MTD Exclusive: Bridgestone's Ferrari Talks Tire Demand, Future Mobility and More
Paolo Ferrari, president, CEO and COO of Bridgestone Americas Inc., returned to North America at an interesting time. He assumed his current role on Jan. 15, a few months before the COVID-19 pandemic struck the continent.
Since then, Ferrari - who, before taking on his present duties, served as CEO of Bridgestone’s Europe, Middle East and Africa region for several years - has successfully steered the company through the pandemic, overseeing rapid-fire plant shutdowns, plant reopenings, manufacturing ramp-ups, the firm's response to the rebound in tire demand and other events and trends, some of which are still in motion.
And he continues to move Bridgestone toward its long-term goal of becoming an industry leader in sustainable mobility.
In this MTD exclusive, Ferrari shares his take on the state of the North American tire market and Bridgestone’s sustainable mobility plans. He also discusses the role independent tire dealers will continue to play in the company’s progress, the most significant challenges facing tire manufacturers over the next few years and other topics.
MTD: Having recently returned to North America, what changes have you seen in the market, setting the pandemic aside? And what changes have been the most significant?
Ferrari: I really enjoy doing business (here.) It’s a competitive market but it’s a fair market. It’s a transparent market. It’s a market that I always believe is rational. If you pull a lever in a certain way, generally speaking, the machine turns the right way. It’s a network of partners that is truly such, which is why it was easy to connect with them.
I’m happy to be back in the market that is, pandemic aside, still healthy. And our partners are open to talking about more innovation, beyond tires, that retail needs to undergo in the next several years, given the changes in (consumer) behaviors and overall business models. It’s still very dynamic.
MTD: COVID-19 has had a significant impact on all players in the tire industry, including Bridgestone. What have been Bridgestone’s most significant, pandemic-driven challenges in North America and how is the company working to overcome them?
Ferrari: I’m still cautious in celebrating what we have done in the last six months because we know the crisis is not over and we know we have to keep working with the same agility. I think the challenges we had were the same as everyone but I am absolutely impressed by the way our team dealt with them. Coming from Europe - and having family in the north of Italy and having lived 10 years in New York City - I knew that (COVID-19) was bad ahead of time. So we moved into a crisis mode very quickly. We shut down the plants because of safety reasons and because of the demand trend. We didn’t have a playbook but we were very quick in managing operations. I think we’ve done very well.
We also kept customer intimacy - sharing where we were, sharing views of the market, sharing situations in inventory. We tried to see demand coming to be able to react one way or the other. Of course, we also addressed our cost base, which is something that we needed to do anyway. I think the crisis - if you leave out the tragedy it brings - was a way to pivot to maybe some things that were long-due.
If I look at our overall volume, it’s down. (Editor’s note: Bridgestone’s sales in the Americas declined more than 30% during the second quarter.) But I think margins have held quite well. I think in TBR, we’re actually doing better. I think we were able to take some significant cost out, so I can’t complain about how we finished the first half at all.
It depends on how this recovery holds but certainly it’s my view that even if we face a significant wave (of COVID-19 infections), our whole ecosystem is (able) to handle it much better than in April. I think that even in the worst case, our second half will be overall better than the first half. I’m pretty optimistic.
MTD: Almost all tire dealers with whom we have talked have indicated that tire demand has rebounded. And many are reporting that their business is well in the neighborhood of where it was even at this time last year. Obviously, this has been driven by the relaxation of stay-at-home orders and an uptick in economic activity. Do you think this recovery is sustainable?
Ferrari: If you look at it from our point of view, the rebound was even stronger because you have to combine the sell-out rebound with the replenishment of stock levels. That’s been tremendous. On the consumer tire side, (the recovery) has been softer but it’s happening. I would have expected to see more correlation between the softness of the recovery and newer (pandemic) hotspots. We have stores everywhere and we monitor Texas, Florida and other areas. We saw a rebound there, like we’ve seen everywhere else. To me, that proves that the market is going to be more resilient.
It’s a combination of everything. People are sick of staying home and will (continue) to get out. Miles driven have rebounded - not fully, but with a different kind of mix: less work commuting and more leisure. The last-mile delivery (trend) is more commercial but these tires are also sometimes serviced in retail stores. The rebound is there. I don’t see going back to April (numbers) because the overall ecosystem is better-equipped to manage it.
MTD: Can you bring us up to speed on the production ramp-up at your North American plants? Are they operating at full or near-full capacity? Have there been any challenges along the way?
Ferrari: One of the things that impressed me the most is how quickly we were able to shut down and then ramp back up. The speed and the extent to which we did it has never happened before. All of our plants are up and running. Not all of them are at 100% but the commercial plants, I would say, are going full-speed. The consumer plants… most of them are full-speed and a few might be at 75% to 80%. Overall, we’re doing well.
MTD: Earlier this year, TJ Higgins, Bridgestone’s global chief business strategic officer, told MTD the company observed that the pandemic has changed some consumer tire buying habits. He also mentioned that Bridgestone was seeing more e-commerce activity as a percentage of sales. Has this trend continued and is it part of a bigger trend?
Ferrari: E-commerce is one of the trends that the global pandemic has accelerated across the board. (Editor’s note: Bridgestone estimates that e-commerce accounts for around 8% of overall consumer tire sales in the U.S.) What I think is even more interesting is that the overall behavioral trend around convenience was already there - concierge services that consumers want, which is a combination of many things: online purchases, online subscriptions, mobile tire installation, curbside service. You’re seeing companies accelerating in that direction. I believe the whole customer experience will be different. It won’t just be e-commerce. And we’re working diligently on that. We’ve already launched many services like this around the world. So that trend of tire solutions, tire service, etc., will only accelerate.
MTD: In July, Bridgestone Corp. announced the long-term business framework that will carry it through the next 30 years. This includes leveraging sustainability “as a competitive advantage,” evolving the company’s “mobility solutions business” and other initiatives. Can you provide more details on the company’s mobility solutions vision, how it will play out in North America and how tire dealers in this region will fit into the equation?
Ferrari: I’m extremely excited about this journey. A lot of people think 'sustainability' equals 'environment' but it’s a much broader concept that tackles inefficient ways of (transportation.) It’s across the board. Today’s mobility is extremely inefficient. We buy our cars less and less, and leave our cars parked 90% of the time. There are trucks riding around empty in the U.S. and Europe. There’s a whole, inefficient ecosystem. Through our tire-centric solutions and our mobility platforms, we want to enable more sustainable mobility, which is good for people and ultimately good for the environment.
Starting with the tire, we focus on the base - and that base is technology. The tire itself can be a sustainable strategy. If you then put a sensor in a tire and you plug that tire module into a fleet management platform, then you contribute to creating more fuel efficiency, more uptime and so forth - contributing to that more sustainable mobility ecosystem. Then, if you think about the broader fleet management platform, where you contribute to all kinds of different aspects of the efficiency of a fleet - and you also include your retail operations to serve them - then you have a mobility platform that is even broader. That’s our vision.
Our customers’ business models and their needs are converging. It’s about uptime. It’s about more efficient asset utilization. How do we help them? And our dealer partners need to be part of that story. They will manage the fleet. They will (deliver) the service component.
MTD: How should the independent tire dealer prepare for this mobility transformation?
Ferrari: The consumer will look more for this kind of service. And you don’t want it to be a hit-and-run: the customer looks for tires online, they come in, you sell and it’s “goodbye.” You want to have a strong relationship, potentially through a package of subscriptions for tires and services. Of course, you have to put value into this subscription. So how do we move together to give a higher value-add around tires? We will always serve the biggest fleets, the largest fleets - but there’s a variety of small to medium-sized fleets we can reach. Some of these fleets are sophisticated. They understand the tire cannot be a cost. The tire is a cost-optimizer. We can provide the story, the tools and the solutions to our dealers to go to market together (with) a high, value-added offering.
It’s all about continuing to be competitive. And continuing to be competitive means you want to tie in with the consumer in a different way. The pandemic has accelerated the trend. Everybody is thinking about the same thing: how do we become more relevant to the tire consumer? It’s about packaging things more - in particular, the solutions and connectivity piece that comes with it. It’s about a good mix of tires and service. It’s about understanding the need to lock in the customer for the longer term. I think there is a good opportunity here.
I always use this example: Amazon bought Whole Foods. Why? Because they see the value of the digital platform and brick-and-mortar. You have to be open to building those platforms because otherwise, at some point, someone else will.
MTD: What’s your take on the North American tire market the rest of this year and into next year? What can we expect to see?
Ferrari: For the rest of the year, even in the worst-case I mentioned before - let’s say (COVID-19) cases spike to April levels - the risk approach of consumers, in general, and the willingness to go back to business will be such that things would be alright. We do see a full year that will be down but won’t be as dramatically down as it was in the second quarter. Now, talking 2021, I think miles driven will bounce back to almost pre-COVID levels.
MTD: What are the biggest challenges facing tire manufacturers over the next two to three years?
Ferrari: The intention is to continue to be ahead of the curve in terms of core tire technology. There has been an overall commoditization trend in the lower segments of the market. Luckily, as you move up, there’s still differentiation in tier-one. And it’s there because we continue to invest in innovation and we challenge ourselves. That process needs to continue. The other one is understanding the opportunity around digital solutions, the connected tire and the connected vehicle, which is a different world. It’s about software, not hardware. It’s about a different innovation path, rather than the traditional one.
“At Bridgestone, we are well-ahead on that journey,” he says. “And it’s parallel. It’s not ‘either-or.”