FINDLAY, Ohio—Just as dealers are getting ready to cut their tire deals for the new year, Cooper Tire & Rubber Co. is hitting the market with its new multi-brand tire program featuring the Pirelli brand at the high end. "We're ready to go," said Thomas Dattilo, Cooper's president and COO, in an interview in early January. "We're ready to sell the whole program, which includes Pirelli at the top tier."
For the past year, the Findlay-based tire maker has been cobbling together a multi-brand approach to the market following last February's announcement that it was forming a strategic alliance with Pirelli S.p.A. to sell the Pirelli brand in North America.
While that venture surprised many in the tire industry, it was just one of several aggressive moves the usually conservative Cooper made during the year to position the company for growth in the 21st century.
Guided by Cooper 21, a long-term strategic plan to expand its tire and engineered products business units, Cooper orchestrated four deals in 1999 that enhanced revenues dramatically and reshaped its sales mix.
Besides the Pirelli alliance and the purchase of the Dean private label tire, Cooper allocated more than $1 billion to fortify its engineered products division, which provides sealing, vibration-control and hose products to the automotive industry.
Last July, the company paid $757 million for Standard Products Co., a maker of automotive sealing and vibration control products, acquiring retread industry supplier Oliver Rubber Co. in the process.
Four months later, it announced the purchase of Siebe Automotive, a unit of London-based Invensys P.L.C. that makes fuel and brake lines and thermostats. That $244.5 million deal is expected to close early this year.
In picking up these companies, Cooper doubled corporate revenues from $1.88 billion in 1998 to an estimated $3.6 billion.
Just as significantly, it changed the company's sales mix from 77 percent tires in 1998 to approximately a 50:50 ratio between tires and engineered products.
Tire dealers, who've been comfortable seeing Cooper primarily as a tire maker with a small engineered products segment, should not find this change in sales mix alarming, Mr. Dattilo said.
"While it might seem to a neutral observer that out of nowhere we went out and added significantly to our engineered products business, it really isn't (the case)," he said.
The company had strategically planned to grow its engineered products unit globally for some time, he said. "It was just a question of having the expertise to do it, having the right opportunities come up and then getting it done."
Cooper, he stressed, must grow to survive.
"If the competitors are getting bigger and you're staying the same, well, you're smaller and ultimately you won't exist," he said.
Cooper's braintrust also knew that to sell engineered products to the world's largest auto makers, the company had to become a global supplier.
"Ford, DaimlerChrysler and General Motors are not going to have different suppliers providing the same product around the world," Mr. Dattilo said, noting the company already was starting to lose auto supply opportunities because it didn't have a global presence.
Additions boost debt
The recent buying spree has saddled Cooper with considerable debt, but not more than the company can handle, Mr. Dattilo said.
The current 58-percent debt-to-capital ratio is higher than the 40-to 45-percent level Mr. Dattilo prefers, but it still places Cooper in the middle range of other companies in the broad automotive sector.
"Of course, it's like everything else: You'd rather have less debt," he said. "But you also have to use your balance sheet to the benefit of your shareholders and your customers, as well."
Cooper, he added, never intended to buy Standard and Siebe back to back, as it did. "But Siebe wouldn't have been for sale in 2001. So sometimes you have to do what you have to do."
Tires get their share
While recent news has been dominated by its moves in engineered products, Cooper has not neglected its tire business.
Just the opposite. The company is adding production capacity, working to improve plant efficiency and preparing to take its multi-brand approach to market.
The alliance with Pirelli, while still less than a year old, has gone "pretty well," Mr. Dattilo said.
"We told the world that you had to give us about a year to really get the thing off the ground. Nobody really wanted to hear that because in the year 2000 everything is instantaneous, and we don't have much of an appetite for waiting."
In integrating the Pirelli brand, Cooper had to overcome cultural issues between the two companies, ensure that Cooper customers and its own employees understood and were trained to sell Pirelli products, make the firms' computer systems compatible and stock Pirellis in its warehouses.
"And we had to reconcile the relationship Pirelli had with its customers with the relationships we had with our customers—the different programs, different pricing and different dealers," Mr. Dattilo said. "That took about a year to get that all done, because that's a lot of stuff."
Now, he said, Cooper is ready to go to market "with a full integrated program we can really pitch."
Cooper will use its seven proprietary brands—Cooper, Dean, Avon, Mastercraft, Starfire, Roadmaster and Dominator—along with Pirelli to supply the various channels of distribution.
"We need that number of brands so that there's a different brand combination for the mass merchandiser, the independent tire dealer, the big national distributors and the regional retailers," Mr. Dattilo said.
Cooper is targeting regional tire retailers, those with multiple locations, in its new marketing strategy, a segment Mr. Dattilo called the fastest growing part of the market. But the company will not sell these retailers a brand that conflicts with its existing dealers.
"Our goal is to always protect the independent tire dealer," he said.
Dealers appreciate this approach, which is "very different from our competition's, which is to flood the region with a brand name through any available facility.|.|.|. And that's not our strategy," Mr. Dattilo said.
Improving fill rates
Like most tire makers, Cooper struggled to supply its customers fully in 1999. Depending on the brand, fill rates ranged from the low 90-percent level to the mid-80s—well below its goal of 95 percent.
To help alleviate this problem, Cooper is adding tire presses and capacity to its Tupelo, Miss., and Findlay tire plants over the next six to nine months, boosting production of passenger and light truck tires by 3.4 million tires annually.
In addition, the company has been working on developing more efficient distribution systems for the past 18 months. This has involved reviewing warehouse locations to see if they are in the right spot and working on things like logistics and shipping automation, Mr. Dattilo said.
In the commercial area, Cooper boosted capacity for medium truck radials by 40 percent last year (to 400,000 tires annually) at its Albany, Ga., tire plant. And now with Oliver in the family, dealers can expect to see the eventual development of a cradle-to-grave tire program incorporating retreads and new tires.
Oliver, Mr. Dattilo said, is "the Cooper of the retreading business. They have a very good reputation for customer satisfaction, their technology is very acceptable and people like doing business with them."
Will Cooper opt for more alliances and acquisitions down the road?
Depending on the part of the world and the opportunity, it's possible, Mr. Dattilo said.
In Asia, for example, if Cooper could find an opportunity that could be a "Cooper Tire & Rubber Co. of Asia," the company might give it serious consideration.
"Our goal for any place is to supply the local market," Mr. Dattilo said. "We're not going to do something in Asia so we can export tires to North America, or South America to North America. The operation has to make sense within the confines of the local market."