Cooper Tire & Rubber Co. will embark on a ``soft restructuring'' in the coming months, hoping to cut costs by $70 million a year, enhance profits by $100 million and reduce inventories by $100 million, interim CEO Byron Pond told analysts in New York recently.
``In the past we focused too much on growth and not enough on profitability,'' Mr. Pond said to analysts attending Credit Suisse's Automotive Industry Briefing.
``Our results have been disappointing,'' Mr. Pond said. ``To continue on this course is unacceptable.''
To get the company on the right track, Cooper will institute a more flexible manufacturing schedule, opting to operate three of its four U.S. plants-Findlay, Ohio, Tupelo, Miss., and Albany, Ga.-on round-the-clock schedules and put its unionized Texarkana, Ark., plant on a variable schedule, Mr. Pond said. The company intends to make more use of temporary workers to effect this plan, he said. Cooper also will increase its imports of tires from China to help it improve margins and allow it to operate its U.S. plants more efficiently.
Cooper declined to comment on whether the restructuring would mean job cuts, nor did it explain more thoroughly its plans to rationalize associate brand offerings or consolidate UHP tires to one brand.
Regarding a plan to reduce SKUs in North America by 10 percent, Mr. Pond said: ``Complexity is an efficiency killer. It creates additional (work in progress), lengthens cycle times, increases the cost of quality, bloats capital spending and grows inventory....
``Complexity isn't going away, and it shouldn't, but it does have to be managed better.''
Jonathan Steinmetz of Morgan Stanley Research North America said Cooper's revised strategy ``makes sense,'' but that Morgan Stanley is concerned the approach is ``conservative to the big step function change of greater offshore sourcing.''
Morgan Stanley sees Cooper Tire as ``poorly positioned competitively'' and has doubts whether Cooper can realize ``enough earnings power/cash generation to support the share price.''
In terms of improving product mix, Mr. Pond said Cooper will roll out early next year the Cooper CS4 Touring, a premium touring tire line backed by a 75,000-mile warranty. This line, he added, could represent a third or more of Cooper's broadline tire mix within two years.
The company also hopes to rationalize its distribution and improve efficiency by closing two warehouses and opening one in a more strategic location, eliminate outside storage and ``right-size'' warehousing space throughout the system, Mr. Pond said.
Cooper declined to say which centers would close or where it would locate the new one.
The actions outlined by Mr. Pond will require $76 million in investments and will result in a one-time restructuring charge of $19 million.
The price of a Cooper share rose 15 percent in trading on Sept. 8, the day after the announcement.
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Shoring up the bottom line
Among initiatives outlined by interim Cooper Tire & Rubber Co. CEO Byron Pond to help shore up the bottom line, the tire maker will:
* Reduce SKUs in North America by 10 percent;
* Consolidate its ultra-high-performance tire offerings into one brand;
* Rationalize associate brand offerings;
* Limit ``loader'' incentive programs by capping participation based on the market, inventory levels and flex capacity; and
* Reduce its low-end product offerings.