PHOENIX—The messages were succinct, optimistic, though some perhaps a bit worn. But they had a good, up-tempo beat. Now the question is, will Michelin Americas Small Tires dealers be able to dance to the tune?
Executive after executive at the MAST dealer conference, held Jan. 11-15 in Phoenix, bowed to the painfully obvious: Yes, Michelin North America has had a horrendous fill rate problem—and its dealers haven't let the company forget that. But a satisfactory end to the dilemma is in sight.
It wasn't like dealers haven't heard that before. Several of the 350 at the annual gathering said this year's event plowed over similar ground to the previous three.
Yet, responding to some of the positive news they heard coming from the company—scads of new product lines running in tandem with aggressive marketing programs, concerted efforts to boost dealer profitability and, halleluja, plenty of tires to go around—several dealers told Tire Business they're willing, even eager to give MAST the benefit of the doubt.
Good and bad news
Kenneth W. Kruithof, MAST's vice president of national dealer sales, said 1998 for Michelin—and its namesake flag brand—was the third consecutive year of ``substantial growth.''
The BFGoodrich brand experienced ``growing confidence,'' exceeding the company's business plan, while its Uniroyal tires saw ``phenomenal'' improvement.
``Strong double-digit growth'' has become the norm for the brand, he said.
News on the private and associate label front was not so good.
Due to factors such as a strike that ended in late 1997 at Michelin's Fort Wayne, Ind., tire plant and subsequent inventory shortages, that business segment declined.
This led Michelin to purge some longtime private-brand customers last year. Officials said the ``painful'' but necessary decision allowed MAST to now have more resources available to focus on dealers' needs and support brand strategies in 1999 and beyond.
In deference to that stubborn fill-rate problem, MAST admitted it has hovered in the upper 70 percent range. But a number of dealers said they've received, on average, only 30 to 40 percent of what they've ordered.
Michelin promised a fill rate of 90 percent by mid-year, with its North American plants slated to operate at 90-percent capacity. Sourcing needs will now be determined on a global basis, prioritized toward North America.
Pete Selleck, COO of MAST and executive vice president of Michelin North America, told Tire Business: ``Actually, our biggest concern is we'll have too many tires'' this year.
Nonetheless, a number of dealers still said they were skeptical.
Mr. Kruithof outlined an ambitious yet ``completely realistic'' 1999 sales agenda translating to at least 15 percent growth for dealers. Specific goals are:
More than 20-percent growth for the Michelin brand;
More than 14 percent for BFGoodrich; and
Over 20 percent for Uniroyal.
Private and associate brands will grow less spectacularly, he said, but still outpace the industry.
Spurred by a strong U.S. economy, the domestic replacement tire market grew at 2.6 percent in 1998. Scott Clark, MAST vice president of marketing, conceded Michelin ``didn't prepare for it—we expected growth to be only 1.6 percent.''
He said MAST's overall volume and market share were ``dissapointing,'' as it was unable to satisfy record customer demand, fell behind and couldn't keep pace with dealers' needs.
Key elements to a revitalized MAST multi-brand strategy, he said, are to:
Leverage the strength of all MAST brand assets;
Invest in each brand;
Strengthen and broaden product lines; and
Increase emphasis on associate and private label lines.
MAST's Alliance program—which requires dealers to purchase a 51-percent share in Michelin products—currently numbers 287 members and is expected to remain at about that mark this year.
Meanwhile, Mr. Kruithof said Michelin has simplified its programs, scaling back from specific ones for each brand to ``one, single sales program that lasts all year.''
And a goal to triple national account and government sales by the year 2000 is ``right on track.''
Dealers will succeed, he noted, by following these basic tenets:
1.) Provide what the consumer wants, such as personal service, reliability, major brand offerings and a convenient purchase process.
2.) Have a complete business plan that includes financial management, personnel development and a growth strategy.
3.) Have a specific marketing plan and professional message.
4.) Stay aggressive in their market and in applying strategies.
There was applause and some cheering by dealers as MAST executives ticked down a list of new tires set to debut this year.
New tires galore
Spurred by what it called an already strong brand awareness, the company plans to offer, in the Michelin brand, 22 sizes for the Pilot XGTH4; 50 sizes of Pilot Sport; a Pilot LTX; and the firm's new PAX tire/wheel system.
MAST plans a big growth spurt for its BFGoodrich brand with a new Radial All-Terrain T/A KO (K for ``key'' and O for ``on/off road''), in 29 sizes; 13 sizes of g-Force T/A KDW; 20 sizes of Scorcher T/A; 19 sizes of Control T/A M80; 22 sizes of Control T/A M65; and a Winter Slalom.
The T/A KO was the most highly touted of the new tires. Due for release in May, it boasts 12 percent more mileage and will come with an ``Adventure Assurance Program'' that features off-road towing coverage.
``We're literally challenging consumers to get stuck,'' said Mathew Aaron, BFGoodrich brand manager.
He said the tire will be part of a unique MAST distribution policy ``unprecedented in the passenger/light truck market to protect our dealers' markets for years to come,'' though he didn't explain.
Last year, BFG-brand light truck sales, hindered by poor fill rates, increased a ``respectable'' 5.9 percent—behind the industry's 8-percent growth rate. Still, he claimed BFG has a ``higher brand equity than Exxon, United Airlines and even The Wall Street Journal.''
On the Uniroyal brand front, MAST will debut light truck Laredo AWT and M/T tires, and will make a big marketing push heralding the expansion of its NailGuard self-sealing tire technology to include eight Laredo RWL P-metric sizes.
Riken, referred to as a forgotten brand, will be ``resurrected'' into a ``strong associate brand,'' MAST pledged. A new line of Riken ``Raptors'' will bow in Z- and H-rated versions, as well as a Raptor S4 cosmetic performance tire, an entry-level broadline tire, and touring and light truck editions.
Mr. Aaron said the BFGoodrich brand will make ``almost 2 billion adult consumer impressions'' via agressive print and TV media schedules set to launch in March.
Bullish on dealers
Based on needs uncovered in an annual Michelin study of how its dealers rate the company, COO Mr. Selleck said MAST has begun several major steps to improve its level of service, including:
1.) Completion of its first long-term capacity plan which will enable the tire maker to forecast the level of unconstrained demand for its brands to the year 2003.
2.) Continuing to refine its distribution strategy. ``We made the difficult but necessary decisions, and we're now partnering with you, the winners,'' he told dealers.
3.) Further implementation of account management, with an eye toward projecting the growth and evolution of dealers' product screen over the next decade.
4.) Refining the sales and operations planning processes, allowing Michelin to consider all its sales opportunities over the next 2.5 years, compare them to its available supply of tires and decide which opportunities to pursue.
5.) Significantly increasing supply by continuing the expansion of its North American plants and boost imports from European plants. It also has signed outside purchase agreements with several unidentified tire makers to make non-Michelin branded tires.
Though the company has ``struggled internally about multibranding,'' Mr. Selleck said, ``last year, we clearly turned the corner.'' He then reassured his audience: ``Michelin is bullish on the future of the regional independent tire dealer and distributor.''