AKRON-The original equipment market is where a tire maker can build its sales numbers. The replacement tire market is where a company can build sales dollars. When tire companies sign contracts to provide automakers with OE tires, they do so in hopes of luring the customer back when it comes time to buy replacements. But some companies-such as Cooper Tire & Rubber Co. and Specialty Tires of America Inc.-concentrate solely on the replacement tire market.
The replacement market, on average, can be three times as profitable as the OE market, according to Harry Millis, a securities analyst with Fundamental Research Inc.
That could be why Cooper is satisfied with its role in the tire world-in which it has zero OE contracts.
``We have found production in replacements a more favorable market to being in OE,'' a Cooper spokesman said. The replacement market isn't affected by the cyclical nature of the auto industry, he said.
Cooper operates four tire plants in North America and is the ninth-largest tire maker in the world, based on TIRE BUSINESS' 1996 rankings. The Findlay, Ohio-based company posted estimated 1995 tire sales of nearly $1.3 billion-about 85 percent of the firm's total corporate sales.
The Cooper spokesman said his company isn't concerned with what the OE market offers in profits.
``We don't know what OE markets produce but we do know the replacement market has been good to us,'' he said.
Cooper, however, does have some OE contracts for engineered parts such as vibration control systems, hose assemblies and weather sealing.
``As the OE manufacturers have downsized their own technology, our technology has grown by leaps and bounds,'' the spokesman said, adding that Cooper has 51/2 plants devoted to engineered products.
He said the company has no plans to enter the OE tire market, ``but never say `never' because never is a long time.''
Specialty Tires of America has one plant in Indiana, Pa., and is building another in Unicoi, Tenn. The company is devoted solely to bias-ply replacement tires and specializes in niche markets such as racing, aircraft and antique tires.
``We would be interested in OE business, we're just trying to find the right niche,'' said Mark Grant, the company's vice president of marketing. ``We don't have the volume capability to compete in OE with the majors, who say `we won't make any money on this but we want to get them on replacements.'''
``You need exceptionally high volumes to make (an OE contract) worthwhile,'' according to Saul Ludwig, managing director at McDonald & Company Securities Inc.
Dennis Virag, managing director of the Automotive Consulting Group, said while the replacement market is more profitable, OE fitments are imperative for brand recognition.
Analysts believe companies that rely solely on the replacement market tend to lag in technology.
``Replacement tires are generally lagging the market (in research and development) by three to five years,'' Mr. Virag said. But he said those companies can afford to be in that situation because most replacement tires are bought when at least half of a car's life span is spent.
Consumers generally don't want to pay top-dollar for a high-tech tire, he said, adding most will go for something simpler and cheaper.
Mr. Millis said working with Detroit's auto engineers allows OE tire companies to have more in-depth R&D. Cooper would need to put more money into R&D if it wanted OE business, he said.
``We specialize in the bias industry,'' said Specialty Tires' Mr. Grant. ``In those areas we compete in, we make as good a product as anyone out there.''