CERRITOS, Calif.-How does a small U.S. subsidiary of a foreign tire maker compete and continue to grow in a market dominated by the world's three largest tire manufacturers? If you're Toyo Tire (U.S.A.) Corp., you step up to the plate and offer independent tire dealers top quality products with a better profit margin than do Goodyear, Bridgestone/Firestone Inc. and Michelin North America.
``The Big Three have publicly stated they are (going) after the second tier tire manufacturers to increase their market share,'' said Earl Knoper, Toyo's senior vice president of marketing.
``So we say to the Big Three, `Right back at ya! We're after your market share.'*''
It might be safer to run and hide under the nearest container load of tires than duke it out with the big boys.
But during a July 11 interview at the Sheraton Hotel in Cerritos, Toyo's top executives expressed optimism they can expand the company's share of the U.S. replacement market.
They believe Toyo offers ``very good products,'' competitive pricing and all the support dealers need to sell the company's tires at a healthy gross profit.
Toyo's strategy is to appeal to two customers, the first being the independent tire dealer. ``We want to give the tire dealer reasons to recommend Toyo to his customers,'' Mr. Knoper said.
The other is the end user, the consumer. Toyo is targeting the growing number of consumers who are quality- and value-conscious, who shop at retailers that offer a selection of products and services at reasonable prices. Such con-sumers like to do business with a local independent tire dealer who can help them select the brand and type of tire that best fits their needs, Mr. Knoper said.
This complements Toyo's strategy of distributing only through independent dealers, whom Mr. Knoper said assist consumers in making a brand decision up to 80 percent of the time.
``The most important thing to the independent tire dealer is profit margin,'' Mr. Knoper said. ``Generally speaking, a retailer can expect to make more gross profit on our brand than they can on the Big Three brands.''
Toyo sells only premium lines and, depending on the retailer, gross margins on its tires range from a low of 30 percent up to 50 percent, Mr. Knoper said. This compares with what he called the more modest profit margins of the Big Three.
Toyo, Mr. Knoper said, offers dealers ``a better profit opportunity because we're not so widely distributed and we only distribute through independent tire dealers.'' And since the company doesn't crowd dealers on top of each other, this allows them to set their own price on Toyo tires, he added.
To help dealers entice consumers to buy Toyo passenger tires, the tire maker has strengthened its marketing efforts for 1996.
``We are establishing a new strategy that will basically help our sales force to expand our business, especially for radial passenger tires,'' said Kazuo Nagai, Toyo Tire (U.S.A.) president.
Part of that marketing strategy already has unfolded. Late last year, the company began offering a free trial offer for consumers on virtually all Toyo passenger tires, including ultra high performance lines, plus its leading light truck radial. Consumers can return the tires within 500 miles or 45 days if unsatisfied.
Toyo will unveil a credit card program in August that will give ``yet another reason for an independent tire dealer to recommend Toyo to the consumer,'' Mr. Knoper said. The card will offer 90 days same as cash and a low discount rate for dealers.
Later in the month, Toyo will unveil a third dealer merchandising support program that ``will be equally exciting and very unique,'' Mr. Knoper said. He wouldn't provide details.
Toyo also is looking to expand its dealer base, according to the company's executives.
Strong along the coasts, Toyo needs dealerships in middle America, Mr. Knoper said. ``There are lots of large metropolitan markets in middle America where we do not have measurable market share,'' he said. ``And that's what we are really targeting for.''
Currently, Toyo has 400 billing points and about 2,000 points of sale for its tires.
Should the company see an influx of new dealers, could Toyo handle the additional demand?
The answer is yes, according to Mr. Knoper.
In addition to capacity already in place, Toyo's parent in Japan has formed a joint venture with Taiwan's Cheng Shin Rubber Industry Co. Ltd. to build a $150 million radial passenger and light truck tire plant in China.
Construction should be completed by year's end, with production beginning in the first quarter of 1997. Initially, the plant will make 10,000 passenger tires daily, with 50 percent going to Toyo, primarily for export to the U.S., according to Yuji Hosoda, managing director, overseas operations division for Toyo in Japan.
Toyo also has designs on someday establishing a manufacturing base in the U.S. to produce radial passenger and light truck tires, to complement the company's stake in the joint venture GTY Tire Co. medium truck tire plant in Mount Vernon, Ill.
``We need to add some type of production base for radial passenger tires in North America, and Toyo is pursuing this possibility, either jointly or independently. But the time is not right yet,'' Mr. Hosoda said.
Mr. Hosoda defined Toyo as an international company with headquarters in Japan that conducts business in several other overseas markets. But it is not a global player, he said, which requires manufacturing capacity around the world.
In Japan, Toyo operates three tire plants and owns 50 percent of Nippon Giant Tire Co. Ltd., a joint venture with Goodyear.
The Osaka, Japan-based parent company expects sales of about $2.5 billion in fiscal 1996, a slight increase from 1995, and a net profit of about $10 million.
In the U.S., Toyo anticipates a modest profit on flat sales, Mr. Knoper said.
The rapid appreciation of the Japanese yen vs. the dollar has affected the company's bottom line, Mr. Hosada said. To minimize the currency problem, he said, Toyo is implementing the following measures worldwide. It will:
Promote and sell more high performance radial passenger tires, which offer a greater profit margin than other tire types;
Become even more active in producing timely new tire sizes and types, such as ultra high performance tires, which he called a more value-added product; and
Try to reduce production costs as much as possible in every area of the company.
Toyo also is trying to increase the direct importation of raw materials in an effort to balance out the currency exchange with export sales.
Toyo would like to survive in the worldwide market as a full-line supplier, including some off-the-road tires, Mr. Hosoda said.
In the U.S., Toyo will add new sizes to a number of lines in 1996 but won't introduce any tires.
In 1997, the company will unveil the 800 Ultra, a high mileage tire that could carry a lifetime warranty should dealers request it, Mr. Knoper said.
In addition, Toyo will introduce the Spectrum, a mid-priced passenger tire in the 50,000- to 60,000-mile warranty range, produced in China at the joint-venture plant.
Toyo is excited about this new line, Mr. Knoper said, as it will be the first mid-priced passenger line offered by Toyo in the U.S.
To keep dealers abreast of marketing activities, Toyo Tire (U.S.A) has begun producing its own training videos. The first two-one on ride and drives; the other on the features and benefits of the FZ4, the company's latest high performance offering-will be completed in mid-August and mailed free to dealers.