'Our capacity is dedicated to the replacement market:' Cooper's Dattilo may have some tough decisions to make down the road, including where his tires will be sold
Hopefully, Tom Dattilo likes roller coasters. Over the last 12 months, the chairman, CEO and president of Cooper Tire & Rubber Co. has been watching Cooper's stock price go up (high of $26.10) and down (low of $12.50) as he makes every attempt to make his company more profitable and inviting to Wall Street.
The company's recently announced second quarter results were outstanding: all-time record earnings per share, record second quarter net income of $39 million (an increase of 113% over the same period last year), increased operating profit and reduced debt.
Dattilo is sensitive to the stockholders' needs. He has to be. But what more can he do? As Cooper's stock price hovers around $18 a share, we asked him where his company, particularly the Tire Group, is headed, and what he will have to do to get there.
MTD: You recently stated that Cooper is a much different company than in 1998. Can you be specific as to what you mean by this? What does it mean for your customers?
Dattilo: For one thing, we have doubled the size of our company and become a stronger global player in the automotive parts business. We have reorganized our tire and automotive groups into independent divisions, which allows them to have the freedom to make strategic decisions and the accountability for those decisions. It's a departure from Cooper's former structure and it's working quite well.
The synergies we have acquired through our restructuring have contributed significantly to our results through the first half of 2002. We also have identified our corporate philosophies and beliefs and communicated them throughout the organization. In fact, we communicate everything about our organization and plans and strategies on a very regular basis. We do it through management team visits, letters, cards, e-mails and face-to-face meetings.
Add that to a close customer focus, which we have always had, and we believe we are paying very close attention to our constituents.
MTD: Are lawsuits against tire manufacturers becoming more prevalent or is the industry just going through a phase? How do these lawsuits affect how Cooper does business?
Dattilo: Of course they are more prevalent given the publicity for the recalls in the past 18 months. Sadly, any tire problem is viewed as a potential windfall for the plaintiffs and their attorneys.
It's a serious problem that every tire manufacturer faces. That's why it's so important that we continue to promote tire safety at every opportunity. Tires are more robust today than ever before and they have an excellent safety record, but they must be maintained properly. It's a message we have to hammer home day after day for the good of the entire industry.
At Cooper we concentrate on making great tires, providing value, giving our customers outstanding service and taking care of our business 24/7. That hasn't changed because of lawsuits, and it never will.
MTD: What is your position on supplying Cooper brand tires as original equipment to vehicle manufacturers?
Dattilo: We look at that opportunity periodically as OEMs approach us as potential partners. However, the dynamics haven't changed much over the years. Our capacity is dedicated to the replacement market, where we believe we have the most potential to fulfill our obligations to our dealers and customers who expect our customer service to them to be our first priority.
MTD: Do you have any plans to sell any of your brands -- Cooper, Mastercraft, Avon or Dean -- through distribution channels other than the independent tire dealer channel?
Dattilo: As the old saying goes, "never say never." We have dedicated our house brands -- Cooper and Mastercraft -- to the independent dealer channel in the past, and that's not likely to change in the immediate future.
However, we realize that with the consolidation trend over the past few years, our customer base is shrinking and likely to shrink even more in the coming years. We must face reality, and that is at some time in the future, you might see a Cooper brand in a merchandiser or regional retailer. But before that happens, we would consult with our customers and get their input and concerns, making sure that our brand equity would be improved by our decision, benefiting everybody, and be very sensitive to the positioning of our brand in the retailer's product screen. It would be a very tough decision.
MTD: What is your multi-brand strategy in the U.S.? How about Canada?
Dattilo: We approach the North American market very much the same because the retail conditions are so similar. With our current offering of proprietary brands -- Cooper, Mastercraft, Avon, Starfire, Roadmaster and Dean -- we believe we can offer a complete multi-brand selection to meet any of our dealer requirements.
The uniqueness of our program is its flexibility in matching the needs of our independent dealers. It's remarkable how much equity we've earned in our flag brand, Cooper, over the past few years and that's not just because of our advertising investment. Our state-of-the-art technology is a well-kept secret, but the proof is in our increasing sales and high customer satisfaction with Cooper products.
In July, we were named "best replacement tire for light truck vehicles in customer satisfaction (tie)" in the J.D. Power and Associates Replacement Tire Study. That's a pretty good endorsement of our technology and confirms what we always have known -- that we hold our own with any tire or brand in the world.
MTD: Your three-year alliance with Pirelli was "restructured" earlier this year. What is your relationship with Pirelli, and is it a long-term alliance?
Dattilo: We have a great deal of respect for the Pirelli brand and we continue to be partners in our restructured relationship. We are managing Pirelli's logistics in the U.S. and are making some of their tires.
Going forward, we are still considered partners in some technical initiatives, and they may be involved with our UHP initiative by supplying some of the more exotic sizes and fitments to supplement our own production. The timeframe of our relationship is considered long-term.
MTD: Your retail business is outpacing the industry at the halfway point. How is your commercial business faring?
Dattilo: Our commercial business is terrific right now, and we are outpacing the industry even more substantially than in the passenger and light truck segments. Retreading is a bit more distressed because of the poor economic conditions, which impact the demand for both our precure and mold-cure products. We are really pleased with our restructured commercial products division and our accomplishments so far.
MTD:What are you doing to help independent tire dealers?
Dattilo: We believe we have one of the strongest support programs in the industry for independent dealers, and we continually strive to improve our offering. This is one of our competitive advantages recognized by the industry and our customers.
One of the highlights of the past few months was the successful introduction of our Cooper Advanced Management Program (CAMP) for dealers. This program is designed to be similar to Harvard's AMP program, (and) we've tailored it especially for decision-makers in independent dealer businesses. Many of our senior executives are graduates of the Harvard program and are very impressed with its approach.
The first session (one of three) was held in June and the feedback we received from our first class was very impressive. There's so little time available for owners and managers to learn the skills they need in today's changing world, and to have the latest information all concentrated in one program is wonderful from a dealer perspective.
We are always adding to our training and development area, which offers a wide array of educational programs for dealers including financial management, retail selling skills and other basic personnel development programs. We are focused on improving every dealer program and offering at Cooper, including our industry-leading customer service fill rates. We constantly monitor our product screens and make changes when needed to keep our dealers competitive in the retail market.
In early 2003, we'll be launching a new line of performance tires that will help our dealers meet the needs of consumers in the high-end UHP and HP segments. We are thrilled with the way the prototype tires are performing, and our people are gearing up for this exciting launch. Our new advertising campaign features the tag line: "Confidence. Performance. Mileage. Don't give up a thing." That's what our dealers demand and what consumers have come to expect from Cooper. We're working at improving every day.MTD: Thanks, Tom.