Looking to lower costs, improve earnings and strengthen its supply position, Cooper Tire & Rubber Co. intends to double the share of tires it sources from low-cost countries-to perhaps as much as 45 percent-in the coming five years, company executives told analysts recently.
That plan, to raise the share of the firm's capacities in low-cost countries to 35-45 percent from 18 percent by 2012, could include sourcing tires from India, company documents indicate. Asked about this possibility-disclosed in the firm's 2007 10-K filing with the Securities and Exchange Commission-a Cooper representative said as yet there is no off-take agreement in place with an Indian producer but that the company is evaluating possible manufacturing partners in a number of countries, including joint ventures and greenfield startups.
Cooper sourced 2.25 million tires from China last year and recently signed an off-take production agreement with Mexico's Corporaci¢n de Occidente S.A. de C.V. covering up to 2.5 million broadline passenger and light truck radials a year. Cooper said in its 10-K it would source 3.8 million tires in 2008 from China, Mexico and other off-take partners.
The company's strategy, according to Chairman and CEO Roy Armes, is designed to deliver an operating earnings ratio of about 7 to 8 percent, up from 4 percent in 2007, while boosting sales 6 to 7 percent annually to $3.6 billion, or to nearly 61 million units, by 2012.
To achieve this, Cooper's goal is to turn its inventory eight times a year and maintain a net debt to capital ratio of 35 to 40 percent, according to Phil Weaver, vice president and CFO.
Other key aspects of the strategy include:
* Enhancing the company's core strengths, including strong U.S. market share, customer satisfaction, speed to market, a high global footprint and a broad product and brand portfolio;
* Increasing the use of automation in its plants;
* Cutting domestic manufacturing costs by 10 to 15 percent through further implementation of Six Sigma and lean efficiency principles;
* Reducing product supply complexity;
* Increasing Cooper-brand output to about 67 percent of supply from 62 percent;
* Consolidating distribution in the U.S. and Asia; and
* Reducing the production development cycle by as much as 60 percent.
In North America-where Cooper claims its sales represent a 17-percent share of the light vehicle tire replacement market-the tire maker intends to improve its distribution through all sales channels, including regional retailers, independents, wholesalers and national retailers; align itself with ``progressive'' distributors in Canada on a non-exclusive basis; and expand its commercial ventures in Mexico.
In its presentation, Cooper said it expects its initiatives in Canada and Mexico to generate new sales of about 4.5 million units.
In Asia, Cooper is targeting solid growth that would result in 5- and 10-percent shares of the passenger and medium truck tire markets, respectively, in China by 2010.
Bruce Davis, Tire Business staff, contributed to this story.