LAS VEGAS (Nov. 23, 2004) — The prospects offered by a market with 600 million to 700 million consumers that is less than 5-percent motorized is too appealing to ignore, according to Cooper Tire & Rubber Co.'s top executive.
Cooper intends to become a major player in the Chinese tire market, achieving a billion dollars or more in sales in the coming few years, said Thomas Dattilo, Cooper's president, chairman and CEO. That's despite having no direct ownership involvement there currently and getting involved in that huge market relatively late compared with the major global competitors.
“It's still open territory,” he said during an interview with Tire Business at the recent Specialty Equipment Market Association (SEMA) Show in Las Vegas. “No one knows exactly how it will play out. It may not be how we distribute here. We're looking at a number of opportunities.”
Mr. Dattilo declined to comment directly on possible partners but did acknowledge Cooper's ambitions there depend on an acquisition or joint venture to secure local production for the domestic market. Integrating Cooper's brands would follow.
Stephen Girsky of Morgan Stanley's Equity Research agreed with Mr. Dattilo in that the “playing field is still wide open” and that there appears not to be a significant disadvantage to being a late entry to the competition there.
However, Mr. Girsky said, “the question remains: 'Do you have to be in OE there to be competitive?' And if they choose to be in OE in China, it's hard then not to get involved in OE elsewhere. That would be a natural change in strategy for Cooper, and it would involve a different level of R&D, manufacturing, etc.”
Mr. Dattilo acknowledged that Cooper might have to consider supplying OE tires in China in order to build brand equity, especially since the Chinese consumer is becoming very brand aware.
“The distribution system is still quite disjointed,” Mr. Dattilo said, noting there are three distinct regions in terms of consumer products and no state control of tire distribution to overcome.
Cooper is involved for now in a joint venture with Taiwan's Kenda Rubber Industrial Co. Ltd. and two off-take production agreements with Hangzhou Zhongce Rubber Co. Ltd.
Findlay, Ohio-based Cooper owns 50 percent of the Kenda venture that's building a $200 million passenger and light truck tire plant in Kunshan, China, which should come on-stream by 2006 and turn out 10 million units annually by 2008.
The companies' deal calls for the first production from that plant to be Cooper-branded for sale in the U.S., and Cooper recently strengthened its link with Kenda by negotiating to become the exclusive distributor of Kenda-brand car and light truck tires in North America.
This agreement relieves American Kenda Rubber Industrial Co. Ltd. of the task of having to build a dealer network and gives Cooper another brand to offer its growing dealer network.
Mr. Dattilo declined to comment on the sales potential for the Kenda brand but said, “We know the quality of that product.”