe, it costs around 70 percent more than a comparable hydraulic system. However, with the reduced purchasing power of its clients in mind, DHB’s engineers simplified the concept and developed a low-cost electric system that can be sold at the same price as the hydraulic system.
“We’re the only local company in this segment operating in Latin America,” confesses Silveira. “All the rest are multinationals who don’t have the same understanding of the market. They also don’t have the same strategy. Unlike them, we don’t import steering packages from overseas and then attempt to sell them here. We create solutions here and customize them to local needs. We develop systems that are simpler and which involve fewer steps on the assembly line so that we can offer lower costs to Brazilian consumers, the majority of whom purchase entry-level vehicles.”
As an example of how DHB adapts foreign technology to local circumstances, Silveira refers to when the company first started developing its own products for Monza in the ‘80s. “Initially, we brought over the latest steering mechanisms that had been made in Germany. On German cars, they were very quiet, but when we installed them in Brazilian cars they made a lot of noise. Of course, this is due to the condition of Brazilian roads, many of which are in not very good shape. We realized that we had to adapt the products to local conditions; we had to ‘tropicalize’ them. Ever since, we have applied this concept to all of our products. Moreover, since we possess know-how in terms of systems, and not just individual products, we can find complete solutions that optimize entire systems, even ones in which not all of the components are made by the same manufacturer.”
Aside from the services it provides at its 194,000-square-foot, state-of-the-art main facility, DHB also boasts an extensive post-sales technical assistance network. While it’s always easy to get service near major centers such as Rio and São Paulo, DHB offers 130 service posts scattered throughout Brazil, whose proximity provides added value not only to consumers, but to dealers as well. “Our way of doing business is to be as close as we can to our clients,” says Silveira. “Ultimately, this is why we’ve experienced such a degree of success. In the end, our business philosophy is very simple. We see what our clients’ needs are and and we satisfy them by offering simple solutions for a fair price.”