FINDLAY, Ohio (April 12, 2002)—The three-year marriage of Cooper Tire & Rubber Co. and Pirelli S.p.A. will end July 1, but the two hope to remain friends and minor business partners.
Although the results of the courtship were generally positive, differing brand strategies, as evidenced by changes in Pirelli S.p.A.'s U.S. production base, undermined the alliance created in 1999.
Pirelli will resume management of its North American tire sales and customer service but Cooper will continue to distribute Pirelli product in the region.
“We think the high performance business is our future, and we need to focus on it and be on our own from a sales and customer service standpoint,” said Gaetano Mannino, who has been president and CEO of Pirelli Tire North America since Feb. 1.
The market is coming to high performance, he maintains, with new vehicles sporting larger wheels and tires with higher speed ratings. “This is the bread and butter of our strategy,” he said. “We're good at that product, and therefore, we decided to focus on it.”
Cooper, with its multi-brand strategy directed to all replacement market channels, has different views.
“Maybe they (Pirelli) are right,” said Mark Armstrong, president of Cooper's North American Tire Division. “But in our view, and with our experience with customers, they're looking for a broader range of product offering.”
The alliance did have some success, primarily increasing Pirelli sales with the independent dealers it intends to make its sole customers going forward, Mr. Armstrong said. But originally when the two tire makers struck a deal, the mutual expectation was that Pirelli would expand its range of product. Pirelli's decision to focus on high-performance product “limited the success we had,” Mr. Armstrong said.
As Cooper evaluated Pirelli's since-closed Hanford, Calif., tire plant in an attempt to maximize manufacturing efficiencies and locate cost savings, it became clear that the two companies' plans were diverging, he said. The capital investment needed did not jibe with Pirelli's return on investment. The biggest opportunity for cost savings vanished when production ceased at the Hanford plant, Mr. Armstrong said.
And as Pirelli's new Modular Integrated Roboticized System (MIRS) plant in Rome, Ga., took shape, it became clear the Italian tire maker would continue to produce only limited quantities of touring product in North America, he added.
The site will begin producing mainly original equipment, high-performance tires in July, Mr. Mannino confirmed.
North American revenue was satisfactory the past few years, Mr. Mannino said, without giving percentage changes or citing sales figures. “Of course, the market was difficult considering all those things that happened last quarter, but the high performance business kept going without major impact from the 9/11 effect.”
Overall, Cooper did increase Pirelli sales in North America while it had the reins, Mr. Armstrong said, but not to the level either company had hoped. Through increased sales to independent dealers, Cooper was able to offset business Pirelli lost when it moved away from the price club channel. But over the past three years, Pirelli's sales with Sears, Roebuck and Co. dropped substantially as its focus shifted to high-performance product, he said.
Cooper will lose the 4- to 5-percent commission it was making on incremental sale of Pirelli tires in North America, but the lost revenue isn't large enough to concern tire analysts.
Despite their differing brand strategies, Pirelli and Cooper aren't completely severing ties. The door remains open for technology exchange. “Whether that goes into the high-performance or ultra-high performance (products) has to be analyzed,” Mr. Mannino said.
The door swings both ways. “Cooper is very good from a product standpoint from the efficiencies in their plants,” he added. “There's definitely something to learn from them.”
From a logistics standpoint, nothing will change. Cooper will continue to store and distribute Pirelli tires, and the Italian tire maker's high-performance lines will continue their run in Cooper's independent dealerships, Mr. Mannino said.
Cooper plans to continue manufacturing selected lines of Pirelli products for sale in the U.S. and managing logistics support for Pirelli for at least the next two years. For its part, Pirelli's international group will consider producing some low-volume, exotic sizes of high- and ultra-high performance tires for Cooper either in the U.S. or in Europe. A working relationship in South America didn't materialize over the past few years because of the continent's troubled economy, but it's still a possibility, Mr. Mannino said.
At some point, if Cooper feels providing logistics service to Pirelli gives the Italian tire maker some type of competitive advantage, arrangements could change, Mr. Armstrong said.
“We made a lot of progress in a lot of ways, and in some areas, we were both disappointed,” he said. “But we part company as friends.”
Craig Sumerel, vice president of operations for Cincinnati-based Bob Sumerel Tire Co., is sketchy on details of the new arrangement between Cooper and Pirelli. But he told Tire Business in his opinion the alliance “worked well. I sense that as time went on, it was difficult for (Cooper) to work with the Pirelli people. It's just a different culture.”
His dealership has carried Pirelli lines for three years and they've been selling well—and Cooper has been very efficient in distributing the Pirelli brand, according to Mr. Sumerel. “I think there were some differences between the two companies and what Cooper wanted to do is meld them into what they were doing in their business unit, and they weren't able to accomplish that.”
He said it's unfortunate the deal didn't work out “because I think it started to work well and then they hit some hurdles…. They really had something good there that they could have really gone with.”
Tire Business reporter Vera Fedchenko contributed to this report.