Knorr-Bremse AG

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Knorr-Bremse AG

Moosacher Strasse 80
Munich, 80809
Germany
Telephone: (49 89) 35 47-0
Fax: (49 89) 35 47-27 67
Web site: http://www.knorr-bremse.com

Private Company
Incorporated: 1905 as Knorr-Bremse GmbH
Employees: 12,119
Sales: EUR 2.74 billion ($3.42 billion) (2006)
NAIC: 336340 Motor Vehicle Brake Systems; 336312 Gasoline Engine and Engine Parts and Manufacturing; 336510 Railroad Rolling Stock Manufacturing; 336399 All Other Motor Vehicle Parts

Knorr-Bremse AG is the world's leading producer of brake systems for trains as well as for such commercial vehicles as trucks and buses. The company's Rail Vehicle Systems and Commercial Vehicle Systems division develops and produces brake systems of all kinds for rail vehicles ranging from urban mass-transit trains to freight and high-speed trains. The division also produces a range of onboard systems for rail vehicles, including automatic door systems, air conditioning systems, and passenger information systems. The Commercial Vehicle Systems, on the other hand, produces pneumatic/hydraulic and electronic braking and chassis management systems, as well as torsional vibration dampers for diesel engines. Knorr-Bremse is based in Munich, Germany, and has a worldwide network of subsidiaries and affiliates in Europe, Asia, Africa, Australia, and the Americas.

ORIGINS IN THE 19TH-CENTURY INDUSTRIAL BOOM

As the railroads were becoming king in Europe as well as America, J. Fairfield Carpenter won a competition to design a standard brake for trains of the Prussian State Railways, at the time the largest and most extensive system in all of Europe. At a time when train acceleration was increasing exponentially, brake design remained primitive. To slow a train down, brakemen in each car had to set their brake upon a signal from the engineer.

Carpenter's award-winning design replaced the friction brake with a dual-chamber air brake, which enabled the engineer to apply brakes in all cars simultaneously. The design was simpler than vacuum brakes being introduced elsewhere in Europe and more flexible than the single-chamber brake being pushed by Carpenter's main competitor in Europe George Westinghouse. In addition it was well-suited to the long and heavy freight trains that typified the Prussian system. Carpenter was awarded a ten-year contract by Prussia. In June 1884 he began building a factory in Berlin. By spring of 1889 he had supplied brakes for 1,700 locomotives, 5,754 passenger coaches, and 2,977 freight, postal, and baggage wagons. By the end of the decade he had customers in other German states as well as in Norway, Russia, Spain, Austria, and Hungary.

While Carpenter tried unsuccessfully to break into the American rail market, he brought in Otto Schulze as a partner to run his company, subsequently named Carpenter & Schulze. The future looked bright. In 1893, however, the firm entered its first crisis; when the Prussian contract expired, it was not renewed. Carpenter's main customer elected instead to purchase brakes from the company's main rival George Westinghouse, whose brakes were faster acting and better in emergency situations. Carpenter left the business, hoping to interest American railroads in his brakes. Schulze, convinced the firm would not survive without the Prussian Railway, left as well. The young company would have gone out of business had it not been for Georg Knorr, a young engineer whom Carpenter had hired away from the Prussian State Railway. Knorr took over the company and modestly renamed it Carpenter & Schulze, Proprietor G. Knorr. He scaled down the firm—he even rented out sections of the factory—and began manufacturing parts and accessories rather than complete systems. He also expanded into brakes for the new streetcar systems in Berlin and Hanover, a move that rescued the company. By the turn of the century, Knorr had invented a new type of single-chamber brake that enabled trains to stop more rapidly and smoothly than the Westinghouse model. In 1903 Knorr moved his company to an area in Berlin that would become its main production site for nearly half a century. In January 1905, with capital backing from Ludwig Loewe & Co. AG, a large electrical engineering firm, Knorr formed Knorr-Bremse GmbH (bremse being German for "brakes"). Knorr hired Johannes P. Vielmetter as his business manager and devoted himself to the development of new brakes.

In 1911 Knorr died, and Vielmetter, the company's commercial director, acquired a substantial share in the company from Knorr's widow, although Loewe continued to be the majority shareholder. The company continued to thrive as German industry, and with it the demand for transportation, grew at a rapid pace. By 1912, 3,300 locomotives and 14,500 freight cars had been equipped with the Knorr rapid-action brake. The production of brakes for light rail had grown to about 25 percent of Knorr-Bremse's output. The company was poised for growth. It opened foreign branches in Sweden, Denmark, the Netherlands, Italy, and France. In 1913 and 1914 it made two capital offerings to finance construction of an expansion of its Berlin plant where 680 workers were working three shifts. Profits in 1913 doubled, reaching 832,428 marks.

UPS AND DOWNS DURING WORLD WAR I AND THE WEIMAR REPUBLIC

In 1914 Knorr-Bremse introduced its latest innovation, the Knorr Freight Train Brake—the so-called Kunze-Knorr brake breakthrough that combined the single and double-chamber principles. The design had been pursued at the instigation of the Prussian government, which organized a demonstration for signatories of European train accords. Acceptance by the various nations would have meant an enormous increase in orders to Knorr-Bremse. Unfortunately, World War I broke out before the demonstration. Orders soared nonetheless as the German government ordered brakes for troop and transport trains. Knorr-Bremse began producing shell casings as well in 1915, and revenues at the company more than quadrupled. Between 1913 and 1917 Knorr's workforce grew from 680 to 2,314. Due to the increased orders, the factory was once again expanded in 1917 and modernized for large-scale production. Finally, at the beginning of 1917, Prussian rail officials approved the Kunze-Knorr brake for all trains, freight and passenger.

COMPANY PERSPECTIVES

Knorr-Bremse is the world's leading producer of brake systems for rail and commercial vehicles. For one hundred years, the company has been a decisive force as a technological innovator in the development, production and operation of the most modern brake systems for various uses in fields of rail and commercial vehicles. Thus has Knorr-Bremse made a decisive contribution to safety by road and rail.

The war brought hardships to Knorr-Bremse as well. Sales to Europe, except for Germany's Austrian allies, dried up completely. Much of the skilled workforce was lost when it was drafted into the army. The rapid growth of the workforce and the influx of young workers had also weakened the old bonds that joined employee and employer at Knorr-Bremse. By the last year of the war, the company had become a hotbed of Communist sympathies. Knorr-Bremse workers joined in the spontaneous demonstrations that broke out to protest the war in 1917. There were more strikes at Knorr in early 1918. When mutinous sailors rebelled against the kaiser in Berlin in late 1918, young Knorr-Bremse workers laid down their tools in sympathy and destroyed Knorr's machinery to keep others from continuing to work. Although the company tried to improve relations with its workers with improved pensions and other benefits, the Berlin factory remained a bastion of the Communist workers' movement in Berlin.

Knorr-Bremse survived the hyperinflation of 1923 thanks in part to its contracts with foreign railroads and the newly formed Deutsche Reichsbahn Gesellschaft. So efficient was the Kunze-Knorr brake that by 1926 the Reichsbahn had equipped some 330,000 of its trains with it, and another 290,000 with Knorr-Bremse continuous air brake systems. In 1929, the Reichsbahn reported savings of RM 96.3 million because of Knorr-Bremse systems. The railroad authority called the Kunze-Knorr brake "one of the most significant advances in the railway industry." With production capacity once again stretched to the breaking point, the firm built an enormous new factory near its main plant in central Berlin. In the 1920s, it acquired a series of companies, in an attempt to secure the supplies of raw materials necessary for brake production. In 1921 it acquired stakes in the Norddeutsche Gummifabrik E. Kübler, a producer of rubber, the Lederwarenfabrik Ernst Luckhaus AG, a leather manufacturer, and machine toolmaker Carl Hasse & Wrede GmbH. In 1925 it entered a licensing agreement with the Walter Peyinghaus Iron & Steel Works, a company Knorr-Bremse bought outright in 1938. As part of a strategic reorganization, Ludw. Loewe, Knorr-Bremse's majority shareholder, sold all of its Knorr-Bremse holdings in 1926. The stock was purchased by a Shareholders' Syndicate led by Johannes Vielmetter.

Knorr-Bremse brought out important new product lines in the 1920s. In 1923 it demonstrated its first truck brake system and the following year the firm introduced air brakes for passenger cars. The company launched a major marketing drive mid-decade to promote the value of its motor vehicle brakes. Finally, in 1931 the company introduced its Hilldebrand-Knorr brake system for freight and passenger trains. Its design was a major step forward, providing the brake with high-speed applicability and virtual inexhaustibility.

GREAT DEPRESSION AND THIRD REICH

The Great Depression hit Knorr-Bremse hard. New orders from railroads dried up. Foreign contracts with the Netherlands, France, Belgium, and Turkey enabled Knorr-Bremse to survive the worst years, but by 1932 most had expired and were not renewed. The year 1932 was the company's first ever in the red—although the loss was relatively low at RM 80,000. The coming of the Nazis to power in 1933 brought unexpected new problems. Adolf Hitler was a staunch believer that the future belonged to the automobile and turned the resources of the state away from railroads and toward the building of highways. Even the Reichsbahn went to work building the new Autobahn. Knorr-Bremse was compelled to concentrate on its brake systems for motor vehicles. By 1937 it dominated the market for truck brakes. The outbreak of the war once again cut Knorr-Bremse off from real and potential foreign markets. Nevertheless, sales rocketed as railroad lines were built through the newly occupied territories of the east. Between 1937 and 1943, Knorr-Bremse heavy rail sales increased from RM 11.8 million to RM 72.6 million.

KEY DATES

1883:: J. Fairfield Carpenter wins ten-year brake contract from the Prussian State Railways.
1893:: Carpenter and his partner Schulze lose the contract and pursue other interests while engineer employee Georg Knorr takes over operations.
1905:: Knorr establishes Knorr-Bremse GmbH in Berlin, Germany.
1910:: Company merges with Kontinentale Bremsen GmbH and is renamed Knorr-Bremse AG.
1911:: Georg Knorr dies.
1914:: Knorr Freight Train Brake is introduced.
1922:: Company begins development of pneumatic brake systems for rail vehicles.
1931:: The Hildebrand-Knorr brake system is introduced.
1941:: Johannes P. Vielmetter becomes Knorr-Bremse's majority shareholder.
1945:: Soviets seize and dismantle Knorr-Bremse plant in Berlin.
1948:: Joachim Vielmetter takes over management of Knorr-Bremse.
1953:: Headquarters are moved to Munich.
1971:: Knorr-Bremse Nucletron is founded.
1972:: Knorr-Bremse and Bosch introduce the world's first antilock brake system for trucks.
1996:: Series production of pneumatic brakes for commercial vehicles begins.
2000:: Company acquires Westinghouse Brakes (UK) and Westinghouse Brakes Australia Pty. Ltd.
2002:: Bendix Commercial Vehicle Systems LLC is acquired.
2003:: Cornerstone for Knorr-Bremse Technology Center is laid in Munich.
2005:: Company celebrates its 100th anniversary.

The Shareholders' Syndicate was dissolved in 1941 and Johannes Vielmetter became the firm's majority shareholder with 87.3 percent of company stock. Being virtual owner did not save Vielmetter from being forced out of his directing manager position by the Nazis, however. Vielmetter, forced into retirement, died in May 1945 at the age of 86.

STRUGGLING TO SURVIVE IN POSTWAR GERMANY

Knorr-Bremse's plants and offices survived World War II in good condition, especially considering that they were located in Berlin. The Russian occupiers, however, systematically dismantled as much of Berlin's industrial infrastructure, including Knorr-Bremse's facilities, as they could and shipped the machinery back to the Soviet Union as reparations. The big main plant and administrative building in central Berlin, located in the Russian zone, was confiscated by the Soviets. Once the Western allies arrived in Berlin, the firm was able to set up a temporary headquarters in a plant located in the American sector. In 1953 they were moved to West Germany to the Süddeutsche Bremsen plant in Munich.

Rebuilding of German railroads was naturally a high priority after the war, but unfortunately Knorr-Bremse was slow in reorganizing itself, a fact that caused some railroad officials to complain. Only the fact that the company still held their valuable patents and expertise prevented the railroads from turning immediately to other suppliers. One factor that played a crucial role in the postwar company was Johannes P. Vielmetter's will. Vielmetter wanted the company to remain in family hands. When he passed away, each of his two grandchildren, Joachim Vielmetter and Liselotte von Bandemer—Johannes Vielmetter's son had died in 1921—received a 37.5 percent share of Knorr-Bremse. The will also stipulated that their first-born sons were to inherit the stock upon their death. After he returned from Soviet captivity, Joachim Vielmetter took over management of the company in 1948. The company was reorganized in 1946 as Knorr-Bremse GmbH in the British zone, and brake production was eventually resumed at the Süddeutsche plant in Bavaria.

The company continued to scramble in the 1950s. It had lost much of its prewar market share of 90 percent to companies such as Westinghouse, which had reentered the German market, and to Bosch, which had begun manufacturing brakes. The development of the triple-pressure brake (the so-called KE valve), which was launched in 1954, turned company fortunes around. The brake could be adapted to nearly all operating conditions, and could be used in all kinds of trains, even in combination with older equipment. The design was so innovative that 50 years later it was still standard equipment on European trains. The KE valve rescued Knorr-Bremse at a time when its future was anything but certain.

It went into production at the Süddeutsche Bremsen plant in Munich and was soon making a significant contribution to company sales. The German railroad, reorganized as the Deutsche Bahn, became a major customer of Knorr-Bremse. The brake was also popular in foreign countries. Between 1954 and 1956 the firm's sales doubled. As the reconstruction of the German railroad was slowly completed in the 1960s and orders from Knorr-Bremse's main customer dropped off, however, sales became sluggish once again.

Knorr-Bremse turned its sights once again to braking systems for commercial vehicles such as trucks and buses as a second pillar on which to base sales. It had introduced two new systems for trucks in the 1950s, and in 1972, in cooperation with Bosch, it brought out the world's first antilock brake specifically for trucks. As a result of these efforts, between 1963 and 1973 Knorr-Bremse was able to secure a 15 percent share of the German market for commercial vehicle brakes. In the 1970s, as the railroads declined in importance, Knorr-Bremse focused its attention resolutely on commercial vehicle brakes. In consequence domestic sales rose, climbing from DM 17.3 million in 1963 to DM 62.4 million in 1973. They continued to rise through the decade, reaching DM 127.2 million in 1980.

CONFLICT, NEW OWNERSHIP, AND REORGANIZATION

By 1980 the company structure that had been too hastily put together in the first years after the war began to show its effects on company profitability. There was too little central organization. Priorities differed markedly between various divisions. There was too little communication between different parts of the firm. These problems were exacerbated by a conflict that simmered behind the scenes between Joachim Vielmetter and his sister's son Jens Dither von Bandemer, who had, per his great-grandfather's will, joined the company management in 1972. Vielmetter believed that Bandemer was not yet qualified for management duties and tried to block him from taking them on. Each men had a different vision of how the company should change in the future. Vielmetter wanted to maintain the status quo: a group of independent companies under the Knorr-Bremse umbrella. Bandemer hoped to streamline the management structure and establish tighter control from above, possibly through the transformation into an Aktiengesellschaft (AG), a share company. Loyalties were split among executives at the company, and with Bandemer controlling exactly as much Knorr-Bremse stock as Vielmetter, the situation was a stalemate. Finally, in October 1984, over Vielmetter's objections, a number of minority shareholders transferred their stock to Bandemer, giving him majority control. Two weeks later Vielmetter gave up and sold his shares to Bandemer as well.

It looked as if Knorr-Bremse was again on solid ground, under the leadership of a single, imaginative individual. However, just as the long-needed reorganization seemed to finally be beginning, Bandemer dropped a bombshell. He announced through the newspapers that he intended to sell all his Knorr-Bremse holdings and give the proceeds to a small religious charity in Würzburg. The company was once again thrown into uncertainty. Bandemer, still believing that a share company structure was best for the firm, favored selling his stock to as many investors as possible. Knorr-Bremse's history as an independent, owner-managed company seemed to be ending. At the last moment, Heinz Hermann Thiele, Knorr-Bremse's head of commercial management, decided to make a bid of his own. The offer was successful, thanks in part to the strong backing Thiele received from Deutsche Bank, and in part to Bandemer's willingness to grant Thiele liberal payment terms.

The company Thiele bought was active in numerous industrial fields: brakes for trains and commercial vehicles, diesel engines, industrial pneumatics, foundry products, and center buffer couples. Thiele, who himself had 16 years of experience at Knorr-Bremse, elected to retain most of the company's management staff. He also simplified the hierarchy at the company. An important goal was to let individuals with the most appropriate specialist knowledge make as many decisions as possible. He also made a point of forging personal relationships with as many Knorr-Bremse staff as he could to foster close links between management and workforce. His first order of business was to streamline the firm's organizational structure.

Süddeutsche Bremsen was merged with Knorr-Bremse GmbH to form Knorr-Bremse AG. All brake manufacturing operations were thus placed under a single corporate roof. An even more momentous decision, one which went against the advice of Knorr-Bremse's financial advisers, was to focus the company exclusively on its core product, brake systems for rail and commercial vehicles. Holdings and subsidiaries not related to brake production were sold or spun off. An exception was Hasse & Wrede, which continued to produce diesel engine vibration dampers for Caterpillar in the United States. The company's steelworks at Volmarstein were eventually closed down after no profitable product lines could be found. Finally, company structure was clarified with the founding of two new product-oriented subsidiaries, Knorr-Bremse Systeme für Nutzfahrzeuge GmbH, which oversaw the production of brake systems for commercial vehicles, and Knorr-Bremse Systeme für Schienenfahrzeuge GmbH, which was responsible for rail vehicle brakes.

EXPANSION INTO THE NEW MILLENNIUM

Knorr-Bremse made history after the fall of the Berlin Wall. It was the first company to establish a joint venture with a company in the German Democratic Republic (GDR). Talks had begun in June 1989, six months before the wall opened. By February 1990 the details had been settled. When the application to the GDR government for approval of the venture was made, it was the first such application it had ever received. With no applicable GDR law to base its decision on, the government had to resort to a law dating back to 1937 that had never been repealed. On July 1, 1990, the day the German Monetary Union went into effect, the new firm opened in East Berlin. Part of the agreement included the return of Knorr-Bremse's old plant in Berlin.

Knorr-Bremse extended its foreign brake production in the 1990s as well. In 1990 it purchased the rail brake division of New York Air Brake. With a 30 percent share of the U.S. market, the acquisition marked Knorr-Bremse's first significant entry into the United States, a goal the firm had ever since J. Fairfield Carpenter had begun producing his first double-chamber brakes in the 1880s. In 2002 it would further solidify its American presence with the acquisition of Bendix Commercial Vehicle Systems LLC, a producer of brake systems for trucks. In 2000 the company acquired the British and Australian branches of its old rival Westinghouse. Subsidiaries were also established in India and the Far East.

The restructuring begun when Thiele took over the reins was largely complete by 2002. Knorr-Bremse had acquired 28 companies in 15 years time, 18 in Europe and 10 in Asia, Australia, and North and South America. By the time the new millennium rolled around, braking systems accounted for more than 90 percent of Knorr-Bremse's sales. Sales totals rose from EUR 401 million in 1989 to EUR 2.42 billion in 2004. The firm's global workforce grew from 7,018 employees in 1994 to more than 11,000 in 2004. The company had survived the leanest of years to become once again the world's leading maker of brakes, with a 40 percent share of the global market. Thiele's daring decision to buck conventional wisdom and focus on Knorr-Bremse's core competencies was successful, even visionary. Thiele's private ownership of Knorr-Bremse had also proved advantageous to the company. It was free from any threat of an outside hostile takeover.

Furthermore, not dependent on making the short-term profits for a body of investors, the company had been free to pursue a long-term strategy best suited to its strengths. It had made Knorr-Bremse the largest company of its kind in the world.

In 2004 the firm broke ground for a new state-of-the-art research facility in Munich. The Knorr-Bremse Technology Center, with a total area of 45,000 square meters, was scheduled for completion in 2013.

Gerald E. Brennan

PRINCIPAL SUBSIDIARIES

Knorr-Bremse Systeme für Schienenfahrzeuge GmbH; Knorr-Bremse Systeme für Nutzfahrzeuge GmbH; Hasse & Wrede GmbH; Knorr-Bremse GmbH; Knorr-Bremse Sistemi per Autoveicoli Commerciali S.p.A. (Italy); Knorr-Bremse Nordic Rail Services AB (Sweden); Knorr-Bremse (S.A.) Pty. Ltd. (South Africa); Knorr-Bremse Systems for Commercial Vehicles Ltd. (United Kingdom); Knorr-Bremse Rail Systems (UK) Ltd.; Knorr-Bremse Australia Pty. Ltd.; Knorr-Bremse Systems for Rail Vehicles Co. Ltd. (Beijing) (China); Knorr-Bremse India Private Ltd.; Knorr-Bremse Rail Systems Japan Ltd.; Knorr-Bremse Commercial Vehicle Systems Japan Ltd.; Knorr Brake Corporation (United States); New York Air Brake Corporation (United States); Bendix Commercial Vehicle Systems LLC (United States); Knorr-Bremse Sistemas para Veiculos Ferroviários Ltda. (Brazil).

PRINCIPAL COMPETITORS

Westinghouse Air Brake Technologies Corporation; Federal-Mogul Corporation; SORL Auto Parts, Inc.; Sundaram Clayton; Wabtec Corporation; Bosch Rexroth AG.