German parts supplier Continental (CONG.DE) and ball-bearing maker Schaeffler, which controls it, are still in the early stages of working together and plan "arm's length" cooperation, executives said on Tuesday.

Debt-laden Continental had pledged to set up joint technical projects with Schaeffler, once it had completed a refinancing process as well as working together on purchasing.

"We have not neglected this topic (cooperation) over our refinancing issues," Schaeffler's automotive unit head Peter Pleus told Reuters on Tuesday at the Detroit Auto Show. "There are big challenges being worked on."

Chief executive of Continental's NAFTA region, Samir Salman said technical projects would be considered where they make sense. "This is a cooperation we have also with others where it makes sense."

But asked if Continental favoured working with Schaeffler over working with other potential partners, Salman replied "at the moment, no."

Continental board member Helmut Matschi added, "all the natural steps which do make sense one after the other have been executed and in the same way it will continue."

"We're on arm's length principles and wherever it makes sense to work together we work together on an ... arm's length principle," Salman said, adding that the two groups were working together in the powertrain and engine systems sector. He declined to specify which product they were working on together.

"There are several projects where we cooperate closely," Schaeffler's Pleus told Reuters.

"Overlap is biggest in the powertrain segment," Pleus added. There is little in other segments.

SUPPLIER COMMUNICATION

Salman said that the crisis that rocked the auto industry in 2009 had led to greater communication between suppliers and original equipment manufacturers, although pricing pressure from carmakers was still intense.

"They look for efficiencies within their systems, we look for efficiencies in our systems. I don't think there's a reason that should stop."

"I would say there is more collaboration now. We feel that through the crisis we're somehow in one boat. There's much more open communication than there was in the past. There's more cooperation compared with the old days."

Schaeffler took control of the much larger German auto supplier Continental in 2008, after launching a hostile $18 billion bid in which it took on more shares than it could afford, saddling itself with billions of euros of debt.

The resulting standoff led to a power struggle with Continental, which was battling its own debt problems.

Continental could issue a high-yield bond of up to 2 billion euros, before Easter, on the heels of its 1.1 billion euro share sale, two people familiar with the matter told Reuters on Tuesday. Continental had said earlier it had placed 6.45 million new shares at 40 euros each as part of a capital increase to refinance a 3.5 billion euro loan payment due in August. [ID:nLDE60B1QC]

Juergen Geissinger, chief executive of Schaeffler, which makes bearings for sectors including aerospace and automobile, said on Monday it expected its profitability to at least remain stable in 2010, compared with last year.

Geissinger said Schaeffler was still working on a merger with Continental to create a supplier with 33 billion euros in annual sales had not changed. [ID:nLDE60A1F1]

"There's no acceleration, but there's also no deceleration in the potential combination of these companies," said Salman.

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