FAG—Kugelfischer Georg Schäfer AG

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FAG—Kugelfischer Georg Schäfer AG

Georg-Schäfer-Strasse 30
D-97421 Schweinfurt
Germany
Telephone: (49) (9721) 91-0
Fax: (49) (9721) 91-3375
Web site: http://www.fag.de

Wholly Owned Subsidiary of INA-Holding Schaeffler KG
Incorporated: 1891 as Automatische Kugelfabrik Friedrich Fischer
Employees: 18,007
Sales: EUR 2.2 billion ($2.3 billion) (2001)
NAIC: 332991 Ball and Roller Bearing Manufacturing

FAG—Kugelfischer Georg Schäfer AG is one of the world's largest manufacturers of bearings. FAG bearings are used in cars, railway cars, airplanes, and industrial machinery. The company's bearings division operates production facilities in Western Europe, Asia, Brazil, the United States, and Canada. FAG's other divisions make industrial sewing machines and automated handling systems for the upholstery and apparel industries. The company is owned by German industrial bearings manufacturer INA-Holding Schaeffler KG.

Inventor Lays Groundwork in the 1870s

Company founder Friedrich Fischer was born in 1849 in the German town of Schweinfurt in Franconia, between Frankfurt and Nuremberg. His father, a musical instrument maker, had built himself a new kind of bicycle that he used to visit his clients. At a time when bicycles were propelled by the rider's feet pushing against the ground, the new device, which used foot pedals attached to a rotating rod to turn the wheels, caused a sensation in Schweinfurt. The young Friedrich Fischer, who inherited his father's technical talent and creative abilities, became an apprentice mechanic and, after some years of gaining experience elsewhere in Germany, returned to his hometown. In 1872, Fischer opened a repair shop for sewing machines and bicycles. Soon he also started a retail business that sold new bicycles and sewing machines, a combination that was common at the time, since many sewing machine manufacturers had started making bicycles when they became popular in the later decades of the 19th century. Finally, Fischer took on the manufacture of his own bicycles.

A new, technically improved generation of bicycles created a rising demand for these vehicles in the 1870s, and thus there was also a demand for the ball bearings used in the wheels and sprockets. In order to make these ball bearings, Fischer depended on imported steel balls from England. However, they were expensive and of low quality, that is, they varied in size and their surface was not perfectly smooth. Convinced that he could do better, Fischer opened a mechanical workshop in 1875. After relentless experimentation, the young man—then age 34—built his first metal-ball grinding machine in 1883. Fischer's machine made it possible to produce at one time a large number of hardened steel balls that were of the exact same size—they varied by no more than two hundredths of a millimeter—and geometrically perfect in shape. The growing demand for high-quality bearings resulted in increasing sales for Fischer, who was soon called Kugel-Fischer or "Ball-Fischer." During the 1880s, Fischer's enterprise grew significantly. By 1887, his operation included six ball grinding machines. Three years later, production capacity was doubled again. Beginning in the mid-1880s, exports began to increase.

In July 1890, Fischer received a German patent for an improved version of his machine. In the following year, he founded his own company, which he named Automatische Kugelfabrik Friedrich Fischer—Automatic Ball Factory Friedrich Fischer. In 1892, Fischer moved his enterprise to a large building, a former cotton-spinning plant. However, it soon outgrew the new location. By 1896, Germany's bicycle industry was putting out 200,000 bicycles a year, and its future looked bright. In that year, Fischer sold his retail business and purchased a large property near the city's train station, where a brand-new factory with a capacity of more than five million steel balls a week was built. To raise the capital for his undertaking, Fischer transformed his enterprise into a public stock corporation in 1897 and renamed it Erste Automatische Gußstahlkugel-Fabrik, vorm. Friedrich Fischer AG (FAG). A banker from nearby Bamberg became the company's majority shareholder and Fischer its technical director. However, the company founder died only two years later at age 50 and left the enterprise with no capable successor.

After Fischer's death in 1899, when the company employed about 400 workers, operations were continued under constantly changing management and ownership and took a downward turn. The new leadership proved unable to further enhance the company's position in a highly volatile market with a growing number of competitors, including mass imports of cheap bicycles from the United States. Ten years after Fischer's death, the number of staff working at FAG had dropped to 150.

Growth under New Leadership after 1909

Beginning in the 20th century, the automobile gradually replaced the bicycle as the most popular form of personal transportation and further increased the demand for high quality ball bearings. Ball and roller bearings became major components for rotating parts in motors as well as in many other kinds of machinery. This growing demand in turn attracted more manufacturers to enter the market. The town of Schweinfurt evolved as the center of the German bearings industry, with a number of major manufacturers locating there.

One of them was Georg Schäfer & Cie., a Schweinfurt-based company that started making ball bearings in 1904 and two years later moved into the same former cotton-spinning plant that Fischer's company had leased before building the new factory near the train station. In 1909, the company's ball bearings department, which employed more than 200 workers, needed more space for its operations. The owner, Georg Schäfer, acquired FAG and moved his operation to the Fischer factory. He merged his ball bearings division with FAG but kept the name of the oldest ball bearings manufacturer in the town. In order to have unlimited control over his enterprise, Schäfer transformed the new business into a private company with a number of silent partners. He invested in the modernization of equipment and organized the work flow more efficiently. While it took about three hours to manufacture an average ball bearing at Schäfer's operation, FAG needed nine to ten hours for the same job. The takeover also enabled Schäfer to use Fischer's patents for which he used to pay high license fees. The legal insecurity in connection with the many incomparable patents led Schweinfurt's many ball bearing manufacturers to pool all their patents into the so called "ball bearings convention" that helped overcome costly legal battles. The group was also formed to negotiate prices and technical standards among its members.

Until 1914, FAG's business soared, partly due to the dynamic growth of Germany's automobile industry. At the same time, Georg Schäfer systematically expanded the company's international reach. By 1914, exports—mainly to western Europe and the United States—accounted for more than half of FAG's output, and the company employed more than 800 workers. After the outbreak of World War I in the summer of 1914, normal operations were interrupted. The newly formed German war ministry now administrated the country's economy. To combat the spreading scarcity of lubricants, the ministry ordered the use of only ball bearings in transmissions and other rotating parts. During the war, FAG manufactured mainly replacement ball bearings for vehicles but also produced other war goods.

After the war ended in late 1918, FAG's situation was anything but rosy. Development work had been ceased and technical equipment was outdated. Many nations protected their national markets through high import duties. Most importantly, the company's clients abroad had switched to international competitors. While the company's orders were still low, Georg Schäfer had his workers repair and update machinery and produce a back stock of goods. The insecurity during the first year after the war led Schäfer's business partners to renege on their commitments. Schäfer bought them out and together with his son-in-law, Hermann Barthels, became FAG's sole owner by December 31, 1919.

The early 1920s brought more political and economic turmoil. Many workers lost their jobs. As inflation picked up speed, the cost of everyday goods became too expensive for most people. Worker's strikes disrupted the company's production for many days and sometimes weeks. Food and fuel became more and more scarce. Despite these difficulties, FAG managed to further expand its product range. For example, it was during this time that the company introduced roller bearings. FAG tried to gain lost ground by focusing on replacement parts while slowly and persistently reviving its international distribution channels at the same time. However, exports never reached the level of importance they had before the war. After hyperinflation was stopped by a currency reform in 1924, FAG experienced a short upturn that peaked in 1925. When Georg Schäfer died in May 1925, his company employed almost 2,000 workers.

Company Perspectives:

Our vision is the further development of FAG into a hightech enterprise in the area of precision and bearings technology, internationally oriented, with persuasive innovative ability and strength of earnings.

Growth in Difficult Times after 1925

After Georg Schäfer's death, the ownership of FAG was transferred to his widow, Alwine Schäfer, his son-in-law Hermann Barthel, and his oldest son, Georg Schäfer, Jr., who each received a one-third interest in the company. Georg Schäfer, Jr. had joined the family business in 1919 at age 23 and became FAG's executive director three years later. Determined to follow his father's strong belief in independence, he successfully led the company through its most difficult times. During the second half of the 1920s, Germany's position in the world market for bearings weakened significantly. While important export markets became almost inaccessible due to high customs rates—the United States imposed a 30-percent custom rate on their value—Germany charged comparatively low rates of between 5 and 8 percent. Consequently, German bearings exports dropped from 40 percent in 1914 to 10 percent during the 1920s. At the same time, foreign competitors gained a significant market share in Germany with bearings imports increasing tenfold between 1925 and 1928. The fierce competition between German manufacturers pushed many of them into the red and resulted in the disintegration of the ball bearings convention. Finally, the Swedish firm SKF acquired seven major German manufacturers, which were merged into Vereinigte Kugellagerwerke AG. Five of the acquired firms were closed down or sold, and 7,850 jobs were cut. Georg Schäfer turned down SKF's attractive offer and FAG remained the only major German bearings manufacturer besides Vereinigte Kugellagerwerke, which moved the headquarters of its operations to Schweinfurt in 1932. In that year, FAG's workforce was 2,800, while Vereinigte Kugellagerwerke employed about 2,900 workers.

By 1933, the worldwide economic depression reached its climax in Germany. Six million Germans were without a job, and machine manufacturing was down to 50 percent compared with 1928. Georg Schäfer, however, managed to expand the company. He successfully focused on markets abroad and was able to secure major contracts in the Soviet Union when he traveled to Moscow in 1930. In early 1933, FAG took over the Wuppertal-based manufacturer of bearings for railway vehicles G.u.J. Jaeger, which soon became the company's division for large bearings. Beginning in 1935, the domestic demand for bearings picked up again, partly caused by the economic recovery program the National Socialists (Nazis) had launched after they came into power in 1933. However, the National Socialists also began to impose their will on German enterprises. In 1936, the year when Nazi leader Adolf Hitler demanded that Germany's manufacturers prepare for another war, FAG established its first production subsidiary abroad in Wolverhampton, the center of the British automobile and machine-building industries. With the German war industry gaining momentum and mass motorization on the way, the demand for bearings followed suit. However, with war becoming a real possibility, Germany isolated itself more and more from the international community. FAG built two new plants near Schweinfurt and evolved into a major supplier of bearings to the German automobile industry. After 1937, Georg Schäfer, Jr. jointly managed the company with his brother Otto, who had set up FAG's British subsidiary. Two years later, their brother-in-law Hermann Barthel left the company. With Barthel's death in 1941, the company was renamed Kugelfischer Georg Schäfer & Co. After the war had begun, FAG's subsidiary in Britain was expropriated.

After World War II had begun, FAG still exported part of its output. Even in 1942, the third war year, exports accounted for 10 percent of total sales. At the same time, FAG became a major vendor to the German air force. However, the company's strategic importance to the German war industry made FAG, which employed up to 12,000 workers during the war, a primary target of air attacks by the Allies. The company's main plant in Schweinfurt was bombed heavily 15 times between summer 1943 and spring 1945. As a result, 85 percent of the plant was destroyed.

Regaining International Importance after World War II

After the war, FAG was put on the Allied Forces' reparations list and over 4,000 machine units were dismounted. However, the American military administration soon realized that the German economy could not be rebuilt without bearings. In September 1947, they concluded that because of a worldwide bearings shortage FAG had to be rescued and rebuilt as soon as possible. Following the currency reform in western Germany in June 1948, Georg and Otto Schäfer took over FAG's management again, after they had been removed in 1945 and 1946 respectively by the military occupation forces. It took seven years to rebuild the basic production facilities and administrative buildings. Until then, it was not uncommon for some FAG departments to work outdoors. By 1955, the number of FAG employees had grown to 8,300 and the production facilities were state-of-the-art once more.

Beginning in the 1950s, FAG focused on winning back markets abroad. However, during the war the company's former British subsidiary had taken over the international rights to FAG's brand name and kept producing bearings under the FAG label. The company was able to buy back the international rights and a sales office was set up again in Wolverhampton in 1951. Two years later, the first production subsidiary abroad was erected in Stratford, Canada. In 1957, FAG took over Swiss bearings manufacturer SRO Kugellagerwerke J. Schmid-Roost AG. By the beginning of the 1980s, FAG production subsidiaries were operating in Italy, Brazil, Portugal, India, Austria, and the United States, and about 20 sales offices had been established on all continents. During the same decade, the company expanded into China and Korea.

Key Dates:

1883:: Friedrich Fischer invents his first metal-ball grinding machine.
1891:: Automatische Kugelfabrik Friedrich Fischer is founded in Schweinfurt.
1905:: The FAG trademark is officially registered.
1909:: The company is merged with Georg Schäfer & Cie.
1933:: FAG takes over Wuppertal-based manufacturer of bearings for railway vehicles G.u.J. Jaeger.
1939:: FAG established its first production subsidiary abroad in the British city of Wolverhampton.
1945:: Eighty-five percent of the company's facilities are destroyed.
1947:: FAG's remaining machinery is dismantled.
1950:: The company buys back the international rights to the FAG brand name.
1955:: The company's reconstruction program is completed.
1953:: FAG's first production subsidiary overseas is established in Canada.
1962:: FAG takes over Dürrkoppwerke in Bielefeld.
1985:: The company goes public.
1990:: East German bearings manufacturer Deutsche Kugellagerfabriken (DKF) is acquired.
1993:: FAG launches a tough restructuring program that saves the company from bankruptcy.
2001:: Competitor INA-Holding Schaeffler KG acquires FAG in a hostile takeover.

Beginning in the 1950s, the company also ventured into new markets, including measuring instruments, hydraulic brake systems for automobiles, and textile machine components. In 1962, the company acquired the Dürrkoppwerke in Bielefeld, the German manufacturer of industrial sewing machines and bearings that the family of Georg Schäfer, Sr.'s son-in-law had taken over in 1939, when the company got into financial difficulties.

The reconstruction years of the 1950s and the economic boom of the 1960s were followed by a period of stagnating and fluctuating world markets and an increasingly fierce international competition in the 1970s and 1980s. FAG focused on opening new markets for bearings, which were now used in earth-moving equipment, satellites and space stations, offshore installations, wind power generators, and robotics industries. In 1971, FAG's top management team was expanded to include Georg, Jr.'s son Georg, Otto Schäfer's son Otto G. Schäfer, some division managers, and the CEOs of Jaeger and Dürrkopp. After Georg Schäfer, Jr.'s death in 1975, his youngest son Fritz became a co-owner and joined the executive management team. In 1979, the company was renamed FAG Kugelfischer Georg Schäfer & Co. FAG's legal form was changed two times, in 1978 and in 1983, before the company finally went public in 1985. After its initial public offering, the Fischer family still held 51.5 percent of the common stock.

Struggles and Loss of Independence in the 1990s

After the fall of the communist regime in eastern Germany, FAG took over Deutsche Kugellagerfabriken (DKF), a major East German bearings manufacturer with eight production plants. However, following the introduction of West German currency into East Germany, DKF's eastern European markets disappeared over night. On the other hand, many factories in East Germany were shut down or taken over by West German firms, greatly diminishing the number of DKF's domestic clients. Consequently, DKF slipped deeply in the red. For business year 1992, FAG reported DM300 million in losses and DM2 billion in bank debt. By early 1993, the situation had grown into a serious financial crisis that brought FAG to the verge of bankruptcy. A crisis manager from outside was brought in who drafted a restructuring program that was approved by all stakeholders and implemented immediately. While many of FAG's assets were taken as collateral by banks, to whom the Schäfer family had to give up their voting rights, the company sold off business divisions such as hydraulic brakes, textile machine components, and measuring technology—together worth DM1 billion in annual sales, with about 6,500 employees—that were not defined as FAG's core business. Four market-oriented divisions remained: automotive technology, industrial bearings, aircraft and spacecraft technology (including precision bearings), and the components division. DKF finally declared bankruptcy.

With its 1992 workforce of 31,000, bank debt and annual losses roughly cut in half, FAG was on its way to recovery in the second half of the 1990s. Between 1998 and 2000, FAG's pretax profits more than tripled. By the end of the decade, the company had regained its strong market position but was looking for strategic partners and negotiating with the world's number three bearings maker, Japanese NTN. However, in the fall of 2001, FAG, by then number four in the world's bearings market, fell victim to a hostile takeover by major competitor INA Holding Schaeffler KG, worldwide number six. After five weeks of arm-wrestling between the two companies, FAG's top management gave up their resistance. INA agreed to FAG remaining an independent subsidiary with its management holding based in Schweinfurt. However, INA delisted FAG from public trading.

Principal Subsidiaries

FAG Industrial Bearings AG; FAG Komponenten AG; FAG Automobiltechnik AG; FAG Sales Europe GmbH; FAG Hanwha Bearings Corporation (Korea; 70%); FAG Bearings Ltd. (Canada); Dürrkopp Adler AG (93.76%); FAG Aircraft/Super Precision Bearings GbmH; FAG Bearings Corporation (United States); FAG Corporate Services GmbH; FAG International Sales and Serivce GmbH; Rolamentos FAG Ltda. (Brazil).