As Continental Tire North America Inc. realigns its North American tire production to invest in lower-cost facilities and exit high-cost plants, the company's domestic tire supply is falling short of what some tire dealers prefer.
``People drive in and like (the original equipment tires) they had, but we can't get them, so we turn them over to something else,'' Alpio Barbara, owner of Redwood General Tire in Redwood City, Calif., said of customers wanting Continental or General replacement tires. ``We put them on Michelins, Pirellis, Goodyears. If you're gonna drive in with your car, you're going to drive out with something. I'm not going to say I don't have them.''
Mr. Barbara, who said his fill rate from Conti is only 50 percent, said Conti's lack of adequate supply has been an ongoing problem the past few years even before it closed its Mayfield, Ky., tire plant and began phasing out tire production at its Charlotte facility. He attributed much of the backorder problem to Conti's increased commitment to original equipment (OE) business and the resulting proliferation of SKUs.
``There's so many different types of tires in the same size, it's ridiculous,'' Mr. Barbara said. ``It's a logistical nightmare. Your inventory is unbelievable. It's getting worse.''
Other dealers who spoke with Tire Business on Conti's supply problems agreed that Conti's emphasis on OE fitments first has created backorders now complicated by ceased production at two U.S. tire plants. One dealer who did not want to be identified noted he and other dealers he knows are hesitant to promote Continental and General products for fear of not having the tires in stock when they need them.
Earlier this year, Conti admitted it had supply problems to attendees at its first-ever Gold dealer meeting in Las Vegas. Company executives promised to correct the issues but warned that supply disruptions likely would continue as the tire maker tries to lower its cost structure and attain profitability in North America.
Tom McMillin, general manager of Cassidy Tire & Service in Chicago, attended the Las Vegas Gold dealer meeting and said Conti's supply to his dealership hasn't improved. He told Tire Business the Continental and General products coming in to the dealership reflect what the tire maker's executives said then, that volume discounts to move units would end. As a result, the dealership has been sourcing tires from Asia to keep its units up.
``For somebody like us who are sort of a medium-sized dealer, that wasn't good news for us because a lot of times we live off those deals to be competitive,'' Mr. McMillin said. ``I would say we still have mixed reviews with Continental.''
Supply ups and downs
Two of the Conti executives who addressed dealers in Las Vegas-Andreas Gerstenberger, vice president of sales and marketing for the passenger and light truck business unit, and Travis Roffler, marketing director-acknowledged there are lingering supply problems but not across the board in all market segments.
Mr. Gerstenberger said there are tire lines where ``our fill rate is not acceptable,'' but the fill rate for recently launched tires-the Continental CrossContact LX and ContiProContact and the General Exclaim UHP and Grabber UHP-is ``competitive.''
``We are not happy with everything that we supply to the market, not at all,'' Mr. Gerstenberger said. ``We still have homework to do.''
His assessment did ring true for some dealers contacted by Tire Business. Bill Jarvis, owner of Schererville, Ind.-based Midwest Tire & Auto Repair Inc., said he's more satisfied with his supply from Conti now than earlier this year or in 2005, and he said he believes his distributor may have bought extra quantities. He said he's selling a mix of broadline and high-performance products.
Cassidy Tire's Mr. McMillin said the dealership has been able to purchase large quantities of General Exclaim UHPs and is happy with how well that line is selling.
Mr. Roffler said Conti is ``suffering most'' with supplying the marketplace with replacement tires for OE fitments. ``When you look at a pure replacement line like Exclaim UHP, the supply's pretty good, but when you look at replacement tires that are original equipment source and therefore sought after in the aftermarket, that's where supply becomes a little erratic.''
He cited as an example the Continental CH95 OE tire, which is sought after in the replacement market. Conti now wants dealers to switch their replacement to the ContiProContact.
``We're trying to pitch (dealers) on putting the Pro in. We have supply of the Pro, but they're still ordering the CH95, and then we get `digged' on bad fill rates,'' Mr. Roffler said.
Although Conti's North American supply may be ``erratic,'' Messrs. Gerstenberger and Roffler emphasized the tire maker is not sacrificing the General brand in favor of the premium, OE-driven Continental brand. Last year's introduction of the General Grabber UHP and Exclaim UHP was only the start of Conti's efforts to revitalize the General brand, and the company will launch another General line at this November's Specialty Equipment Market Association (SEMA) Show in Las Vegas.
Additionally, Mr. Roffler noted that parent Continental A.G. in Hanover, Germany, has ``conceded'' General as a brand for North America and that the CTNA unit should determine the direction of the brand.
SKUs and more SKUs
In the past five years, SKUs increased roughly 30 to 40 percent in the replacement market, according to Mr. Gerstenberger, and dealers need to carry more than two or three to remain competitive. The proliferation of SKUs is causing Conti to work on a ``platform concept'' to make tire production more efficient, much like the auto makers build different vehicle brands on the same chassis.
In Conti's case, it's working to build multiple lines and brands on a common casing, which wasn't present in the past, Mr. Roffler said. ``You can't keep adding SKUs into the same plants without changing your manufacturing capabilities or else you get to an impasse where they can only produce 60 percent of the SKUs that you have in that particular facility,'' he said.
Conti is looking at blending some of its lines to create ``one solution that offers everything from a 75-series to a 45-series possibly,'' Mr. Roffler said. The tire maker plans to ``create a buzz'' at the SEMA Show with a new line built upon a platform concept. The executives declined to give further details.
Naturally, OE business takes priority in tire supplies, but Mr. Gerstenberger said the OE business is not Conti's only concern, as the company's OE share for the U.S. and Canada is 20 percent vs. a replacement share of less than 5 percent. Most of Conti's OE business is with General Motors Corp. and Ford Motor Co., both of which have fallen on hard times with declining market share and production.
``Unfortunately, we are impacted by that,'' Mr. Gerstenberger said of the auto makers. ``For example, the Charlotte plant had a very high OE share with Ford and General Motors.''
Conti is making a huge effort to solve the supply problem on the production side. Its new Camacari, Brazil, plant is on line and 90 percent of its capacity is dedicated to North American supply, according to Mr. Gerstenberger. The plant's target capacity this year is 1 million tires, but Conti plans to expand annual capacity to 7 million or 8 million tires, he said.
If necessary, Conti has extra land at Camacari that would be available for another expansion phase, he said, just as the tire maker increased capacity substantially at its plants in Czech Republic and Portugal in recent years.
At the same time, Conti plans to invest $70 million to $100 million at its Mount Vernon, Ill., factory not only to expand capacity but also to refit the facility for production of the most popular replacement sizes, Mr. Gerstenberger said. The investment includes a warehouse expansion in 2006, equipment upgrades and launching a new backordering system.
``This amount of money is clearly emphasizing that we don't have the intention to leave the United States'' in terms of manufacturing as long as those manufacturing activities remain competitive globally, Mr. Gerstenberger explained. He declined to discuss projected capacity at Mount Vernon when the expansion work is complete.
Additionally, Conti is importing tires to North America from its factories in France, Portugal, Germany, Romania and Czech Republic. All winter tires for North America are imported from Europe, and Mr. Gerstenberger emphasized that Conti's U.S. dealers must understand that the company looks at manufacturing globally, not locally.
``We use our global capacity in hopefully the most efficient way to serve our different areas of selling,'' he said. ``The United States is an important one, but not the only one. So for example, we are also producing tires here in the United States, which we are also exporting to other areas. At this point in time it's fair to say that the number of exports is significantly smaller than the number of imports.''
How would you characterize your company’s health care situation?
|We review plans frequently in order to contain costs.||
6% (3 votes)
|Our plan works well for our employees.||
32% (16 votes)
|It’s a constant struggle to balance an affordable plan with good coverage.||
44% (22 votes)
|We don’t offer health care.||
18% (9 votes)
|Total votes: 50|