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Fill rates are improving, Armes tells NETSA

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Fill rates are improving, Armes tells NETSA

Roy Armes, Cooper Tire & Rubber Co. chairman, CEO and president, had good news for attendees at the New England Tire & Service Association's (NETSA) annual trade show/convention this past weekend: fill rates are improving.

"We recognize that although we are still among the industry leaders in fill rates, we are behind your expectations for us in that regard," Armes, the event's keynote speaker, told dealers.

"We have been working on improving these fill rates and have seen some improvements already. As we bring more capacity on line, we believe we should be positioned in the second half of this year to see additional improvements."

During his presentation, Armes mentioned that tire buyers in the U.S. "continue to be very sensitive to price and the value they receive from the tires they buy. This has caused some to shift down their purchases as they react to uncertainties in the current economy. As people are worried about their jobs, they are very sensitive in regard to obtaining value for their hard-earned money."

Consumers' value sensitivity "offers an opportunity for those who have products at the price points that (they) demand."

Cooper believes that consumer confidence eventually will improve, leading to improved tire demand, said Armes. However, gains will be modest, "rather than a major upswing. There are low levels of inventory across the entire supply chain at the moment, so this will continue to offer an opportunity for manufacturers to ship more tires.

"With the depression in demand for the industry during recent years, even a return to a more normal historical level of demand would be cause to expect there to be year-over-year improvements," he added.

Cooper intends to capitalize on improving demand by rolling out new products at a faster pace. "There will be an increased cadence of new products being launched that based on recent history, will have a great reception from both the consumer and yourselves," Armes told dealers.

He also provided a quick run-down of Cooper's financial performance in 2009, which brought the Findlay, Ohio-based tiremaker annual revenue of slightly less than $3 billion. Sixty-seven-percent of Cooper's revenue came from North America last year, he noted.

"We have histrorically been focused on North America, in which the U.S. accounted for 100% of our business several years ago, and in recent years, have begun to expand into international markets. This has allowed us access to lower-cost manufacturing and regions where growth has been higher."

Overall, Cooper's financial position "drastically improved" in 2009 vs. 2008. "Our operating margins were 5.6% in 2009 after the substantial losses of 2008. We also improved our free cash flow through a combination of improved profitability and very tight control of our expenditures. This resulted in a cash balance at the end of 2009 of $427 million."

Looking ahead, Armes said Cooper is keeping a close eye on several legislative initiatives, including the National Highway Traffic Safety Administration's final rule on tire testing and labeling.

"They have indicated what these tests will be, but haven't clarified what the exact benchmarks or scale will be, particularly in the case of fuel efficiency. The time line for implementation also has not been finalized."

While the rule "may have some impact on the industry, we believe that those companies that can quickly adapt to change, like Cooper, will be able to at least navigate it successfully and potentially even benefit as others struggle."

In terms of future tire-related legislation, Armes urged dealers to examine what is happening in Europe, which has traditionally been "more progressive in adopting legislation. European countries have recently adopted standards requiring labeling on tires for noise ratings.

"They also now require that tires be produced with a 'clean oil' process that is intended to reduce pollution. We don't know whether similar requirements might catch on here in the States, but they are worth noting."

The 2010 NETSA convention/trade show was held in Uncasville, Conn. For more, see Hogan, Koles join NETSA Hall of Fame.



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