Aeolus down but not out of U.S. pass. tire market

By Kathy McCarron, Tire Business staff

NEWPORT, R.I. — Chinese tire maker Aeolus Tyre Co. Ltd. had big plans to expand into the passenger tire market in the U.S. — until the U.S. government announced last year it planned to impose countervailing and anti-dumping  duties that would make such a venture cost prohibitive.

Despite having to suspend its passenger and light truck tire sales in the U.S., Aeolus executives said recently the company is still committed to the U.S. market long term and plans to expand its sales in the U.S. with both consumer and commercial tires.

The company, which marks its 50th anniversary this year, has a lot of other opportunities to focus on in the meantime:

• Its parent company, China National Chemical Corp. (ChemChina), is in the process of acquiring majority ownership of Pirelli & C. S.p.A.;
• Aeolus will establish a U.S. subsidiary to support its North American business for commercial and consumer tires long term;
• It plans to provide additional services to its distributors, including marketing and sales support and more rapid after-sales technical service; and
• It has the overall goal of enhancing its brand and tire quality.

“Given the market acceptance of Aeolus consumer tires in the U.S. — primarily due to the high quality of product and the hard work of our distribution partners — Aeolus is committed to finding a solution that will allow us to meaningfully re-enter the U.S. consumer markets,” the company said in a statement.

Aeolus Tyre was levied the highest anti-dumping and countervailing duties possible — 89.77 and 12.03 percent — by the U.S. Commerce Department, an action Aeolus attributes to the fact that the U.S. government considers ChemChina a government-controlled entity, according to filings with the Commerce Department.

• This story appears in the June 8 print edition of Tire Business.

“To this end, Aeolus is following all available avenues for addressing the tariff issue, including preparing an administrative appeal to the ITA (the U.S. Commerce Department's International Trade Administration) and joining the China Rubber Industry Association in a direct hearing with the ITA,” the company said.

“Although the tariff has impacted the consumer tire business in the short term, it is Aeolus' long-term strategic plan to be a competitive global brand in the U.S. across all business segments for consumer, truck and OTR products. As such, Aeolus will continue to build the Aeolus branding in the U.S.”

One of the ways Aeolus is building its brand is by sponsoring an entry in the Volvo Ocean Race, an around-the-world yachting competition that in mid-May made a stopover in Newport, where Aeolus officials spoke with Tire Business about the company's plans.

Company officials readily admitted that tires and yachting don't commonly go together, but it's the worldwide exposure and “outside-the-box” sponsorship that attracted Aeolus to the program, they said.

The event “provides a global branding impact that is original and innovative compared to traditional tire industry sponsorships,” the company said.

The race provides a unique platform “to differentiate the brand sports marketing program by representing brand characteristics such as premium, excellence, high quality, durability, team work, contemporary equipment and other developing technologies to reach new audiences for achieving maximum value for the Aeolus brand and stakeholders.”

When announcing its decision to sponsor the Dongfeng Racing Team entry, the company noted that "Aeolus" means "God of the wind."

At each port stop along the yacht race's 39,000-nautical-mile route, Aeolus has been engaging with its local business partners and promoting its brand in the regional markets.

In Newport, for instance, Aeolus hosted several of its distributors, including Alliance Tire Americas Inc. and Dynamic Tire Corp., and discussed its plans for the U.S. market.

Passenger tires

“We're very excited about the business we have built here over the last couple years,” said Jason Rothstein, general manager for Aeolus North America.

Aeolus had contracted with 10 distributors for its passenger/light truck tires in the U.S. before it had to suspend shipments.

“We were a late entrant into the passenger tire space as far as the leading Chinese manufacturers go, but with very strong work by (General Manager, U.S.) Mike Leverington over a couple-year period with some very strong customers,…we built a strong business from nothing here, based on brand halo, the strength of the Aeolus brand from the truck tire side, as well as on the strength of the product.

“It was very well received and, obviously, the tariff was too great a headwind given the level of tariff we were hit with…. It's just prohibitive for us to keep bringing product into the market,” Mr. Rothstein said. “So we're down, but we're not out and we're certainly focused on getting back into the market.”

Aeolus is looking at two strategies to counteract the pending duties on Chinese-made tires. One is working with the government to reduce the level of tariff to the 33-percent range that some other companies are being charged — “which would allow us to get back into the market, albeit (at) much lower volumes,” he said.

The second option is looking for alternatives of supply outside of China that would allow Aeolus to bring product into the U.S. market.

“We need to find a partner where the level of quality will meet the standards that allowed us to build the brand in the first place. So that is the challenge we're facing, but we are actively exploring that,” Mr. Rothstein said, noting that it could take at least a year to establish other sources and conduct quality testing.

Aeolus operates one tire plant, in Jiaozuo, Henan Province, China.

Mr. Rothstein noted that despite the suspension of passenger tire sales in the U.S., Aeolus is still committed to expanding into the market.

The sponsorship of the Volvo race, promotion of its truck and OTR tires and building a U.S. sales team is “all indicative of Aeolus' commitment to this market,” he said.

“Aeolus is invested in growing here. They're investing in people and we'll be building up, hiring up. We will grow our team in the U.S. and we will continue with sponsorships with investment in the brand in this market…. That's what's in their hearts right now. They will continue to invest in this market,” he said.

Aeolus plans to eventually establish a U.S. subsidiary that will allow the tire maker to carry product liability insurance with a U.S. carrier, an important issue with many distributors, the company said. The subsidiary also will allow the company to better service the U.S. market and eventually open a warehouse stateside.

“Overall, the Aeolus passenger tire business is doing extremely well,” Mr. Rothstein continued. “We're at capacity. We're continuing to grow north of the border and south of the border (in Canada and Mexico).” Dynamic Tire is Aeolus' distributor in Canada.

Aeolus claims it has a large market share in South America for truck tires. However, its passenger tire market share growth is stalled by limited capacity at its plant.

“Until we expand the passenger facility, we're limited on how much we can continue to grow in passenger down there,” Mr. Rothstein said.

The company is planning to hire additional regional managers to focus on brand building and expanding its customer base in Latin America.

Challenges

Aeolus said it is focused on improving the quality of its tires.

“I think the perceived stereotype impression of a Chinese brand is all Chinese tires are inferior quality and low priced, and they get categorized into that group, unfortunately,” said Mr. Leverington, who has been working on marketing the Aeolus brand in the U.S.

“We have invested in our factory. We have one of the leading factories in all of China for the materials we use, the equipment we use. Our processes are top shelf, and it's hard to convince people that a tire company out of China can be of equivalent quality as many second- and first-tier tires. And the consumers aren't going to believe it because it's too new…. You got to get a lot of tires running to have people have a good experience with it….

“This is the kind of process our truck tires went through. The reputation we have on our truck tire line is unquestioned and some of the passenger tire business we did get was the result of, ‘If it's anything like your truck tire, I have no problem with it,'” Mr. Leverington said.

“I would say that is the biggest obstacle — getting over that hump and differentiate the brand from all the others and position our brand at the top end of the third tier and get it accepted.”

Marketing

“This is a very clear example of us, as a company, Aeolus saying, ‘We have global aspirations…. Through 50 years of building a quality product, we have the quality to back us up with our global aspirations. So let's invest in a sponsorship of an event that takes us around the world,” Mr. Rothstein said of the Volvo race sponsorship.

“That raises the visibility of the brand, globally…. This is an example of how we're breaking out from the pack,” he said.

“You wouldn't normally expect a tire company to sponsor a sailing event,” Mr. Leverington added.

“But by doing so, we step out in front. We're noticed. We're differentiating our brand in a lot of different ways. These are tangible ideas we're talking about and there's many others…. It's a long-term process.”

Aeolus also is meeting with potential OE customers as it focuses on building the OE side of its truck tire business.

“We're not looking to fill factory volume, we're looking for key OE partners where we're supplying them good product and at the same time we're getting very good brand halo effect from that,” Mr. Rothstein said.

As Aeolus meets with potential OEMs, it is playing up the fact that it has been producing tires for 50 years. It will mark the milestone in its global branding, host appreciation events and introduce a new generation of products.

Meanwhile, the tire maker is working on the next generation of its products.

“The focus is to bring more value to our customers, to create a leading brand of quality to the entire industry,” said James Yang, general manager assistant for Aeolus.

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To reach this reporter: [email protected]; 330-865-6127; Twitter: @kmccarr