Three foreign-nameplate tire companies, all relatively new to holding North American original equipment contracts, see the OE market as more significant than just another avenue to sell their tires.
Two of them-Hankook Tire America Corp. and Pirelli Tire North America (PTNA) Inc.-were the first two tire makers selected for Ford Motor Co.'s ``Preferred Parts Makers'' program, through which the auto maker is streamlining its parts purchasing operations. The third, Maxxis International, is moving into supplying both Ford and General Motors (GM) Corp. in North America with full-sized tires after eight years of supplying temporary-use spares to Ford.
In addition, Kumho Tire U.S.A. Inc. has opened an original equipment office in Detroit in preparation for becoming an OE supplier in the next few years.
Meanwhile, Cooper Tire & Rubber Co. Inc., one of the industry's proudest names in the replacement tire market, has never sought OE business and, barring a major rethinking of its strategy, has no plans to do so.
Reasons to enter OE
Hankook and Pirelli have had parallel experiences in entering the North American OE market, according to Bill Bainbridge, marketing manager for Hankook Tire America, and Peter Tyson, vice president of public relations and communications for Pirelli Tire North America.
Hankook's first North American OE fitment, in 2003, was with the Ford F-150 pickup truck. Since then it has obtained further contracts to supply various Ford, GM-and its Saturn Corp. unit-and DaimlerChrysler L.L.C. models, according to Mr. Bainbridge.
Also, earlier this year, International Truck and Engine Corp. announced it had approved Hankook truck tires for OE fitment on International 4000-series tractors.
Pirelli, for its part, launched its U.S. OE program in 2004 with Ford. ``The F150 truck and the Ford Mustang are our two principal fitments,'' Mr. Tyson said, although the Rome, Ga.-based company also supplies tires for GM-particularly for some Cadillac models-and for DaimlerChrysler.
Maxxis is just now starting to provide Maxxis brand light truck tires, size LT245/75R16, to Ford and GM. ``This is quite a significant move for us,'' said Peter Cheng, operations manager for Maxxis Canada. ``We're a very conservative company, so we're making our program as we go, very slowly and cautiously.''
It's nice to have the extra business, all three executives said. Even more, they added, the original equipment business benefits their companies in three key areas:
* Name recognition;
* Quality validation; and
* Increased sales to their dealers.
``Anybody who has Hankook tires on his vehicle and has a positive experience with them is going to say when it comes time to replace his tires, `Hey, I had a good experience with these, so I'll buy a set just like them,''' according to Mr. Bainbridge.
``Maxxis is not a name brand, so qualifying for OE fitment proves that the quality is there-otherwise Ford and GM wouldn't be coming to us,'' Mr. Cheng said. ``We learned the strict quality requirements of the original equipment market, increased the visibility of our name and elevated our technology for making tires at the same time.''
Maxxis' parent company, Cheng Shin Rubber Industry Co. Ltd. of Taiwan, has been an OE supplier to GM for several years in Asia, earning Shanghai GM Corp. Ltd.'s best supplier status six years in a row.
It isn't only in direct sales to customers where Hankook and Pirelli dealers benefit from the brands' OE fitments, Mr. Bainbridge and Mr. Tyson both said. As part of Ford's ``Around the Wheel'' and GM's ``Mr. Goodwrench'' programs, Hankook and Pirelli dealers have the chance to supply replacement tires to Ford and GM dealers.
``Furthermore, some car dealers don't want to be in the tire business, so they refer their customers to local tire dealers,'' Mr. Bainbridge said.
Hankook has 3,500 points of sale in North America, according to Mr. Bainbridge. Pirelli has ``a couple thousand'' North American dealers, Mr. Tyson said, while Mr. Cheng didn't have exact numbers of Maxxis dealers.
Kumho told its dealers earlier this year it has two or three OE deals in the works with North American car makers, principally on higher-end vehicles.
``We are committed now to develop OE business in the U.S.-good profitable OE business,'' David Hudrlik, senior vice president of sales, told attendees at the company's annual dealer meeting Jan. 13-16 in Mexico. ``We are going to sell products that benefit you. We are not going to put the Kumho brand on an entry-level vehicle. We will put them on mid-range to high-range vehicles.''
Reasons to not enter OE
Findlay, Ohio-based Cooper, meanwhile, finds it easier to leave well enough alone when it comes to the OE market, according to Patricia Brown, vice president of global branding and communications.
``We are asked frequently to quote a price on an OE fitment, but we've never done it,'' she said. ``In the replacement marketplace, the fact that you're an OE supplier might help you, but not all that much.''
There are several reasons why Cooper has never sought OE business, Ms. Brown said. For one thing, the company's capacity doesn't allow it to pursue large fitments. For another, the tire maker is very conscious of its image and would only consider very high-end or popular vehicle models for any sort of fitment.
Most importantly, however, being a replacement-only company gives Cooper the freedom to pursue the market as it and its dealers see fit.
``It means we're not restricted as to the types of tires we produce,'' she said. ``It allows us to serve our dealers and our customers according to their needs. We can focus on their needs and not be hemmed in by the conditions set by OE customers.''
However, Cooper's opposition to OE fitments is not necessarily absolute. ``If a niche OE fitment came to us under the right circumstances, I'm not sure we would not consider it,'' Ms. Brown added.
It should be noted, however, Cooper's Avon brand in Europe does have a number of OE fitments.
View from the OE side
Ford started its Preferred Parts Makers program at the end of September as an effort to achieve both quality improvements and scales of economy, according to a Ford spokesman.
``It's all about changing the model of the OEM-supplier relationship,'' he said. ``Not many suppliers operate at optimal capacity. We're trying to help them achieve a more professional, more sustainable business model. Instead of 60-percent capacity utilization, maybe they can achieve 80 percent.''
Ford has chosen 32 parts suppliers worldwide with which to work closely in achieving its quality and economy goals, the spokesman said. Hankook and Pirelli are the only two tire makers in the program, he added, but there are certain to be more.
The financial stakes are high for Ford and its suppliers to make the new program succeed: The auto maker spends about $90 billion on suppliers' goods annually, $70 billion of that on the production side alone.
While the spokesman declined to discuss why specific suppliers were selected for the program, he did say Ford has a number of criteria for inclusion. Among these are demonstrated quality and innovation, financial health, cost-competitiveness and a stated commitment to collaborate with Ford on accomplishing its supplier goals.
Ford is serious about its stated goal to buy the best quality at the best price, the spokesman said. ``Many suppliers may supply more than one commodity, but they won't necessarily be market leaders in all of them,'' he said. ``A supplier may make six commodities, but may be best in his field in only three. Those are the three we'll buy.''
Are OE, replacement tires identical?
The relationship between OE and replacement tires has come under increased scrutiny in recent months, largely because of state and federal efforts to replicate the California law requiring that replacement tires be at least as fuel-efficient as the OE tires they replace.
The California Energy Commission is studying the feasibility of implementing that law. Because of auto makers' insistence on low rolling resistance to meet corporate average fuel economy (CAFE) standards, however, some have said the requirement could prove a tall order.
In the case of Pirelli, there's no question, according to Mr. Tyson: Its OE and replacement tires are identical, period. For Hankook, Mr. Bainbridge said, the answer is a little more complicated.
``The best answer is that they're similar but not identical,'' he said. ``It's important that you have OE-identical replacement tires for the Hankook customer who wants the identical tire he had in OE, but also that you have similar products with different performance characteristics. A consumer may like his OE tires just fine, but once he has 40,000 miles on the vehicle, he may want to step either up or down in replacement tire performance.''
Hankook is just as concerned as any other tire maker about the threat of state rolling resistance requirements, but it figures that different states will have different performance requirements, just as different customers do, Mr. Bainbridge said. ``We will continue to do the best job we can.''
As for Maxxis, Mr. Cheng said, GM has its Tire Performance Criteria (TPC) system in place, which specifies that the replacement tires made for the car must be exactly the same as the OE tires.
``The TPC number is supposed to be molded into the sidewall,'' he said. ``If the customer goes by the TPC numbers, the tires should be identical.''