Herbert Demel

By Andrew Purvis/Vienna

Herbert Demel wistfully recalls his first car--a slate-gray Alfa Sud that got him obsessed with engines and racing. His parents tried to break the spell by dispatching him to a race track outside Vienna to do lube jobs for three months. The move backfired. "I loved it," says Demel, 48. Today he doesn't just mess around with cars. He's about to transform how they are made.

This month Demel takes over as head of Magna Steyr (2001 sales: $1.5 billion), the Graz-based subsidiary of Canada's car-parts giant Magna International. His return to Austria--after 12 years in Germany and Brazil with Volkswagen--comes at a critical time for Magna Steyr, whose parent company hopes to spin it off next year. But Demel's move could be a watershed for the auto industry. As major carmakers sell more specialty cars, such as convertibles and four-wheel-drives, they are contracting out more of their manufacturing--even design and assembly--to suppliers like Magna Steyr. BMW has agreed to allow Steyr by 2004 to assemble its X3 "sports activity" vehicle--the first time BMW has let another firm assemble its cars.

Demel brings the expertise of a major car company to what was a mere supplier of drivetrains and other components. Says Rudolf Streicher, a former Steyr CEO, who has known Demel for years: "He understands the whole process."

--By Andrew Purvis/Vienna. With reporting by William Boston/Berlin and Robert Brehl/Toronto

With reporting by William Boston/Berlin and Robert Brehl/Toronto