Published on June 6, 2014

Pirelli CEO Ferrari — consistency is top focus

Tire Business photo by William Schertz
Pirelli Tire North America CEO Paulo Ferrari tries out a form of transportation for which Pirelli does NOT have a fitment.

CRESTED BUTTE, Colo. (June 6, 2014) — Ferrari. Paolo Ferrari.

OK, James Bond he isn’t, but that didn’t stop the chairman and CEO of Pirelli Tire North America Inc. from taking the opportunity to drive like the famous, fictional spy a few months ago at Aston Martin the Americas’ “On Ice” winter driving event in Crested Butte.

During the ride-and-drive, media representatives had a chance to test out the winter performance capabilities of several Aston Martin models, fitted with Pirelli’s Sottozero range winter tires. It’s rare for a tire manufacturer CEO to take part in such an event, but Mr. Ferrari spent his fair share of time behind the wheel, leaving as shaken (and stirred) as the rest of the attendees.

Whether he’s speeding through an ice track or overseeing operations for a tire company, Mr. Ferrari said he believes that hands-on involvement is the mark of good leadership.

Tire Business photo by William Schertz
Mr. Ferrari.

“Meeting customers is one of my priorities,” he told Tire Business. “…Meeting them at events gives me the chance to talk to them about the market, their business (and) our strategy for the future, while at the same time experiencing our events and those we do with our partners to see if they are effective and how we can further improve them.

“Last, and maybe most importantly, participating in those events with media and customers—where we actually try our product—closes the circle by experiencing our products live together with our dealers, commenting and sharing information on products with them.”

He said this hands-on approach has helped him to adjust to his new environment. Mr. Ferrari took the helm of Pirelli Tire North America in 2012 with no prior experience in the tire industry, but what he did have was a decade of experience in leadership.

“When you’re a manager, you manage,” he told Tire Business during the ride-and-drive event. “It’s a job in itself, so whether you manage a media business, a telecom business or a tire business, you bring that to the table—being able to see things, to understand the market and to see where the value drivers are.

“…Obviously I will never know about tires as much as someone who’s been working in the industry 25 years — like some of our customers — but I can certainly tell you what works from a value creation point of view.”

And according to Mr. Ferrari, one of the best ways to achieve value creation is through consistent service, something that Pirelli had been lacking in the U.S. market before his arrival and one of his key focuses at the company.

Company ‘DNA’

Pirelli’s core assets and DNA as a company lie in technology and R&D, with a focus on the premium and prestige vehicle segment, Mr. Ferrari said.

“We invest a lot of time and money into R&D to get homologated on premium and prestige cars,” he said. “…The more complicated the car, the more complex, the more technology (and) the more electronics, the more difficult it is to get a fitment. It’s a niche of a market which has more value.”

But it’s also a niche with players who are very discerning when it comes to suppliers. As a premium tire manufacturer, Pirelli’s level of service to its OE customers must also be premium, Mr. Ferrari said. The same is true on the replacement side, where the large dealers Pirelli deals with have high expectations.

“These are big chains. They are big companies that, in some cases, are bigger than us from a revenue point of view,” he said. “They’re owned by private equity, they have boards, they have management and they are companies that do serious business. So they expect the manufacturers, a supplier like us, to do serious business across the board.”

When Mr. Ferrari arrived at Pirelli, the firm was struggling with fill rates ranging between 50 and 60 percent, “and they were inconsistent,” he said. “So as much as we were spending on marketing our brand, it was difficult to capitalize on.”

But with Pirelli’s car and light truck tire plant in Silao, Mexico, coming on board in May 2012, those fill rates have been improving, he said, hitting 85 to 90 percent for key customers.

The 1.45-million-sq.-ft. plant — which will represent an investment of about $400 million by the time it is fully operational in 2017 — is on target to hit an annual capacity of 2 million units this year, Mr. Ferrari said. Pirelli expects the plant to reach its maximum capacity of 5.5 million units by year-end 2017.

For a decade prior to the launch of the Silao plant, Pirelli’s only option for producing tires in North America was its 400,000-sq.-ft., ultra-high-performance tire-dedicated plant in Rome, Ga., which churned out more than 3 million tires using the firm’s MIRS automated manufacturing process between 2002 and 2012. By comparison, the Silao plant is expected to produce 3.5 million units in 2015 alone.

“In North America, up until we finally had the Mexican factory—of course we also had North American OEs (tire) and we had European OEs coming to the U.S.—but we were not set up properly in terms of manufacturing and in terms of supply chain,” he said. “So here we were before (I joined Pirelli) selling 100 tires in the U.S. and producing only five in the U.S.”

Now, with improvements to its North American supply chain in place, Pirelli is turning its focus toward boosting market share and other goals. It has changed its approach with product launches, Mr. Ferrari said, describing a conversation he had with employees regarding Pirelli’s Scorpion Verde All-Season Plus, which launched in November. In the past, the tire maker would introduce a product before working out all the details.

Mr. Ferrari had different plans.

“We’re going to a launch when we have 17 or 20 sizes ready, then we have 60,000 tires in the warehouse ready to be shipped.

“We’re going to gather people in Austin, Texas, during the (Grand Prix). We’re going to tell them there’s a new product. We’re going to negotiate a price between October and November, and we’re going to start selling from Jan. 1,” he said.

“Boom, it happened, which is—to me—normal. While in other cases you have companies, including our competitors, launching a product without even having the sizes.”

In addition, the firm is continuing its efforts to gain more market share on the OE and replacement ends. “In the last two years, we’ve grown about half a point of (replacement) market share each year, and I think we’re just going to continue to do that,” he said.

“We’re growing a little faster on the super premium, which comprises the 18 inches and up and the high-speed tires because that’s where most of our OE is…. We need to consistently do what we’ve been doing in the last two years, which is to improve our service levels.”

Pirelli is planning more additions to its various Plus lines of replacement tires, with most being produced at its Mexico plant.

The firm held its first of two planned tire launches in 2014 at the recent New York International Auto Show, unveiling the Cinturato P1 Plus, a UHP summer tire. The tire, which is optimized for the North American market, initially will be manufactured in China, but Pirelli’s long-term goal is to move production to its Mexico plant.

A second tire will launch toward year-end.

On the OE end, Pirelli will “continue to do what we’ve done for the last 140 years, which is working ahead of the times, ahead of the technology…to make sure the tires perform at their best for what the manufacturer wants, which is eventually what the consumer wants,” Mr. Ferrari said.

Pirelli also is looking to boost its investment in California, which has proved to be a huge market for the tire maker. Some of the company’s biggest distributors are located there.

Several key OE customers have a strong focus in the region as well, including Aston Martin, with its U.S. headquarters in Irvine, Calif., and Porsche Cars North America, which recently completed its Porsche Experience Center in Carson, Calif.

In addition, California holds the largest concentration of dealers participating in Pirelli’s FasTrack marketing program, Mr. Ferrari said.

Pirelli has increased its sales force in the area and is looking to add office space for those employees who currently work from home. Mr. Ferrari said this likely will happen between 2015 and 2016.

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To reach this reporter: wschertz@crain.com; 330-865-6148.

 

 

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