KAANAPALI BEACH, MAUI, Hawaii (Jan. 18, 2002)—Trouble in paradise? Not necessarily. But it may depend upon whom you ask.
They were billing it a “Sellebration in Paradise.” And by the time the last hula was danced, Continental Tire North America (CTNA) Inc. may have convinced a number of its dealers that the company was back on track and making a beeline toward profitability.
There were numerous layers of reassurance by company executives that the Charlotte, N.C.-based tire maker was finally going to make a dent in fill rate problems and will add to the mix five new performance, several commercial and six private brand tires—and on time for a change. They also said plans are under way to roll out new marketing and ad campaigns to enhance the ability of dealers to turn a profit.
Yet there also were at least several levels of skepticism on the part of some of the company's loyal dealers, both large and small. They really, truly want this supplier to succeed, many told Tire Business. But more than a few said they'd heard the same message before, just re-packaged in various ways over the past half-decade or longer.
Clearly, CTNA execs had their work cut out for them, but seemed up to the challenge.
So at their annual dealer meeting, Jan. 8-13 in the ritzy four-star Hyatt resort hotel on Kaanapali Beach, they set out to change some minds.
Barely had the conference opened when many were caught off guard by a surprise announcement from Bernd Frangenberg that he would retire at the end of the first quarter after more than eight years as CTNA president and CEO. Bowing to his customers—many whom for years had endured both the good and not-so-good as Continental and/or General brand dealers—Mr. Frangenberg admitted “we've gone through some tough years together. We really appreciate your business and your sticking with us.”
By all counts, “2001 was not a very good year for us…and particularly for our industry,” he continued. “Our financial results overall… were not very satisfying. In fact, they were very lousy.”
The tire maker limped along in 2001, finishing the year in the red as it moved to close three tire plants in the midst of an industry swimming in overcapacity.
As he introduced his successor, 43-year-old Ulrich Wellen, as a “hands-on, approachable” chief executive, Mr. Frangenberg said the company has decided to take a more “holistic” approach to the marketplace. It wants to be a supplier of total vehicle chassis control systems—including tires, electronic chassis, components, modules and braking systems. While this is not a basic change in CTNA's overall strategy, Mr. Frangenberg said, “we need to be profitable again, and on a permanent basis.”
In his soft German accent, the 21-year Continental veteran outlined a number of steps the company is taking to achieve that profitability, such as:
* Concentrating more on profit and loss and cash flow through reduction of capital approvals and re-allocations;
* Issuing a temporary hiring freeze;
* Restructuring CTNA's two tire business divisions into a passenger/light truck business unit, headed by Manfred Wennemer, chairman of German parent Continental A.G.'s executive board, and a commercial business unit led by Hans-Joachim Nikolin; and
* Making no big acquisitions unless they are “highly profitable and prove strategically to be absolutely necessary and good for profitability.”
The key goals for CTNA, Mr. Frangenberg noted, involve a restructuring of its business in Mexico—where the company is in the process of closing a tire plant—as well as developing more product-oriented global tire divisions while staying true to its mission to achieve “profitable growth.”
Globalizing its tire units will provide dealers with numerous benefits, he said. Those include a unified research-and-development effort that will improve the time it takes to get new products to market, fully integrated manufacturing worldwide that will “get the product to you quicker and improve fill rates immensely,” and what he called “global price harmonization.”
“Global” sounds massive and controlling, but don't fret, Mr. Frangenberg reassured dealers, because both the passenger/LT and commercial units will be “decentralized,” with field reps having more authority to make decisions. Having fewer layers of bureaucracy to wade through, he said, is one of the benefits of being a “small” company—Continental is ranked as the world's fourth-largest tire maker.
The “mystery man” in the equation is Mr. Wellen, a relative newcomer to Conti's North American operation who joined it last spring as its first chief operating officer. A chemist by trade, he has held several positions with CTNA's parent firm, including heading its original equipment passenger tire business as well as research and development for its commercial products.
He was as blunt as Mr. Frangenberg in his assessment of Conti's current situation, describing the tire maker as a “permanent loss maker for the past three years. This is not acceptable—a turnaround strategy is needed.” The company's vision, Mr. Wellen noted, is to be its dealers' “leading tire supplier.” By accomplishing that, Conti will in turn make its customers successful as well as create value for stakeholders “by capitalizing on our global tire technology leadership position.”
He also pledged to resolve the company's continuing struggle with low fill rates. Saying it is one of his personal projects, Mr. Wellen stated: “If we can't fill our customers' orders, we lose big and we can't let that happen.”
The main part of the turnaround, he added, will focus on brands and positioning, image and awareness, an expanded, revitalized product portfolio, streamlined operations, and the personnel to make those changes possible. “Our mission is profitable growth,” he told dealers, noting that the company plans to continue building on its strong OE positioning.
Calling 2001 a “year of change” for CTNA's commercial group, its senior vice president, Tom Roydhouse, said the unit's message of “Quality, Value and Performance” has not changed from past years.
After reviewing plunging shipments data from the Rubber Manufacturers Association through last November, he cited a 9-percent increase in the commercial group's heavy highway service (HHS) replacement units last year vs. 2000, and a better-than 9-percent increase last year in HHS share of market (SOM) replacement and original equipment units. He called that a “major milestone.”
Conti racked up 18-percent growth in its off-the-road SOM in 2001 and retained its No. 1 position in the bias segment, Mr. Roydhouse claimed, while seeing a 4-percent increase in radial SOM in the first year the company began marketing radial OTR tires.
CTNA's national account business grew by 16 percent last year—adding 149 new accounts—and had a positive operating income and positive cash flow, he reported. Sales to the company's top commercial dealers were up more than 12 percent last year, according to CTNA.
For a number of years the commercial unit has been the tire maker's saving grace and cash cow. However, some dealers expressed concern to Tire Business that the commercial group's profits have been siphoned off to prop up the company's struggling passenger/light truck unit, to the detriment of programs needed for commercial dealers.
The commercial unit's 2002 business plan may help quell some of that trepidation. Executives said CTNA has a new, expanded OE sales staff and plans to refocus on global truck makers, meet OEM global supplier requirements and solicit business from specialty manufacturers.
New truck tire spiff programs that will be offered include tire dealership rewards and end-user incentives and a program designed for major national account fleets. OE is important, according to Bob Harnar, director of OE and international sales, because it helps add value through improved brand perception, generates “brand awareness” at the local fleet level, and links Conti and General brands to dealers' sales efforts.
The company announced that it has created four regional “profit centers,” led by John Buvalic in the West; Mike McGuinness in the North; Ed Johndrow in the South; Darrell Brown for the Central States area; as well as Dave Vujanov in Mexico and Jeff Hazelgrove in Canada.
It also noted that through Conti's “Buyline” purchasing program, commercial, passenger and light truck products all can be ordered with one phone call.
In the area of facilities management, Conti said it has expanded its Los Angeles and Atlanta warehouses and will grow its Columbus, Ohio, facility in 2002. The company also has made investments in its truck tire factories, adding tire molds, new inventory forecasting systems and will complete by mid-2003 the installation of new truck tire-making equipment in its Mt. Vernon, Ill., plant that will boost capacity.
A number of new HHS, radial off-road, industrial and farm tires will be introduced in coming months, the company said, and will be promoted through new marketing and advertising campaigns.
While the commercial unit's performance has remained relatively strong, the P/LT replacement tire group has had a tough go of things, acknowledged Mike Barker, vice president of sales and marketing.
In an energetic presentation he told dealers: “Call me guilty—if things go wrong, I should be the guilty guy.”
He vowed that the tire maker will improve its business forecasting—“we don't do a good job of it and should do better,” he said—fix sagging fill rates that have hovered at around 80 percent during the past year, and offer more dealer promotions in order to create a better partnership with its customers. “We're not as big as some of our competitors,” he said, “so we have to be smaller and faster.”
But like its bigger competitors, Conti said it plans to pursue a multi-brand strategy by “repositioning” its Continental brand while “revitalizing” its workhorse General brand, which will sport a new logo and some new products.
“We are no longer going to be an excess inventory, OE runover,…niche supplier,” Mr. Barker told dealers, who vigorously applauded.
With a nod to corporate streamlining, Mr. Barker declared: “I hate corporate bureaucracy. People close to the customer should make the decisions.” More applause.
The Conti brand has grown somewhat in stature in the market, he said, but at the expense of the General brand, so “we have to stop the G-brand from falling.”
New marketing efforts will tap into the heritage, “family values” and strength of the General name, Mr. Barker added.
Reassurances to the contrary, one commercial dealer from Illinois was convinced he was witnessing the end times of the General brand. Noting current advertising that features “Conti” in big letters, he told Tire Business: “The proof is in the small lettering,” where he said the name “General” is barely visible.
Still, he continued, “We're the big OE player, and I don't think a lot of people know that. Shame on us.”
Mr. Barker said the company “used to be product and manufacturing driven, and we can't do that anymore. We are a loss maker, but we're getting some money to fix that.”
Part of that turnaround, according to Jim Mayfield, director of marketing, can be realized through the P/LT unit's 2002 goals, which include:
*Following a consistent approach;
* Introducing fresh creative ad and marketing material;
* Boosting national exposure;
* Refreshing the sagging General brand; and
* Seeking more TV advertising.
To focus attention on the importance of the Conti brand and its premium personna, CTNA's new print and TV ads feature the tag line: “Continental. They're not just tires. They're Continental tires.”
Conti spent $5 million last year, according to a spokeswoman, and plans to spend $5 million for each of the next five years to promote the C-brand, including a series of three new TV commercials that were launched in last year's fourth quarter. Through CTNA's co-op advertising program, dealers will be able to include tag lines to their local markets in Conti TV ads.
Admitting that the company has failed in the past to get new products to dealers in a timely fashion, Mr. Barker again chanted his “guilty guy” mantra if the problem persists, promising delivery of five new tires, as well as six new private labels, on their due dates.
The General AmeriTrac TR, a sport-utility light truck tire, will be out March 1. The ultra-high performance ContiSportContact 2 and the ContiExtremeContact—the first Conti-brand, ultra-high performance all-season tire, which features a “shark” tread pattern—will be available to dealers April 1. The high performance General Exclaim and General GS60 touring tire are expected in dealerships May 1.
Jeff Jankowski, director of dealer sales, said CTNA has set a goal in 2002 to attain 6.5-percent market share in its dealer channel—an improvement over the company's 6.2-percent mark last year.
Meanwhile, officials assured dealers that, unlike some of its competitors, CTNA will not acquire any of its customers in order to lock in “controlled distribution,” but will remain committed to its dealer channel. However, Mr. Jankowski did say the company will continue to sell branded products to wholesale clubs—and try to grow its market share there—because “we must have tires available where replacement tire customers shop.
“It's foolish to ignore 35 percent of the market. But we must better serve our dealer channel, which represents about 65 percent of distribution,” he said.