Continental Tire North America Inc.'s top executive said recently he believes the company has charted a clear and precise course to growth in the U.S.
The company plans to pour $70 million to $100 million into its non-union Mount Vernon, Ill., factory, a significant jump from the $60 million to $70 million it said in February it would invest in the site, according to President and CEO Alan Hippe.
Conti has been building its research and development and marketing presence in the U.S. in the last several months, he said, and the firm will focus on more tire introductions and marketing for the next few years.
The bottom line is Conti is not abandoning the U.S. market, as members of the United Steelworkers (USW) union have maintained, Mr. Hippe claims.
In fact, the company is getting stronger in North America, he said. Better marketing, more R&D, better products, beefed-up and lower-cost manufacturing in Mount Vernon-all are improving Conti's position in the U.S. marketplace and its bottom line, the executive said during a recent interview at his office in Charlotte.
That's the upside.
The downside is Mr. Hippe virtually has ruled out the prospect of tire production returning to the Charlotte factory. The company also plans to close its scaled-back Mayfield, Ky., plant and lay off the remaining 150 workers there in about six months. That will take Conti down to one wholly owned U.S. tire factory, compared with four facilities in the U.S. and one in Canada the German company obtained when it bought General Tire 20 years ago.
Conti also has majority ownership in the GTY Tire Co. joint venture truck tire plant, also in Mount Vernon, which it operates with partners Toyo Tire & Rubber Co. and Yokohama Rubber Co. Ltd.
In addition, Conti is considering moving its Charlotte headquarters to another site in the South. But that's not set in stone, Mr. Hippe cautioned. ``We're just looking.''
Plant on the upswing
Mr. Hippe said several major projects are covered by the $100 million investment the tire maker has earmarked for Mount Vernon during the next three years.
In early 2006, Conti launched its capital-spending program at the plant when it broke ground for the addition of a tandem mixer adjacent to an existing mixing building. The company claims the mixer is the only one of its kind in the U.S., and can produce about a million pounds of rubber per day, far surpassing existing capabilities.
New capital improvement plans include upgrading and expanding equipment at the site and adding a warehouse that's capable of housing up to 150,000 tires, Mr. Hippe said. Other projects are on the drawing board, all aimed at boosting tire production at the facility.
The executive said other U.S. manufacturers are making investments in plants overseas while Conti is adding substantial dollars to improve and modernize its domestic tire factory to ensure its long-term success.
Virtually every move the company is making at the production site is aimed at bringing overall manufacturing costs in line with global competition and Conti's plants overseas, he said. That way, Conti can continue to produce tires in the U.S. and make a profit.
None of this rings true with the Steelworkers union, which has claimed all along that Continental has been abandoning the U.S in terms of tire production. And, the USW said, that's not going to change.
However, Mr. Hippe is convinced that the Mount Vernon site will emerge as a state-of-the-art, low-cost producer of tires, which will allow the firm to grow in this country.
To support that site and others in Brazil and Mexico, Conti's North American business has come out with a three-year plan to increase its offerings and improve product mix in the light truck and high performance tire market. He anticipates Conti will introduce more than 500 new or expanded tire products, including an addition to the CrossContact LX line that will be built in Mount Vernon.
Conti also wants to increase its market coverage in auto tires in the U.S., which is about 40 percent. ``We want to grow that to 80 percent, and that's something we're working hard to do and believe we can do it,'' he said.
Down for the count
Closing the Mayfield facility was something the USW had predicted. It maintains the same thing eventually will happen at the Charlotte facility.
The company phased out tire production at Mayfield at year-end 2004 but has continued to mix rubber there for other Conti factories. Declining business in original equipment passenger and light truck tires, as well as escalating raw material costs, led to Conti's decision to close the plant, the tire maker said.
Mr. Hippe said although the firm has seen improvements in manufacturing costs and its replacement tire business in the U.S., it still must reduce costs further to return Conti to profitability, and the Mayfield site was not cost-effective.
``We've given them (plant workers) six months notice to allow them more time to look for other jobs,'' according to Rick Holcomb, legal counsel for the company. ``We have not decided what we'll do with the plant. We'll evaluate it and see what kind of market there is out there.''
The company will meet with USW officials to negotiate layoff benefits and severance pay for hourly workers, he said. It's also working with government officials to provide transition assistance to the laid-off employees.
The firm also is meeting with union officials in Charlotte to discuss benefits for about 360 displaced workers at that site and work on an agreement for the approximately 150 remaining plant employees who are handling rubber mixing, calendering, warehousing and puncture sealant production.
Conti stopped making tires at the factory in July after it failed to reach a deal with the USW on a new contract. The old pact expired April 30.
``It doesn't look like we'll produce tires at the plant again,'' Mr. Hippe said.
``From a legal point of view, the indefinite suspension of tire manufacturing takes place Sept. 15.''
The Steelworkers filed complaints with the National Labor Relations Board (NLRB) charging Conti refused to provide information requested by the USW during contract discussions and failed to examine all avenues to reach a settlement, according to union officials.
The NLRB set up a meeting in August to review the matter, but it was postponed until Nov. 28 at the request of both parties, Mr. Holcomb said. ``We're optimistic that we'll reach an agreement that will make the board hearing unnecessary,'' he said.
``This is not a pleasant position to take, but we have to stay competitive,'' Mr. Hippe said, referring to the laid-off workers. ``It's all about cost, quality and being competitive.
``We have to be very honest. We have to produce tires in low-cost places.'' Mount Vernon is competitive; Charlotte and Mayfield are not, he said.