(Updated July 24, 2012)
How important to Pirelli Tyre S.p.A.'s North American growth plans is its newest plant, the sprawling car and light truck tire factory in Silao?
How about presidential big?... As in making sure Mexican President Felipe Calderon was on hand to help mark the beginning of production at the $300 million-plus, 1.45-million-sq.-ft. plant.
After delaying the ceremonial event twice to accommodate Mr. Calderon's schedule, Pirelli was able to make the event happen May 31.
Early that afternoon, a squadron of helicopters, one bearing military personnel, brought Mr. Calderon and other government officials to the new factory in Mexico's Guanajuato state. There he met with local political and business leaders as well as Pirelli & C. S.p.A. CEO and President Marco Tronchetti Provera and other top leaders of the tire manufacturer.
The presidential presence signaled the strategic importance of the plant in Silao, which lies about 230 miles northwest of Mexico City and less than two hours from Houston by air.
The facility is the tire manufacturer's North American beachhead in its goal to be the world's leading maker of premium tires by 2016.
Silao is no stranger to the automobile industry. The city of roughly 150,000 is home to a General Motors Co. plant that produces Chevrolet, GMC and Cadillac pickups and SUVs.
Volkswagen A.G. has a parts factory nearby and plans to open a factory that will crank out 330,000 engines a year after it comes on line in 2013.
A smattering of tires made at the plant in Silao in the weeks before the ceremonial ribbon-cutting already has reached the U.S. Pirelli said that trickle will be a torrent by year-end.
The numbers? The gleaming plant will churn out 400,000 tires annually in 2013, 3.5 million by year-end 2015 and 5.5 million units annually by 2017 when the factory is fully operational.
Pirelli put the plant's investment initially at about $210 million, a figure that has grown to $300 million for the first phase and which will total $400 million by year-end 2017. The investment in human resources translates to 1,000 jobs by 2014 and 1,800 positions by 2018.
Though highly automated, the Silao plant will not use Pirelli's Modular Integrated Robotized System (MIRS) tire construction process, which is aimed at special production batches, a Pirelli official said.
The factory incorporates natural lighting, water conservation and other “green” measures. Seemingly simple steps like fabric shades pay off—there ambient temperatures near the molds were noticeably cooler.
Dignitaries on hand
Pirelli has also taken social responsibilities into consideration. The Silao plant features an area for children—of employees as well as disadvantaged local kids—to play sports.
The tire maker has also sponsored a local youth soccer team, which presented Mr. Calderon with a blue-and-black striped jersey as a beaming Mr. Tronchetti Provera stood nearby.
Mr. Calderon, other Mexican officials and Italy's ambassador to Mexico, Roberto Spinelli, were given a private tour of the factory by Pirelli bosses. The president was then guest of honor at a VIP luncheon covered heavily by Mexican and Italian media.
In addressing the crowd, Mr. Calderon delighted his hosts and motorsports fans with his off-the-cuff remarks about Formula 1, for which Pirelli supplies tires, and the racing tires' various compounds.
In interviews, Mr. Tronchetti Provera, Paolo Ferrari, chairman and CEO of Pirelli Tire North America (PTNA), and Tom Gravalos, vice president of PTNA's marketing, motorsports and original equipment operations, explained why and how the Mexican facility is a linchpin in its ambitious plans centering on high-performance, high-tech tires.
“This plant will be providing much better service to our clients in the aftermarket,” said Mr. Tronchetti Provera, a 26-year veteran of Pirelli. “Right now we serve the aftermarket from Brazil mostly, partly from Europe, partly from China.… This is a way to…deliver in four days to any place in the U.S. From Brazil it takes 45 days.”
Stressing that Pirelli is dedicated to service, Mr. Tronchetti Provera acknowledged improving fill rates is one of his team's top priorities. And as a racing and motorcycle and car enthusiast (he raced a 7-liter A.C. Cobra in Mille Miglia vintage road racing), he appreciates speed and performance.
A focus on efficiency is also why Mr. Tronchetti Provera said he reshuffled Pirelli's top ranks in May.
“To be premium, you need people working together (who are) outstanding in their professionality. Be a real team, be real human beings, and focus on priorities.… When you change strategy, you also have to have the right people to implement it.
“You cannot see what you want to do and not do it.… I did shorten the chain of decision-making process. I canceled two layers that were making decisions untransparently, not easily, not directly.… Reliability is the main issue with people in business, in life.”
Mr. Ferrari, a veteran of international finance, including mergers and acquisitions, who took the reins of PTNA in February, added:
“The premium strategy doesn't just rely on the brand and the product, but everything else has to be premium. Our service levels, in terms of fill rate, are not premium. We import 95 percent of the tires that we sell in (the U.S.) market. And the supply chain is long....
“With one shot, with this factory, we're going to have a lot of premium production here. We're going to have much shorter supply chain, (and) we are going to produce in a more cost-effective way.”
Mr. Ferrari said his team is focused on maintaining Pirelli's growing market share in premium tires the U.S. and Canada, which he placed at 6 and 15 percent, respectively.
“Our goal is to grow market share because we have a better fill rate and because we go into a virtual circle where we will also get more orders as we become more reliable in terms of service level.”
Under Pirelli's three-year plan, Mr. Ferrari sees Pirelli's premium volume growing about twice as fast as the market by year-end 2015.
“That could lead us to a gain of at least 2 or 3 points of market share,” he said. “If all goes to plan, that may even be conservative.”
If so, Pirelli officials note that the Silao plant has been sited to easily accommodate a second or “mirror” tire factory, which could lead to a potential annual output of 11 million tires.
Pirelli is also working on a new premium tire that will have a splashy debut later this year, digital marketing is being prepared and rebates are under consideration—all part of the North American team thinking “big.”
“We would like to set a new standard in the way Pirelli launches new product,” said Mr. Gravalos. “We invested hundreds of millions here. It would be foolish of us not spend the last few million to close the loop and get your return on this investment.”