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The Top Brass: A Decisive Year Ahead for U.S. Tire Industry

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Talk to the top officers at America’s largest tire companies and you can sense a great deal of anticipation. For truly, the year ahead could be one of the most decisive in recent times.

Among the Big Three-Goodyear, Michelin and Bridgestone/Firestone (BFS)—the financial picture has improved and manufacturing facilities in relatively good shape.

The time has come for these firms that dominate the U.S. tire industry to put distractions aside and to design, build and sell tires on a head-to-head basis—and may the best competitor win.

New products are spewing forth at the most rapid pace in history. Technological developments are at an all-time high.

With the retirement of Stan Gault by year’s end, Goodyear will have new top leadership, but the format and even the names of the top officers have yet to be revealed.

At Michelin and BFS, CEOs completed development of the multi-brand strategies and clearly defined programs they believe will enhance their market share.

At struggling Continental General, overall strategy will now be directed more firmly than ever from Germany where top officers of the U.S. company must report directly.

And at Cooper, the line of succession continues with a home town CEO who has risen through the ranks closely adhering to the programs that have proven so successful in the past.

How do these leaders view the performance of their companies in the past year and—more importantly—how do they look at the future? What does all of this mean to independent tire dealers?

In exclusive talks with MTD Editor Lloyd Stoyer, the men who will determine the course of  the tire industry in the U.S. discuss some view and plans they have never before revealed publicly and provide a candid look at the competitive battles ahead.

Estimated current annual tire sales (U.S. and Canada)

Goodyear/Kelly $6.0 billion

Michelin North America $4.2 billion

Bridgestone/Firestone $3.1 billion

Continental General $1.2 billion

Cooper $1.1 billion

 

STAN GAULT, Goodyear

By now the story of Goodyear’s spectacular turnaround, engineered by Stan Gault, is familiar throughout the tire industry.

In the four-plus years since he returned from retirement as the top man at Rubbermaid to take over as chairman and CEO of Goodyear, the Akron tire manufacturer has emerged from frustration, discouragement and near-bankruptcy to once again become the world’s most profitable tire manufacturer.

Though Gault, himself, emphasizes that “associates” and a “team effort” were required to achieve all this, the business world marvels at the impact a single man had on this giant corporation.

And the financial world now waits with great interest to observe the impact of Gault’s departure from the company.

His co-pilot at Goodyear’s controls, president and COO Hoyt Wells, has already retired recently. And Gault has announced he’ll be leaving his executive duties by the end of 1995, but will remain on Goodyear’s board.

So it seemed appropriate in this exclusive interview to forego many of the familiar questions about the company and to examine the philosophy of the man himself… to look at what he hopes will be his lasting contributions to the soul of the company… to look through his eyes at the Goodyear of the future.

As he said, himself, when discussing the Goodyear of the year 2000, by then, “Stan Gault will be but a memory—hopefully a lasting one.”

Here are Gault’s thoughts on a wide variety of issues:

On your specific retirement plans:

As you know, I have announced that, at the board’s request, I will remain a Goodyear director after my retirement at the end of the year.

My further involvement with the company, if any, is still to be determined. No decision has been made.

On whether decisions have been made on the makeup of Goodyear’s top management team after you retire.

We have been working on our management succession for three years.

It has been discussed at virtually every meeting of the board since then, often at great length. And we have had additional board meetings called for the sole purpose of discussing that subject.

You can rest assured that the course of our future leadership has been well thought out, that our management philosophy and our operations will not be changed and that our Goodyear dealers will remain the backbone of our distribution system.

On Goodyear’s progress toward goals of its four-year, six-point Performance Plus Plan.

We’re off to a great start. Even with the drastic raw material price surge no one fully anticipated, we are more than holding our own reaching toward a segment operating margin of 12%.

Coming from 6% in 1990, we finished the first quarter of 1995 at 9.2%, just a shade off the year earlier.

Our sales were up 11.5% as compared to 4.5% to 5% in the plan, and those record sales plus high unit volume helped to cushion the raw material price impact better than most expected.

Price increases have held up better than at any time in recent history.

As for capital expenditures, we’re planning to spend $650 million this year, within the plan’s range and significantly higher than in previous years.

The four-year target for sales, administration and general expense as a percent to sales is 15%. It had been up to 18%. Already in the first quarter it was under 15%, but it’s something we must closely monitor and control. The debt-to-equity ratio at the end of the first quarter was 38.4% versus the plan target of 25% to 30%. We expect the cash flow for the year will drive this ratio to about 30%.

On the dividend payout of 20% to 25% of the prior year earnings, we increased payout to 25 cents per share, raising the dividend payout to $30.3 million for the quarter, and that’s squarely in line with the plan target.

On Goodyear’s relations with its dealers.

I believe we have a very strong business relationship with dealers, one built over many years.

Certainly the relationship has changed and evolved over time, just as our markets have changed. However, the foundation still rests on mutual trust and respect.

The objective of new programs announced earlier this year at the dealer conference is to give dealers the tools and appropriate support to grow the Goodyear brand and to make it easier to do business with us.

Our dealer organization is our primary distribution channel and we’re providing expansion support for those dealers who can grow their businesses successfully.

We must also maintain the option to strengthen the franchise, from which dealers will ultimately benefit, by considering supplemental growth of the Goodyear brand through other channels such as Sears and Wal-Mart. We plan to do this in a way to supplement total Goodyear sales nationally, not replace sales through the primary dealer channel.

On advice for today’s tire dealers.

We talk about how the market and consumers have changed, but some things never change. Consumers always want quality products and excellent service from people they know and trust.

This is where dealers have a strong competitive advantage.

Dealers must retain the best associates they can find. They must have an intimate and current knowledge of their markets.

They must be willing to sell value.

Value means convenient hours, fast turnaround, knowledgeable salespeople, a clean and attractive waiting area, a ride to work and quality work done right the first time.

Goodyear dealers are in a position to provide these things, but they must be willing to provide them. They must be willing to compete.

On tire industry market projections.

The original equipment market presents a positive global picture.

North American demand in 1995 should finish close to where it was in 1994 when it enjoyed an 11% increase over 1993.

A big part of OE growth has come in light and medium truck tires, which saw a 23% increase last year.

In the replacement market, North America should continue to grow at a pace of about 1.5% per year over the long term.

A bright spot in both OE and replacement tires is the high performance tire market. (The high performance market represents 60 million units.)

It is expected to grow from 29% to 33% of the total replacement passenger tire market by 1998. Our Eagle high performance line continues to be the tire of choice, so we expect to do well in that niche.

In the replacement market overseas, Europe should see a 2% annual growth over the long term Latin America should have another strong year in 1995, depending somewhat on the situation in Mexico.

Asian markets are mixed, but overall we except replacement auto and truck tire demand to increase about 3% this year.

On rumors Goodyear tires will be distributed through warehouse clubs.

We do not provide tires to these clubs, nor do we plan to do so. Our policy on that is absolutely unchanged!

On occasion some of these clubs get their hands on our tires. I have to believe that’s because they are considered very desirable merchandise.

But these clubs are not franchised by us and I cannot believe they can continue to sell Goodyear tires obtained through a third party at a competitive price for any sustained period.

On the future of Goodyear company stores.

We will probably be closing a few more of our stores that are in poor locations.

And we will continue to develop our Just Tires concept of establishing express, tires-only outlets.

Overall I don’t think our number of stores will change much, but because of Just Tires stores the mix may change somewhat.

We’re still experimenting with this Just Tires program, but when we are satisfied we have the idea down pat, it’s possible we may offer this type of store to our independent dealers.

On reported shortages of medium truck tires.

We’ve had problems because our truck tires—particularly the new 300 series units—have been well received and demand has exceeded supply.

To alleviate the problem we have expanded capacity and extended hours, but I must admit that, though the situation has pretty well stabilized, shortages still exist.

I’m very hopeful we will see relief by this fall.

On fuel efficient tires with improved rolling resistance.

We pioneered the concept with our fuel efficient tires introduced in 1991 and tested in several markets in 1992.

But we found little consumer interest in paying a premium price for such tires.

If that changes, we’ll be ready with innovative new products as always.

On future tire technology developments.

You can look for continued refinements of our aqua channel technology.

The run-flat concept will continue to evolve. Our Eagle EMT run-flat tire, mounted on standard wheels, has a range of 200 miles at 55 mph without air.

We envision tires with shorter ranges and lower speed capabilities for appropriate vehicles.

We expect a high aspect ratio for EMTs on luxury vehicles and have displayed a concept tire on a compact sized natural gas-powered car.

We will continue to work on low rolling resistance passenger tires for fuel economy. We’ve reduced rolling resistance by 42% since 1980.

You are also aware of the rolling resistance competition among truck tire suppliers.

There will be more advances in tread design like Europe’s Eagle F1 tire as well as in areas consumers don’t usually see, such as tire materials, reinforcing agents and compounds.

And we can’t forget the “smart tire” or the truck tire with a chip which we continue to develop in tests with 40 truck fleets.

Ultimately, we’d like to track a tire’s complete life cycle—mileage, heat history, usage traits and impact resistance episodes.

On Goodyear’s global expansion plans.

Our strategy is to invest our resources where they best meet the needs of the marketplace and where satisfactory results can be realized.

This does not exclude North America, but with the emerging growth markets of the world, it makes competition for North American investments somewhat more difficult.

You know about our investments in China, in India, our expansions in Malaysia, Thailand, and Indonesia, and in Latin America.

We are actively exploring other opportunities.

Then there is what we now call New Europe with a population of more than 800 million. It encompasses the traditional countries of Western Europe and includes central and eastern Europe, embracing countries of the former Soviet Union.

Our New Europe strategy is three-pronged:

  1. Market share improvement across western Europe with new product initiatives such as Eagle Aquatred and Eagle F1, and retail initiatives like HiQ marketing programs for stores and independent dealers in the United Kingdom.
  2. Establishing sales companies in central and eastern European countries such as Hungary, the Czech Republic, Russia and Poland.
  3. Actively seeking manufacturing facilities in eastern and central Europe to serve the 70 million people in the Vissegrad area including Poland, the Czech Republic, Slovak Republic, Hungary and Slovenia and to provide a base to export products to other areas.

On what’s important in developing future Goodyear leadership.

Those who can motivate, inspire, coach, counsel, strategize and understand business fundamentals with the ability to manage financial, technical and human resource elements.

The most effective leaders will be those who have a thorough understanding of business principles gained through a variety of experiences and top-notch management development experiences.

On what thoughts Stan Gault wants to leave with Goodyear associates.

The decision to come to Goodyear was 98% emotional.

Instead of retirement I became chairman of an $11 billion organization fighting to rebuild itself in a fiercely competitive global market.

At the time some said I was a prime candidate for the TV commercial “A Maalox moment.”

The contrary has been true, however.

I have had the opportunity to witness first-hand the awakening of a giant, and being part of this transformation is one of the most challenging and satisfying times in my 47-year business career… and I am confident we have only just begun.

Today, with almost 20,000 fewer associates, Goodyear is doing much more and doing it with much less… and our customers and shareholders are the beneficiaries…as it should be.

For more than seven decades Goodyear and its associates prided themselves on being the largest tire company in the world.

So it was a serious blow to morale when, through buyouts and mergers within the tire industry, we were bumped from that position…and with our turnaround in the last four years, I am often asked by associates when I foresee Goodyear being the largest again.

My response has been that I am not as interested in Goodyear being number one in size as I am in having Goodyear be the very best.

The best in quality, in product innovation, in productivity improvement, in customer service, in financial performance, in enhancing shareholder value, in health and safety… and at building long-lasting, meaningful and productive partnerships with our associates, our customers and our communities.

If we maintain our commitment and persist at being the best, we will unquestionably regain our position as the biggest tire company in the world.

On Stan Gault’s legacy to Goodyear.

I want to make certain we have the right team in place to carry Goodyear on to new and higher levels of achievement and success.

We have worked diligently and effectively to maximize our human resources. We’ve attempted to maximize the capabilities of our people from very effective training, new work experiences and true implementation of empowerment.

It’s the combination of these elements that has enabled us to record solid progress, not temporary or opportunistic advances.

I’m proud to have helped make this possible.

 

CARLOS GHOSN, Michelin

Carlos Ghosn is both the oldest and youngest CEO among America’s major tire manufacturers.

After six-and-a-half years at the helm of Michelin’s operations in North America, he is the dean of the industry’s top executives in point of service.

But at 41, Ghosn, who is chairman, president and CEO of Michelin North America (MNA), is by far the youngest of the CEO in point of age.

Since coming to the U.S. in the spring of 1989, Ghosn has presided over the complete restructuring of the company—the assimilation of Uniroyal Goodrich Tire Co. (UGTC), the modernization and refurbishing of UGTC plants, the formulation of a multi-brand strategy and the revitalization of sales and marketing programs.

He has patiently ridden out a period of substantial financial losses, resisting the temptation to employ quick, but temporary fiscal fixes, and invested instead in permanent improvements to benefit the company’s long range strategic plan for North America.

During the difficult years, Ghosn kept a low profile while maintaining an exhausting schedule of shoring up operations on many fronts.

Today, his patience and hard word are paying off.

Michelin North America tires are gaining market share in most areas. The company expects solid profits this year and in the future. An aggressive program of improvements and expansion continues in its tire plants. An imposing array of new tire lines is rolling out in all MNA brands.

And Ghosn is more open in discussing Michelin North America’s progress.

A top priority at present is in rebuilding the company’s relationship with its dealers which, he concedes, has not always been good in the past.

This exclusive interview highlights Ghosn’s views on Michelin North America’s role in the North American tire market and in the tire industry in general.

On relations with independent tire dealers.

We want to strengthen our relationship with our dealers, not just by making them promises, but with our actions as well.

We want them to understand that we not only listen to their suggestions, but also follow through by implementing them when appropriate.

We do not have our fair share of sales through tire dealers and Michelin North America will concentrate on correcting that in coming months.

With broader tire lines, improved service and better communications we expect to make substantial progress and overcome some past deficiencies in dealer relations.

While we will continue to utilize all channels of distribution, we want our dealers to realize that, since the recent sale of our six Modern Tire Service retail outlets, we are the only one of the major tire manufacturers in the U.S. that does not compete at all with its independent dealers by operating company-owned stores.

On making good on promises.

Let’s compare my projections in last year’s interview with what our company has been able to achieve.

Cost reduction.

I mentioned we had launched an action plan to drastically reduce costs.

It involved a target reduction of 2,500 jobs by the end of last year and a belief we could cut back by 3,000 positions. We actually suppressed 3,400 jobs.

MAST consolidation.

We said we would complete our consolidation of Michelin Americas Small Tire (MAST) operations with a move of their headquarters from Akron to Greenville, S.C., by August 1995.

Construction of the new MAST headquarters building was on schedule and the move was completed the last week of July.

Tire shortages.

I promise in last year’s interview we would greatly improve fill rates resulting from shortages in BFGoodrich, Uniroyal and private brand tires by the end of 1994.

We have done so by implementing changes in production at our plants. Our deliveries have been much better despite the unexpected devastation of our Ardmore (Okla.) plant by a tornado.

However, our fill rate for Michelin brand tires is not as good as it was a year ago.

This is because demand for both our OE and replacement tires in North America has been larger than expected. Strong sales in Europe also reduced our ability to import tires to help meet the demand.

However, we have been addressing this situation and our Michelin brand fill rate will be much better in the second half of this year.

Expansion and improvements at our tire plants are also under way to increase our tire-building capacity and to make us more self-sufficient with tires produced in North America.

New product development.

We mentioned we would be stressing development of new products for all our brands. We are certainly making good on that promise.

Over the past 12 months, we’ve introduced 200 new sizes and eight new tire lines in our flag brands for small tires. In private labels, we launched 250 new sizes and 18 new tire lines. And in associated brands (Kleber, Riken and Cavalier) we introduced 200 new sizes and 11 new tire lines.

We also recently introduced two Michelin brand medium truck tires, the XZA2 and the XDA2. These tires come with a very extensive mileage warranty, a first for the industry.

Multi-brand truck tire growth.

When I said a new concept would extend our multi-brand strategy into the medium truck tire market by the end of ’94, I had in mind the introduction of our BFGoodrich brand tires.

We delayed that launch because we didn’t want to roll out this new line while we were experiencing shortages in Michelin brand truck tires.

These BFGoodrich truck tires will be produced in specific shops (not identified at press time) and they will be sold in the U.S. as well as in Canada and Mexico.

Broadening dealer base.

Our Alliance program helps dealers grow through customized assistance programs in selected target markets. The first programs are already in place in New Orleans, Pittsburgh and San Jose, Calif.

Other markets are being implemented as we speak. We will continue to add more markets in the near future.

Improving credit operations

We’ve made significant improvements in every single component of our customer service (billing, credit, etc.). I wish I could share with your readers the statistics I have shown you, but I cannot for competitive reasons.

Let me say, however, that I believe these improvements now make our customer service among the very best in the tire industry.

On developing multi-brand shipment potential.

We said last year that by the end of 1995, 100% of our multi-brand orders would be filled with a single tire shipment. We achieved this goal by the first of June this year.

We have reduced the number of our distribution centers from 42 to 18. All but two of these centers have multi-brand shipment capabilities.

Zero-pressure tires.

We mentioned last year that zero pressure—or run-flat –tires would be offered as an optional 60-series fitment on the Lincoln Continental this September. We will be delivering them next month as scheduled.

On other priorities.

We are developing a new process for manufacturing Michelin passenger and light truck tires and we continue to implement productivity and product improvements in our Uniroyal Goodrich tire plants.

Our Energy tires with low rolling resistance to increase fuel economy will save motorists money and benefit the environment.

Hopefully a rolling resistance grade will become a part of the Uniform Tire Quality Grading (UTQG) system so that consumers will have the benefit of this information in choosing their tires.

As you know, Michelin has achieved lower rolling resistance without giving up any other tire performance attributes.

On the devastating tornado at the Ardmore, Okla., Uniroyal Goodrich tire plant.

The May 7 twister destroyed our largest Uniroyal plant, doing $45 million worth of damage. Fortunately our employees had taken cover and no one was injured.

The community was concerned that we might not rebuild the facility, but we assured them that the facility and its 2,050 jobs would remain.

Cooperation was marvelous. The many employees who helped in the cleanup and reconstruction program received full pay and we were back in partial tire production within four weeks.

Fifty percent production was achieved by June 30 and full production began the end of July, a week ahead of schedule.

I believe this catastrophe brought the company, our employees and the community even closer together.

On the future of the tire industry.

I’m optimistic.

The level of tire shipments for the year may be slightly lower than in 1994 both in OE and replacement tires. But remember, 1994 was an all-time record year.

And we do not expect a big slump in 1996. Tire shipments for the year should be close to the 1995 level or possibly off a percent or two.

I am looking forward to competing with other tire companies in a situation where all of us can concentrate on technology, manufacturing proficiency, sales and marketing strategy and all other aspects directly related to our primary business of producing and selling tires.

This is an opportunity for each of us to demonstrate our strengths and our expertise in servicing our customers.

MASATOSHI ONO, Bridgestone/Firestone

Though the financial picture brightened considerably at Bridgestone/Firestone Inc. (BFS), the past year has not been an easy one for CEO Masatoshi Ono.

He has kept a low profile and maintained a constant strategy that is paying off with projections that profits will replace the red ink of the past.

But the company has clashed with federal officials, chiefly Secretary of Labor Robert Reich, following the accidental death of a tire plant employee and the replacement of striking United Rubber Workers with non-union employees.

BFS also experienced the longest strike in the history of the tire industry, a walkout turned bitter and filled with Japan bashing and racial overtones.

The URW finally called off the strike, leaving most of its striking members without their former jobs, but has been pushing for an international boycott of Bridgestone and Firestone products.

Allegations of unfair labor practices from both sides also remain to be resolved by the National Labor Relations Board (NLRB).

But there have been bright spots as well during Ono’s third year in the top job at BFS.

BFS dealers, once bitter about their treatment by the company during the administration of former CEO John Nevin, now generally give the company top marks for its dealer programs.

And old-time Firestone dealers are delighted by the highly successful re-entry of Firestone tires into Indy car racing.

Meanwhile, Ono-his English and his confidence greatly improved—discussed BFS’ place in the U.S. tire market and its plans for the future.

On Bridgestone/Firestone’s financial progress.

A slightly more profitable year is projected, but cuts in auto production have reduced OE tire demand and we will not make projected numbers during the first and second quarters of this year.

However, replacement sales are up since a disappointing January and total tire shipments should reach 98% to 99% of budget.

On plans for expansion of replacement tire sales.

We hope to further expand our sales through mass merchants, but will do so carefully so as not to hurt our independent dealers.

As you know our policy of producing separate products for different channels of distribution was the first in the tire industry.

On the new Bridgestone tire chip that will monitor tire air pressure and temperature.

The chip will be ready for our special customers next year following completion of our pilot program with Ryder Systems rental fleet.

The chip should be especially valuable in monitoring large, expensive off-the-road tires.

We will be working to further reduce the cost of the chips and the software required and to increase the frequency of on-0the-road air pressure and temperature monitoring.

As we have stated, the chip will be available to all tire manufacturers and retreaders. It is not our intention to profit from this technological breakthrough at the expense of others.

Trucking companies stand to save substantial amounts in maintenance and tire replacement costs as a result of this monitoring.

On other BFS technology.

We are quite proud that the American Retreaders Association (ARA) survey has shown Bridgestone truck tires to be the most retreadable for the 10th year in a row.

And the two high performance tires utilizing new tire technology, the Potenza S-02 and RE930, are already making a big splash in the market.

On differences you have seen between marketing tires in the U.S and in Japan.

The Japanese market is changing and new tire marketing channels, such as mass merchants, are emerging.

Where previously a large number of passenger and light truck tire buyers wanted high performance products, Japanese customers are becoming more interested in lower-end, less expensive products.

There is also increasing interest in private label tries and some U.S. manufactured brands are being imported.

In the U.S., consumers are quite value-oriented.

Since the quality difference between private and flag brand tires has narrowed, tire buyers have a number of options.

To aid our sales and assist our dealers we must respond to that by offering more tire lines and providing value added attributes to our BFS products.

On how your U.S. tire plants compare with those in Japan.

Productivity of U.S. facilities is about 70% of those in Japan, but quality is 100% equal.

However, our modern truck tire plant in Warren County, Tenn., is virtually the equal of our facilities in Japan in both respects.

On improving relations with independent BFS tire dealers.

We build mutual confidence by treating all dealers equally based on their sales volume and by maintaining consistency in our dealer programs.

Some new distribution channels such as mass merchants and large discounters are still restructuring, and we must work hard to retain the business of those we have and to attract new business.

On projected growth of BFS market share in the U.S.

Our year-to-date market share through May was improving, a pleasant change from 1991 and 1992 when the market share of our tire brands was going down.

I would like all our flag and private brands to command a 30% share of the U.S. market by 1997 or 1998.

On upcoming improvements in your tire technology.

In our passenger and truck tires we are working to improve fuel economy by reducing rolling resistance without reducing wet traction. This program is well on target.

In Europe and Japan consumers have different priorities. They place more emphasis on improving riding comfort.

On limiting the impact of the increasing value of the yen vs. the dollar.

We need to increase U.S tire production as much as possible.

The expansion of our Warren (Tenn.) plant will be completed by the end of this year.

Further expansion of U.S. facilities and improvements in our South American tire plants may take place in the future.

But in the short term, we must reduce our debts and strengthen our financial performance.

On financial goals for the company this year.

We are hoping to achieve profits of about $90 million.

As we strengthen ourselves financially, we achieve more freedom in our day-to-day operations.

Of course, we still consult our parent company on anything involving large capital expenditures.

On relations with the United Rubber Workers (URW) union following the long strike.

We plan to work hard at reaching a better understanding with the union.

We want to cooperate, but it must be with conditions that make it possible for us to survive and grow.

You asked about the possibility that our replacement workers will vote to decertify the union at our facilities.

That is their decision. We will totally keep hands off and will not be involved in any way whatsoever.

The sooner we put our differences behind us, the better off both labor and management will be.

On the impact of raw material price increases.

Our price increases in the last year have not covered the increases in the cost of raw materials.

We have perhaps offset about 30% of the impact of the rising cost of materials with higher prices and other measures.

Since raw materials account for about 60% of the cost of the tire we must find ways to improve productivity to counteract the difference.

Our switch to seven-day plant operations will help achieve some of these savings.

On future plans for company-owned stores.

With some 1,500 BFS stores we have a balanced distribution system with our independent dealers.

However, it would be difficult to expand this network to any degree without harm to our existing independent dealers.

But company stores are important for several reasons.

They are test outlets for new products and concepts, as an “antenna” to keep us informed as to what’s going on in the market.

On advice to independent tire dealers anxious to maintain their profitability.

Maintaining a fair price is important. Consistency in dealing with customers provides a dealership with credibility. Technical support of tire sales and service is a must.

Work hard to maintain your image as the tire experts.

On your own future plans in the U.S.

I have had a good experience here and enjoy life in the U.S.

As a company we have seen the success of establishing stability in our operations and that certainly applies to those of us in the top management of BFS.

Our customers can count on this stability continuing and we would like to take this opportunity to thank them for their business.

BERND FRANGENBERG, Continental General

Ever since the purchase of General Tire by Continental AG of Hannover, Germany, in 1987, the Akron based tiremaker has struggled.

It has consistently lost money, staggered through several changes in management structure, endured a series of resignations and firings of top executives and suffered from low morale and a general lack of direction.

General’s popular president and CEO, Gil Neal, the leader Continental inherited when it bought the company, was unceremoniously fired in 1989.

His replacement was an interim fill-in from Germany, Wilhelm Borgmann, a man many believed coasted through his 15-month “exile” in Akron, only to retire shortly after returning to Germany.

And then came Alan Ockene, a former Goodyear vice president who “retired” at the end of 1994, some 16 months before his employment contract expired.

He was replaced by Bernd Frangenberg, former head of Continental’s Uniroyal tire operations in Europe.

Frangenberg had been sent to Akron to run General’s Passenger and Light Truck Division as heir apparent to Ockene.

With Ockene’s departure, Frangenberg was named president, but not CEO, of the company now called Continental General Tire.

He continues to run the Passenger and Light Truck Division as a virtual co-equal with Tom Reese, senior vice president of the Commercial Division.

That’s as it should be, says Frangenberg. He sees Continental General as only a major part of its parent company, independent in day-to-day decisions, but subject to supervision from Germany in major financial and strategic decisions.

That’s only part of what Frangenberg envisions as the creation of a whole new General.

The company’s move of its headquarters to Charlotte, N.C., starting this fall is the beginning of what he sees as a new culture, attitude and work ethic and the onset of the rebirth of General as a tire manufacturer capable of competing with anyone in the world.

In this exclusive interview, Frangenberg talks about both setbacks and progress toward these goals.

On progress of the move of headquarters to Charlotte.

Construction is on schedule and we’ll begin the move of the Passenger and Light Truck Division in October. It will be completed by the end of this year.

Our Commercial Division will move to Charlotte next year and by the end of 1996 only some minor non-strategic functions could remain in Akron.

On the effect of the move.

Yes, we will be losing some good people, especially in technical areas like chemicals, compounding, etc. It might hurt, but no one is irreplaceable and we will find others to fill our needs.

The move will also provide for a complete restructuring of our work force with fewer people, yet it will be more responsive and more efficient in reacting to the marketplace.

We have too long been notorious for having too many layers of management and too many delays in making decisions.

On why the move will involve more than a change in headquarters location.

We believe there will be advantages and synergies in moving our headquarters close to a tire plant, but even more important is the opportunity for Continental General to have a new beginning, a new spirit, a new culture.

We will make basic changes to enable our people to become more entrepreneurial, to operate in a less structured manner, and to flatten our management responsibilities.

Four levels of management will be the maximum. We will approach problems not as individuals, but with project teams.

We will ask what does every process add to the value of what we do. We will encourage leadership at all levels and we will focus on people.

We will reward everyone in a division with an extra bonus if targeted goals are met by that division. This could also apply to the entire tire company if targeted goals are met.

On the achievability of such goals.

We have a selling job to do. People are reluctant to change. Change is scary. I realize that, but it is necessary for growth. If we have people who are unwilling to change, they will not be with us for long.

On short-term progress you expect at Continental General.

Our goal this year is to profitable on the final bottom line. Our operations were profitable last year, but costs of our restructuring and the headquarters move put us slightly into red ink.

I have made a firm commitment of this to Hannover despite uncertainties such as the 18% to 20% increases in raw materials costs just since the end of last year.

We really need tire price increases of 9% or 10%, but obviously that is not realistic in today’s market.

We are also working to improve our product mix and customer mix to increase our margins.

On the need for price discounting maintain manufacturing volume.

It will not come from General! We have had no part of discounting since early last year and we are holding firm on our 3% price increase.

On the loss of significant tire business at Sam’s Clubs.

Sam’s notified us they wish to grow other brands and develop a more multi-brand strategy. This involved taking on Pirelli high-end tires. It’s true this could cost us sales.

As everyone knows we have been heavily dependent on Sam’s for General brand replacement tire sales, so this shift should bring our distribution more into balance.

However, I must say we wanted to achieve this through increasing our other sales, not by reducing our sales to Sam’s.

I have told Sam’s we will fight in every way we can to retain as much of their business as possible. They agree. That’s what competition is all about.

On how General will replace the tire sales lost.

We have no over-capacity problem.

Though we lost market share last year, our sales are up substantially in 1995, both in the original equipment and replacement segments.

That is why we are going to seven day tire production in our Mayfield plant.

We certainly would not have done that if we didn’t need the tires.

On what accounts for the sales increase.

We’ve had a substantial increase in sales through our independent dealers.

Our dealer base deteriorated in recent years, as you know, but we are rebuilding it. We have not only increased the number of dealers selling General tire products, we have increased our share of tire sales at the dealers we already have.

Our sales of private label tires are up 14% to 15% this year and we have introduced new passenger and light truck lines to boost that business.

On the balance of private label vs. flag brand business.

About one-third of our passenger and light truck business is in private label.

We have neglected our private label business in the past, but we now intend to gain more balance.

On relationship with Continental headquarters in Germany.

We are establishing closer ties and the ability to act as one global company.

We are eliminating the duplications that have hurt our efficiency in the past.

Both the U.S. and Germany can contribute to this progress. It is not a one way street. For example, U.S. computer simulation has been helpful to our German partners, but their technical advances have assisted us.

On the comparison of U.S. tire plants with Continental facilities in Europe.

Our U.S. plants have pretty well caught up with those in Europe. Our plant in Mt. Vernon, III., is Continental’s best plant and, in fact, one of the best facilities in the world.

Of course, there is still room for improvement and we’re working on it.

Our benchmarking program has been very effective.

This is a process in which we compare the efficiency of each operation at each of our facilities.

When one proves to be better than another, we find out why and implement the same procedures at those that are not as efficient.

Every month there’s a meeting in each plant to discuss progress and every quarter people from all our plants get together.

It’s amazing how competition to be the best motivates our people and how quickly the results show up.

On past, rather futile efforts to promote Continental tire sales in the U.S.

One day Continental will be an accepted premium tire in the U.S., but our objective is to broaden the General line first. I have made that quite clear.

We have not lost sight of Continental’s potential, but until we have a full line of products that are designed to meet the requirements of the U.S. market it is unrealistic to expect major progress in our domestic sales of Continental brand tires.

On plans to gain sales and market share.

There is no doubt we are under-represented in the market.

We have the products and the service attributes and strategies in place and we deserve a larger piece of the action.

Quality is no longer an issue at Continental General. Our adjustments are now far below 1%.

But we need to regain credibility, to assure our dealers and customers that we now have the consistency and goals needed to move ahead.

Our record in the original equipment market where customers insist on quality, consistency and service demonstrates that our tires are as good as anyone’s.

Right now Continental General is probably the industry’s best-kept secret.

On why you expect to recover credibility quickly.

The U.S. is such a fantastic market. Both dealers and tire customers are so open and willing to give a fair chance to improve your service and your products.

Now that we have made improvements, I know they will be willing to respond to our marketing efforts.

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