China plant expansion part of Conti's master plan

Conti disclosed a four-year, $280 million investment program in April that will boost annual capacity at the plant about 75 percent to 14 million car and light truck tires, along with boosting bicycle tire capacity six-fold to 13 million tires per year by 2025. The plant doesn't produce truck tires, but Mr. Setzer said the division is open to producing truck tires there eventually if demand dictates that kind of investment.

Employment will more than double to 2,700 from 1,150. The firm did not disclose how much the building size would increase, if at all, from its current 753,000 square feet.

Continental also has opened an R&D center for tires at the Hefei plant and broken ground in Jiangsu Province on a test center for the automotive division, with operations due to start in the first half of 2016.

The center at the Hefei plant, built on an area of around 64,500 square feet, has created capacity to machine-test 6,000 tires a year and represents an investment of about $4.5 million. The facility will focus on developing and testing summer and winter tires for the Asia/Pacific market.

“The guiding principle behind our growth in the booming Chinese automotive market remains our motto, ‘In the market, for the market',” Mr. Setzer added. The testing is designed to develop tires that will reinforce Conti's market position in the region.

The Hefei investment — along with the recent greenfield factory openings in Sumter, S.C., and Kaluga, Russia — is part of a special investment project under Continental's Vision 2025 plan, which targets a better global balance of R&D, production and sales activities.

That strategy, unveiled in 2013, called for $1 billion-plus in investments in new capacity by 2016. Conti already has eclipsed that, having invested more than $2 billion since then and  —if its annual investments of more than $350 million continue — eventually will spend close to $5 billion in the project when finished.

The firm formulated the vision in 2010 with the intent to diversify its global footprint in North America and Asia-Pacific. Mr. Setzer said the Asia-Pacific region has one of the highest growth opportunities and gives Continental more independence from its strong European presence.

“We said within our vision that we want to reach a podium position, which means that we belong to the best in our sector or industry technology-wise and in terms of balanced footprint,” Mr. Setzer said.

When the firm started Vision 2025, tire sales were more than 65 percent concentrated in Europe, Mr. Setzer said. Most of the markets in Europe are mature with growth rates much smaller than that of China, India and South America.

“It's not so important what ranking you have; our driving force is value creation,” Mr. Setzer said. “How to create value and sustainable value and reducing the risk in our portfolio is to grow in those areas where we have a lower presence and higher growth rates.”

Each of the three Greenfield plants — in China, Russia and the U.S. — have entered their extension phase. Mr. Setzer said the next greenfield facility most likely will be in Asia-Pacific, with another possible greenfield in the Americas in the future, too.

The executive said there should be at least one other announcement between now and 2025.

“It depends on the market and the development of the market,” he said. “Versus the targets we established in 2011, we're on track.”

Continental doubled its manufacturing capacity recently in Brazil, a plant that began operation about 10 years ago as part of its Vision 2025 plan. The firm doubled passenger tire capacity to about 8 million units annually and truck tire capability to more than 600,000 units annually.

The 2014 World Cup also helped the firm build a bigger presence in the region.

“We had a strong brand exposure in Brazil,” Mr. Setzer said. “Through 2014 we've been one of the main sponsors of the World Cup. Our brand was basically exposed everywhere, and we will continue to grow with a more known brand.”

In addition to organic growth, Mr. Setzer said the firm is open to partnerships — either through acquisitions or joint ventures — if they support the tire maker's business strategy.

One such strategic acquisition occurred in 2011 when Continental purchased Modi Tyres Co. Ltd. for about $25 million, integrating it as a subsidiary, Continental Tyres India Ltd. Within a year Continental expanded the factory to increase its bias-ply truck tire capacity by 230,000 units per year and added capacity for 900,000 radial car and truck tires annually — a $71 million investment from 2011-13.

“If there are opportunities that bring us forward, we're looking into it,” Mr. Setzer said. “But if we don't see those opportunities, we're confident we can do it organically as well. It simply will take a little bit longer. We see even without any acquisitions or partnerships, we are able to reach our 2025 goals.”

Continental has made a series of moves in the U.S. this year to solidify its still burgeoning ContiLifeCycle commercial tire retreading business, which it launched in 2010/11.

Earlier this year Conti unveiled BestDrive L.L.C., a new business unit that took over operation of Conti retread plants in Arizona and Tennessee and added a retread plant/commercial tire service outlet in Taylor, Mich. Conti's planning to expand retread output to 200 tires per day from 60.

More recently Continental/BestDrive acquired Hill Tire Co. Inc., a Forest Park, Ga.-based commercial dealership with five commercial tire locations in Georgia and Alabama and two retread plants, in a move to improve the market presence of the Conti truck tire brand in the southeastern U.S.

Conti paid roughly $13.5 million for Hill Tire, which turns out more than 100,000 retreads per year using the Marangoni RingTread and ContiTread systems. The plants soon will phase out its RingTread production, Conti said.

“We have a long-term plan to increase our distribution exposure and our network in the U.S.,” Mr. Setzer said. “We have opened retread facilities and are screening the market to see wherever we can team up and find partners to start and support retreading and lifecycle solutions with us. If we can't team up with anyone, we're willing to invest in our own shops. We want to have a national network.”

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Chris Sweeney is a reporter for Rubber & Plastics News, an Akron-based sister publication that first published this story.