Robert Bosch once came across a stray paperclip while wandering round one of his factories. He asked a nearby worker if he knew what it was. “A paperclip,” the worker nervously suggested. “No – this is my money!” the entrepreneur said.

The oft-told tale, possibly apocryphal, says a lot about Germany’s largest privately owned engineering group. Frugality and financial discipline have underpinned Bosch’s growth as an independent company since it was founded in 1886.

Combined with a distinctive company culture and a reputation for innovation, they have since helped it expand to become the world’s largest car supplier.

Franz Fehrenbach, chief executive and only the fifth company head since Robert Bosch, has this year put the company on a mission to single out every superfluous paperclip.

As Bosch faces the most brutal downturn the car industry has seen for decades, the 59-year-old company stalwart has revived the suppliers’ tradition of rigid cost control.

“We have to cut costs in all areas,” he says, sitting in the executive dining room at Bosch’s headquarters in the hilly outskirts of Stuttgart. But he makes one exception: “We will reduce spending in the ongoing business, but we will not cut back on research and development for important future projects.”

The need to slash costs is plain from last year’s results. Bosch’s earnings before tax fell to 2.5 per cent of sales, far below the 7-8 per cent the company deems necessary to sustain growth and maintain its independence.

A sharp drop in revenues has prompted Mr Fehrenbach to slash output in recent months, making 17,000 German employees temporarily redundant and cutting jobs permanently at plants round the world.

The news elsewhere in the sector is bleak: a succession of medium-sized suppliers has filed for bankruptcy in recent months.

In spite of appearances to the contrary, though, Bosch is in a markedly better position than many German manufacturers.

Even facing a dramatic drop in demand, it is exploiting its enviable status as a privately owned company with an ability to take the long view.

Mr Fehrenbach, who took over the helm at Bosch six years ago, has held fast to the company’s long-term strategy amid the crisis.

“Our triple-pronged strategy comprises further diversification, investment in research and development and a targeted internationalisation,” he says, while combining this interview with lunch – maximising efficiency in the typical Bosch manner.

Public face: boss who broke the Mittelstand code of silence
In the past, Bosch embraced the traditional Mittelstand approach to communicating with the public – namely, not at all. “If you work at Bosch, you keep your trap shut,” was the saying around Stuttgart, where the company is based.

But Franz Fehrenbach, chief executive, has overturned this attitude in recent years.

He became the first Bosch boss to speak freely with the press and has not shied from taking a controversial stance on political issues such as labour reform and taxation.

More recently, he has called for the creation of a global think-tank of industrialists to revive the financial system.

“We have to bring the best people in the world together to find a sophisticated and interdisciplinary solution for the stabilisation of the world’s financial markets,” Mr Fehrenbach says, bemoaning the fact that politicians and bankers have failed to come up with viable solutions.

“We have to ask who will invent the new financial system? I don’t hear much from bankers on what should be done to get us out of this misery. And I don’t think they know the answer.

Bankers have lost much credibility because most of their forecasts were wrong,” he says – a sentiment that is widely felt among German manufacturers but seldom voiced.

The chief executive has been immersed in Bosch’s long-term thinking ever since he began his professional career there as a trainee 34 years ago.

The son of a winemaker, he trained as an industrial engineer before embarking on a journey that has brought him into one of the most important jobs in German industry, heading a company with €45bn (£40bn, $57bn) in sales last year.

He speaks in a calm but authoritative manner. As a student, he captained the handball team and still emphasises the importance of team thinking as well as the need for Bosch people to take responsibility for their errors.

Indeed, he is happy to talk about tough decisions he himself has made, such as the recent sale of lossmaking Blaupunkt, the car radio maker that was part of the company for more than 70 years.

While other companies are taking drastic action in response to the crisis, Bosch’s culture and solid financing position give it a vital breathing space.

The company thinks long term and has conservative, sometimes even reclusive, instincts.

Employees take pride in its cutting edge technology and the company’s habit of reinvesting almost all of its profits in the business instead of funnelling them to anonymous investors.

“The company culture, especially our high credibility, is one of our greatest assets,” Mr Fehrenbach says. “Our competitors cannot match us on that because it takes decades to build up.”

Mr Fehrenbach, who likes to eat with his employees in the company canteen, combines strong local roots with international experience in a business that employs 168,000 of its 282,000 staff abroad.

He was born and bred in Baden-Württemberg, where Bosch is based, but also spent four years as plant manager and managing director at a Bosch factory in Charlotte, North Carolina. n the past year, he has taken full advantage of his independence.

While some rivals were deterred by their falling share prices and nervous investors, Bosch embarked on the largest buying spree in its 123-year history, spending about €3.4bn on acquisitions in 2008, including the purchase of German solar panel maker Ersol for €1bn.

By doing so, Mr Fehrenbach defied those who had criticised his lack of action in expanding the company and showed his willingness to diversify into new areas.

The acquisition spree, which ground to a halt after the economic crisis, might have been large but looks prudent when compared with those at some of Bosch’s rivals.

Insiders say the company would never have risked its independence in the way Schaeffler recently did – the family owners of the privately owned industrial group are likely to lose control after acquiring massive debts to buy much larger rival Continental.

Bosch has almost €8bn in cash, while its financial liabilities have changed little from the €2bn last reported at the end of 2007.

“Bosch has a strong business risk profile and very conservative financial policies,” says Werner Staeblein, credit analyst at Standard & Poor’s, the rating agency.

This has eased Mr Fehrenbach’s job of steering the company through the crisis.

He expects global car production to fall by 10-15 per cent this year, forcing companies to scale back capacity, close plants and consolidate further. “The car industry is at the beginning of a radical structural transition,” he says.

For Bosch, there is a positive side-effect to this industrial plight: last year, sales in the car parts business fell to below 60 per cent of total revenues for the first time, bringing Bosch closer to one of Mr Fehrenbach’s strategic goals, a reduced dependency on the car industry.

However, he had intended to achieve this not by a quirk of recession but by growth in the industrial and consumer goods sectors.

The luxury of being a private company means Mr Fehrenbach is under no obligation to provide any outlook on profits or cost cutting for a vastly unpredictable 2009.

Where listed companies must give a series of PowerPoint presentations about possible future scenarios, Mr Fehrenbach says he does not even have a business plan for the year ahead.