America’s Top CEOs Discuss the Year of the Tire Dealer
Analysts and other pundits often refer to the tire industry as “mature.” The implication is that it’s also static. But nothing disproves that implication faster than our annual interviews with the CEOs of American’s live largest tire manufactures.
What a difference a year makes!
Changes take place with incredible speed proving repeatedly that the tire industry is dynamic and highly competitive. It’s an arena in which only the fittest will survive.
The last 12 months have proved to be the Year of the Tire Dealer.
All tire manufactures have been reemphasizing their commitment to communicating and working with the independent dealers who sell their tires.
Virtually all dealers now sell a number of tire brands. And most of their customers buy the tires the dealers recommend. But manufactures have felt the need. But manufactures have felt the need to risk angering their dealers by expanding distribution systems and selling to mass merchants, warehouse membership clubs and others.
To reassure the dealers, tire manufactures have given them some lines of premium tires exclusively and have attempted to explain that customers at other types of outlets would not buy tires from independent dealers anyhow.
Manufactures have also emphasized a multiple-brand strategy with products targeted to specific segments of the market.
By providing one-stop shopping for dealers, simplifying ordering and payment procedures and reducing paperwork they hope to make it more convenient for dealers to sell their tires than to recommend those of competitors.
Though strategies varied, all CEOs agreed that cost-cutting will continue in the months ahead and that their firms’ financial conditions will improve.
In exclusive-and very frank-interviews with Modern Tire Dealer Editor Lloyd Stoyer, the CEOs discussed these and other issues.
The interviews were conducted before union walkouts at Bridgestone/Firestone Inc. (BFS) plants and at Pirelli Armstrong Tire Corp. (PATC) facilities and before PATC announced its decision to discontinue manufacturing Armstrong brand farm tires and to sell its Des Moines, Iowa, farm tire plant.
GOODYEAR/ STAN GAULT
Dozens of articles in publications here and overseas have chronicled the amazing accomplishments of Stan Gault in directing Goodyear’s turnaround.
Gault has provided the push that keeps America’s largest tire company sailing ahead. Hoyt Wells, Goodyear’s president and COO, has worked quietly in the boiler room keeping the machinery running smoothly on a day-t-day basis.
But by sometime next year both will have retired.
There is the obvious speculation about who will replace them as Gault--and Goodyear--shuffle top-level executives in preparation for the changeover that will be critical for the company’s future.
Will the new leadership come from inside Goodyear as has been the tradition? Or will out-siders be called in as was the case with Gault? Or will a combination of Goodyear and non-Goodyear people be chosen to maintain the momentum?
As observers have pondered this point, Gault has moved calmly ahead with his seemingly boundless energy stirring up speculation with his shuffling of top management.
He has never wavered from his statements made to MTD two years ago that a successful transition will depend on gathering an executive team with the right combination of experience and talents.
This could mean a group of three or even four people, possibly from both inside and outside the company.
But will it also include the intangible meshing of personalities and styles that has made the Gault-Wells Era so successful?
One thing is certain. Stan Gault will not leave the helm until he believes the time is ripe and all is ready.
That’s why his announced departure date will be at an unpacified time next year.
Will Stan Gault’s legacy be a ship that continues to churn ahead with new officers in the pilot house?
If so, this would be the crowning accomplishment in what has been one of the most spectacular success stories in U. S. business history.
In this exclusive interview Gault talks about his priorities in the final months of his chairmanship and about how he sees the Goodyear of the future.
STAN GAULT: ‘INDEPENDENT DEALERS ARE OUR BACKBONE’
On future economic prospects
Currently construction and transportation segments are fueling the economy. The tire industry is, of course, tied directly to both of them.
We believe the industry will have stable growth of about 2% annually in the replacement side. We are also looking for a strong performance on the original equipment side over the next two or three years.
On progress on the 12 goals you announced when you took over at Goodyear
Our Goodyear associates rallied to meet this challenge and we are ahead of schedule in all these areas. (They include debt reduction, cost containment, increased sales, product development, better communications, enhancing shareholder value, etc.)
I am pleased to see this extraordinary commitment. The response by the financial community as well as our customers has been extremely gratifying.
On the six objectives you recently announced to be attained over the next four years
It is my responsibility to put a strategy in place, along with implementation plans to realize our growth objectives for the future. (These include increasing annual sales by 4.5% to 5%, reducing operating expenses, keeping down debt, increasing capital expenditures, attracting investors, developing new products, etc.)
However, we have not forgotten our original 12 objectives. These priorities are still applicable.
On future Goodyear growth
This need not necessarily include full ownership of businesses. It could also involve joint ventures and strategic alliances. Our activities in India and China where joint venture agreements have been worked out fall into that category and these will continue.
We have similar interests for our general products business.
On new products in prospect
The Aquatred and the Eagle Aquatred have spawned a whole new generation of aqua channel products.
Our performance tire category continues to grow and we have a very favorable position there.
There has been rapid growth in light truck and multiple- purpose tire sales, and our offerings are contributing great value to the consumer.
Our commercial truck tires, farm tires and off-the-road tires are all selling well and are all the results of our strengthened product development efforts.
On development of personnel for the future
We have placed significant emphasis on human resources planning and development in the last year and a half.
This is not just for management succession, but for the future progress of every Goodyear associate.
On the surprising rejection of two contract offers by Goodyear’s United Rubber Workers (URW) locals
We were disappointed that our associates did not accept our original offer as we had reasons to believe they would.
But we have a great relationship with our associates in the plants who worked two months without a contract, although we were delayed in reaching an official agreement.
We have reviewed our process and will continue working to improve communications.
However, without a common objective and partnership with the union we would not have been able to achieve what we have up to now.
On Goodyear’s relationship with dealers
I recognize there is some unhappiness resulting from our entry into other channels of distribution (such as the sale of Goodyear tires through Sears, Discount Tire and Wal-Mart).
This is an emotional reaction which I understand, appreciate and expected.
The customers who buy tires at Sears are not the people who generally are Goodyear dealership customers. They show at Sears for the convenience and the use of the Sears credit card. They were not giving us an opportunity to get their business.
Neither is Wal-Mart a major conflicting factor. There is very little crossover of customers between them and our independent tire dealers.
I cannot overemphasize Goodyear’s complete commitment to independent tire dealers. As we have stated repeatedly, they are and will continue to be the backbone of the Goodyear distribution system. In the future, we want to give our dealers their own exclusive Goodyear tire lines to strengthen their competitive position.
I feel we could have done a more effective job of communicating the facts to our dealers — facts based on extensive research.
To this point, I attended our most recent dealer council meeting on June 29 to reaffirm the importance to Goodyear of our independent dealer organization.
I regret that the demands of my job have made it impossible for me to visit more Goodyear dealers on a one-to- one basis.
I want to tell each dealer personally that I come from a retail background and I want each of them to understand that we are totally committed to their well-being. Hopefully they will understand that strengthening our dealer base will benefit both of us.
As for our arrangement with Discount Tire (of Arizona), we had been disappointed with our performance and position in the market (largely the Southwest) and felt that to be competitive we had to take steps to get a larger share of this market.
I am personally committed as is Sam Gibara (the new executive vice president of North American tires) to heeding dealer suggestions. We want to work closely with our dealers as true partners together.
We want to sit down with our dealers and discuss on a timely basis our mutual interests and concerns. This may not always have been the situation in the past.
On how you can work out relations with dealers
We are keeping premium brand tires for the dealers.
Our Aquatred was not offered to Sears for more than a year because when these tires were in short supply we wished to give preference to the dealers.
We provide great products and we respond to the needs and desires of dealers with value offerings that give them something to present on the sales floor.
On rumors of a purchase of or working arrangement with Toyo Tire
We have heard these rumors, too.
We already have a working relationship with Toyo in the OTR tire business in Japan.
That has been the limit of our discussions to date.
On possible future reductions in the number of tire manufacturers
There are too many players in the tire market.
Technical requirements alone requiring large investments in research and development make it very difficult for smaller manufacturers to keep pace.
It is harder and harder for smaller manufacturers to find profitable niches.
On when you will decide the time is right to retire next year
I will work closely with our board of directors. Though obviously my input is sought, we must jointly come to a conclusion on the timing of such a move.
At that time the plans to achieve our new financial objectives should be well underway, the organization of our research and development resources will assure that our worldwide future product plans will be in place, and we will be positioned properly to meet our customer needs and the challenges of worldwide competition.
On earlier statements that future top Goodyear leadership may not necessarily be a two-man team
The configuration I do not accept is that one person can successfully manage the company. Worldwide responsibilities are simply too widespread and complex. There are external activities that are necessary as well as the need to manage the company day-by-day.
Responsibilities must be divided so that every area of the business gets the proper attention.
Therefore a minimum of two persons is needed, but this number could be three or four, depending on the compatibility of backgrounds and training.
There is absolutely no question in my mind that when I leave Goodyear, our succession plans will be completed and we will have a strong complement of leadership capable of running the company very successfully in the future.
On whether you will remain on Goodyear’s board of directors after you retire
That decision has not been made. It’s up to the board to decide.
On what you will do following retirement
I have a number of personal interests, both commercial and philanthropic.
I plan to remain in Wooster (Ohio). It’s an outstanding community. Both my wife and I are very fond of it.
We made our decision to retire there years ago.
MICHELIN: CARLOS GHOSN
In the five-and-a-half years he has been in North America, Carlos Ghosn has kept his head down and his nose to the grindstone.
In so doing, he has led Michelin North American (MNA) through some difficult periods.
The company has been restructured following Michelin’s acquisition of the Uniroyal Goodrich Tire Co. (UGTC).
The UGTC plants have been modernized and refurbished after years without major capital investments by its previous owners. And the uniformity and quality of their products has been greatly improved.
A new strategy for MNA has been developed in which each of the company’s array of brands has been assigned a position and role in the North American tire market.
These massive changes have all been the responsibility of the 40-year-old Ghosn, president and CEO of MNA, the holding company created to manage and coordinate operations of all Michelin companies in North America.
In addition to quarterbacking these major changes, Ghost has also been struggling to achieve a return to profitability of the Michelin companies, a battle analysis think is likely to be won this year.
Before coming to the U.S., Ghosn spent six years as COO of Michelin operations in South America. Previously he worked seven years as a manager in manufacturing and research and development operations for Michelin in France.
He is a graduate of one of the most prestigious universities in France, and an extremely hard worker. As a key executive at a relatively young age, he obviously enjoys the confidence of top Groupe Michelin executives in France.
The following is a rare –and extremely candid—interview, the third he has granted MTD in the last four years.
On Michelin North America’s results in 1993
It was a difficult year.
Competition within the industry was fierce. And the increase in pricing activity made it hard for tire manufacturers to be profitable. At the same time, we reorganized our sales organization for Michelin Americas Small Tires (MAST) in order to better serve our customers in our diverse channels of distribution.
On prospects for 1994
Last year, we launched an action plan to drastically reduce costs.
One aspect was aimed at suppressing 2,500 jobs. Our latest analysis shows that we’ll actually cut 3,000 jobs by the end of 1994.
It’s been a struggle, but I believe we’ve moved in the right direction which will pay off.
We’ve done well in the first half of the year, with some high-volume sales months ahead, I expect we’ll see a profitable 1994.
On progress toward integrating former Uniroyal Goodrich operations into the Michelin “family”
For all practical purposes, the modifications in our plants have been implemented. Now
we’ll complete the last major step of our consolidation with the move of MAST operations from Akron to our Greenville headquarters by August 1995.
I must say that in just four years, we’ve taken two companies whose U.S. operations were about equal in size (about $2 billion annually) and transformed them into one multi-brand company.
That’s quite an accomplishment for our team.
As far as the brands are concerned, Michelin is very strong. Latest results indicate a positive evolution in our market share of passenger, light truck and truck tires.
Unfortunately, we’re experiencing some shortages in our BFGoodrich, Uniroyal and private brands.
On why there are shortages of BFGoodrich, Uniroyal and private label tires
We’ve worked hard to make significant changes at Uniroyal Goodrich plants in flexibility, productivity, quality and consistency. The last two are of prime importance to our company and required major improvements. But I’m pleased to report that integrating Michelin technology into the UG plants has already resulted in dramatically reduced adjustments.
To implement all these changes meant that production would have to be curtailed for a short time. This has caused some delays and temporary shortages, especially in the Uniroyal and private brands.
Of course we want to sell tires. But we refuse to compromise quality and long-term productivity objectives to meet current demand. We so strongly believe in our direction that we’re willing to pay the price now to fix the problem. And I’m certain that this approach will be in the best interest for all concerned in the long run.
We anticipate that the shortage situation will be overcome by the end of the year. In the meantime, we’re temporarily out-sourcing some entry level private brand tires to another producer who is manufacturing to our standards.
On new products
We’re stressing new product development for all brands, such as the Michelin XGT H4 which completes the XGT performance line, and the LTX A/T all-terrain tire for light trucks. For BFGoodrich, we introduced the Comp T/A ZR4 and the Radial T/A in 50 and 60 series. For Uniroyal, there’s the Tiger Paw ASC (All-Sea- son Classic) and the Tiger Paw AWP (All-Weather Performance). We’re also accelerating product evolution for our associate and private label brands.
On acceptance of your Radial XSE technology (Green Tire) with improved rolling resistance and better fuel economy
This is the most important technology breakthrough in 50 years. Worldwide, we’ve sold more than 15 million tires with this technology, including fitments for a number of prestige cars — and more fitments are coming.
Radial XSE technology allows us to build tires with improved rolling resistance as well as better wet and snow traction, while providing the same traditional Michelin long mileage.
This gives us a big advantage in the original equipment market. Auto manufacturers have indicated a willingness to pay “reasonably more” for a tire with these characteristics because they understand that the payback in safety and fuel economy is worth the price.
In the truck tire industry, our Advanced Technology fuel efficient tires have been well-received and sales should be even better this year.
That’s because many trucking fleets appreciate the fact that the real cost of a tire is not its original price, but the cost- per-mile.
On whether new tire development by Michelin is consumer-driven or technology-driven
At one end of the spectrum, our private brand tire development is virtually all consumer-driven.
At the other end, we develop Michelin brand tires with great attention to technical breakthroughs. That is, we’re more likely to incorporate these innovations in tires that are target to consumers who will recognize and appreciate the benefits of our research.
On Michelin’s long-time use of many channels of distribution
Nearly all our competitors are now trying to grow their customer base by participating in a variety of distribution channels — something we’ve been doing for years, and I might add, for which we’ve received much criticism.
We’ve known all along that sales through these channels don’t hurt independent tire dealers who properly use their tire expertise to sell to their advantage.
As you know, Michelin owns only a handful of company stores. So we don’t compete with our dealers the way other major manufacturers do in the U.S.
We plan to grow with our independent dealers by broadening our dealer base. We’ll do this two ways: by expanding sales with existing partners and by adding dealers in areas where we need to strengthen our distribution.
On relations with dealers
The Michelin Dealer Advisory Council as our sounding board.
For example, their input is the major reason we have inaugurated a sales program that’s as simple and consistent as possible.
We also give dealers more selling power by offering training sessions and seminars, and by providing sales representatives who can offer professional support.
But we’re not through making changes. For instance, we realize that we must improve the accuracy and speed of our credit operations.
And, of course, we must overcome our supply shortages in some brands.
On other improvements in service to dealers
In July, we put an order system into effect that makes it possible for a dealer to make one phone call to order all our tire brands.
The order then gets processed into our integrated system which results in the dealer receiving only one bill.
By the end of the year, we should have the capability to provide multi-brand shipments for more than 50% of our orders. By the end of 1995, we expect 100% of our orders to be shipped in this manner.
On plans for increasing production capacity
We’re not at full production capacity yet due to the significant changes we’ve made in our plants.
New schedules and work methods with Kitchener, Ontario, in 1992, and they’re now installed at all U.S. Uniroyal Goodrich production facilities.
The last was implemented in July, in Fort Wayne, Ind.
On success of your multi-brand strategy
It’s working very well.
We now have the most extensive offerings of any tire manufacturer covering both the original equipment and the replacement markets.
Before the end of 1994, we’ll announce a new concept that will extend our multi-brand strategy even further — into the medium truck tire market.
On progress of run- flat technology
We prefer to call them “zero pressure” tires because it’s a more accurate description. There’s a big different between tires that function with low air pressure and those that can run without any air.
Some other manufacturers’ run- flats have been installed on exotic cars. But in September 1995, our zero-pressure tires will be offered as the first 60-series fitment — an options on Lincoln Continental, a luxury domestic sedan.
Our zero-pressure tires will be available on many new cars, mainly because they’re an important safety factor.
On technological cooperation between North America and headquarters in France
Research and development for tires that will be used in North America is conducted here, with our European counterparts acting as a support group.
BRIDGESTONE/FIRESTONE/ MASATOSHI ONO
Since he took over as CEO of Bridgestone/Firestone Inc. (BFS) a year-and-a-half ago, Masatohsi Ono has presided over a turnaround of the company.
Building on restructuring began by his predecessor, Yoichiro Kaizaki, who was promoted to the presidency of Bridgestone Inc., BFS’ parent company, Ono has helped to give stability and direction to U.S. operations.
BFS executives have been given a free hand to rebuild dealer relations. A two-brand strategy has been sorted out and developed. Financial losses have been reversed and the profit picture looks promising in the months ahead.
A methodical man, Ono has also evolved from a low-profit figure to one who runs the organization with growing confidence.
As his English has improved, he has become more relaxed and outgoing. He has adapted to the American life style, but has never forgotten his Japanese heritage.
Ono is a golfer and country music fan who plays the steel guitar and would like to retire in America.
But his favourite books remain classic Japanese historical novels about the samurai era.
He has been willing to listen and learn from aides more familiar with the U.S. market than he and has adapted more than many Japanese executives to a more Westernized approach to management.
Ono came to his present post with tow advantages.
As president of Bridgestone/Firestone Tire Manufacturing Co. and Bridgestone/Firestone Technology Co., he was already familiar with U.S. operations and personnel.
And he is also dealing with a president (Kaizaki) in Tokyo who is familiar with operations in the U.S. and has first-hand knowledge of the challenges and opportunities BFS faces here as well as an appreciation for the progress being made by the U.S. subsidiary.
Ono’s background is in production. Since he joined Bridgestone in 1959, he has risen rapidly as a manager of production planning and a plant manager.
He came to the U.S. in 1991 as executive vice president of manufacturing and technology for Bridgestone/Firestone Inc. and a director of BFS.
In the exclusive interview he candidly discusses plans and progress at the company.
On prospects for the coming year
Our sales and profits should continue to improve thanks to the good efforts of our sales people and our improved relations with dealers.
Our multi-channel sales strategy has worked well. We are continuing to improve our product quality and our new products have been well accepted.
On projections for profits in 1994
We hope our profits will improve by 200% compared to last year. That’s because we have reduced production costs and increased productivity in the plants. We have also generated significant savings at our company headquarters.
Also, our last tire price increase has stuck better than those in the past.
Hopefully we are turning the corner, but the master contract negotiations with the United Rubber Workers (URW) are very important this year.
Overall we have enjoyed about a 13% increase in tire unit sales since 1992. In the next two years we hope for steady growth of 3% to 5% annually.
On changes in the competitive situation in the U.S. market
I don’t look for any dramatic changes. Goodyear and Michelin will continue to be strong.
We have to try to catch up with them, but that is very challenging.
On success of the move from Akron to Nashville
Consolidating our operations has worked out well, but we are also moving a few people to Akron.
They are technical people we are transferring from Nashville to our Akron research and development facility.
Our truck tire R&D facility is located in Nashville, but our passenger tire research operations remain in Akron.
As you know we are producing our racing tires at the Advanced Technical Workshop (ATW) in Akron and we will eventually wind up supplying about half of the tires used on Indy-type cars from that facility.
On preparations for Firestone tires to re-enter the Indy racing circuit
We are working hard to prepare for the competition. The decision to compete again has been very good for morale.
I am satisfied with our progress and we have done well in early trials.
We are fortunate to have experienced people working on our racing tire development — some of them people who designed racing tires when Firestone was in racing previously. And of course we have been supplying tires to Indy Lights for the last four years.
It will be very difficult to win the first year of our return to Indy, although that would be nice. But we hope to make a good showing, something we can build on for the future.
On new products in prospect
We have new products planned for Bridgestone, Firestone and Dayton brands. We will especially be concentrating on high-profit performance tires.
We will soon introduce some P-metric light truck tires — Bridgestone radials made at our Decatur, Ill., plant — and we’ll make some bias Bridgestone off-road tires at the former America OTR plant in Bloomington, Ill., that was recently repurchased from Edwards Warren Tire Co.
On the increasing value of the yen compared to the dollar that makes tires produced in Japan more expensive to purchase in the U.S.
Since the yen is worth more than three times what it once was compared to the dollar it is necessary to consider shifting more tire production to the U.S.
We obviously want to increase production here with a minimum financial investment. That’s why we are converting the Des Moines (Iowa), the Decatur (Ill.) and the Oklahoma City (Okla.) plants from five-to seven-day operations.
Theoretically, this should increase production by 30%, but that will depend on productivity.
Expansion of our Warren (Tenn.) truck tire facility will be completed well before the end of 1995.
We have accelerated this project because we need the product, although even when it’s completed we will continue to import some truck tires from Japan.
On contract negotiations with the URW
Hopefully, we can reach an agreement beneficial to both parties.
We are not asking for wage concessions, but for conversion to a seven-day work week and employee participation in medical insurance expenses.
We also need to make other changes necessary to increase productivity.
On the integration of Japanese and American cultures in BFS operations
We have made excellent progress and integration is no longer a problem.
I believe our decision to pursue a dual brand strategy and our re-entry into Indy racing have been very good for morale among our workers and tire dealers.
Our equal treatment of Firestone brand .tires has been a very easy transition for me because I am from the generation that had a very high regard for Firestone in Japan.
After joining Bridgestone, I visited the U.S. in the late 1960s and was well aware of the respect for Firestone in the market.
I understand that, especially in the passenger tire replacement market, Firestone has an excellent name with customers.
Increasing Bridgestone brand awareness and acceptance will take quite a little longer.
On BFS plans for participation in the various channels of distribution
We plan to grow in all of them.
Our policy of withholding some premium brand tires from mass merchants and discount clubs gives our dealers the opportunity to retain sales of these profitable products while taking advantage of their expertise in recommending the proper fitment of these high- end products.
On the future of BFS company-owned stores
They are very important to us.
These stores are an excellent means of gauging customers’ reactions to new products.
We plan to expand our BFS store network gradually, but in doing so we will be careful not to adversely affect our valued independent dealers.
On the future of private label and associate brand products
We are hoping to expand this business.
When we go to seven-day operations in all our U.S. plants we will have additional capacity and our door is open to new business.
On business conditions in Japan
The economy is gradually improving, but I believe we will have to live with an exchange rate of about 100 yen to the dollar.
If so, this will make it very difficult to compete on price in the U.S. with high- cost tires built in Japan.
On difficulties in reducing the work force in Japanese factories to achieve greater efficiencies in light of the Japanese tradition of lifetime employment
We have not been hiring new people for factory work for more than five years and the average age on our workers on the floor is increasing.
Retirement age in Japan is 60, so much of the manpower reductions we need are being achieved through attrition.
On productivity of the company’s U.S. tire plants compared to that of Japanese factories
I would say it’s about 70% to 80% of that in Japan, but we are working to bring that to at least 90%. We have already achieved that level at our Warren plant.
Truck tire and off-road tire productivity in U.S. factories may well exceed that in Japan because Japanese workers are smaller in stature than those in the U.S. and it sometimes takes more manpower to handle them than in U.S. plants.
On other topics on which you would like to comment
I would like to thank our customers for their understanding, cooperation and business in the last 12 months.
We are a very different company than we were two years ago and our strategy is to continue making steady progress.
A vital part of this progress will be our relationship with independent dealers. We are pleased with what we have achieved thus far in this area.
I look forward to next year’s CEO review with MTD when I feel certain we will have more progress to report.
I would like to congratulate MTD on its accurate and thorough coverage of the tire industry which is appreciated by all of us.
GENERAL TIRE/ALA OCKENE
Alan Ockene came to General Tire in March 1991 at one of the most difficult times in the company’s history.
And his tenure has been a struggle.
There have been several changes in the organizational structure of the company and turnover in virtually all of General’s top-level executives.
Indeed, Ockene is the third president and CEO at General since the company was acquired by Continental Tire seven years ago.
Though he knew there were problems, it’s unlikely Ockene envisioned the extent of General’s difficulties when he moved down E. Market St. in Akron from Goodyear where he had been vice president for Latin America.
Both before and since his arrival there has been an unrelenting flow of red ink –a situation expected to continue this year—and a growing restlessness at parent company Continental’s headquarters in Hannover, Germany.
Employee morale has suffered during this period of instability and rumours persist that General’s Passenger and Light Truck Division will move out of Akron—General’s home since it was founded in 1915—to Charlotte, N.C.
The company’s dealer organization has fallen into a state of disrepair and a major share of its General brand replacement passenger tire business goes to one customer—Sam’s Club.
On the plus side, there are signs that most of the changes are over.
The Commercial Division, headed by executive vice president Tom Reese, is doing well.
A new executive from Continental, Bernd Frangenberg, has joined the company as executive vice president of General’s Passenger and Light Truck Division, source of the company’s red ink.
In the following interview, Ockene discusses the causes of many of General’s problems and plans to correct them.
On General’s nearly $23 million in losses last year
It was a difficult year, but we have made a lot of progress. We are looking for a slight loss or break-even this year, and currently are ahead of last year at this time.
On what’s being done to turn things around
We have made improvements in cost-savings and in increasing productivity in our factories while maintaining our quality level.
We also have a rejuvenated product line with some really first-class high-performance tires.
We are also trying to increase our dealer business with an entirely new philosophy.
We no longer market blems and our OE surplus has been dramatically reduced because of better yields in the plants.
On upgrading product mix
It’s a slow, time-consuming process, but we now have a full line of excellent products.
Joe McCarthy, who was recently named senior vice president of sales and marketing for the passenger and light truck division after years on the original equipment side, adds a great deal of credibility to our efforts.
It’s important that we sell more tires on which we have a better profit margin.
On production facilities
Our Mt. Vernon, Ill., factory is certainly one of the best in the world. It’s the benchmark factory for Continental plants worldwide.
And we’re taking decisive steps to reduce costs at our other facilities.
It costs an average of nearly 15% more per tire to build tires in our Charlotte (N.C.) plant and in Mayfield (Ky.) than in Mt. Vernon. If we can reduce costs at these facilities, we would be well in the black.
On the commercial tire business
We broke even on our commercial business last year, and we’ll be profitable this year.
Tom Reese has done an excellent job in the truck tire area and earthmover tire sales are booming. He has built a compact team that works together well and has a lot of pride.
And he has brought to market some fine products — such as an excellent steer tire — an areas in which we needed some improvement.
On the rumored move of General’s Passenger and Light Track Division from Akron to Charlotte
We have notified our employees that we’re studying the possibility of moving.
Should such a decision be made, the change would eventually require construction of a new building on the plant site.
As you know, we had announced last year that our engineering and technical people would be moved there to be closer to production facilities. But this was deferred because of cost considerations.
We have now decided to send a group to Charlotte in disciplines that immediately enhance the synergies with plant operations — manufacturing, engineering, logistics and purchasing.
As a result of personnel reductions, retirements and transfers, our Akron work force has been reduced from about 1,200 in 1987 to some 750 at the present time.
On whether personnel cutbacks are completed
We are always looking for ways to increase efficiency and trim costs.
It’s possible we could out-source some work in areas such as information services and others. But we’ve made no final decision on that as yet.
On corporate investments in U.S. facilities
Continental has committed $100 million in equity to U.S. operations in the last year and will continue to support our capital investments.
Our parent company is interested in building globally and will continue to support General Tire because to be a global competitor, a U.S. presence is essential.
On research and development cooperation between General and Continental in Germany
In the last year especially, we have worked with Hannover on tire technology programs with great success.
We are working on common tire specification system, and we are developing more and more synergies in research and development.
We are working together to develop lighter tires and to utilize capacities in Europe and the U.S. interchangeably.
Truck tire design in Europe has been independent from design in the U.S. There is no need for wide disparities in products. This is wasteful and inefficient. Our next generation of truck tires will have a common technology base.
Following General’s acquisition by Continental we were not expedient developing synergies. But things are progressing rapidly now since Dr. Von Gruenberg, our chairman, is personally spearheading this initiative along with Bernd Frangenberg, who came to General from our European organization and who has also been very helpful in that regard.
On plans for marketing Continental brand tires in the U.S.
We plan to develop Continental as a premium brand and make it available to top dealers in selected areas.
We’ll promote it as a prestige tire with a good profit potential.
On the future of the private label business
The private label tire business is one of our top priorities. We had some recent setbacks with two large customers, but have already replaced much of that volume and are continuing to aggressively market this segment of the tire business.
On improving the product mix
We now have some excellent high-end tires. Our XP200H/V/Z/Z4 is outstanding in both performance and appearance and our new touring tire is a winner.
The Hydro 2000 and the Gen*Seal are both selling well. In fact, the Gen*Seal has been chosen as the original equipment tire on the Buick Park Avenue equipped with the SE package.
Our sales and marketing executives provide us with some real professional experience and expertise that should make a big difference.
On your future plans
My contract with General runs until May of 1996. When I leave General, I plan to remain active, but have no set plan as of now.
PIRELLI ARMSTRONG/PAUL CALVI
As a nature of Italy and a citizen of Canada, Paul Calvi brought a truly international perspective to the Pirelli Armstrong Tire Corp. (PATC) when he took over as president and CEO last October.
A relative newcomer to PATC’s parent company, the 51-year-old Calvi had spent a year as managing director of Pirelli Ltd. In the United Kingdom following a two-year stint as director of operations for Pirelli Tire at its Mila, Italy, headquarters.
Prior to that he held management positions with Gabriel Shock Absorber in Toronto and a number of senior posts with Michelin Canada.
Calvi also brought to the U.S. a surprisingly open management style and a willingness to listen and learn from company officials and dealers.
These “transparencies,” as he calls them, have earned him credibility with both of these groups.
Some say his willingness to listen has also helped him make a realistic assessment of PATC’s place in the American tire market and to recognize that the company is not the major player here that it is in Europe and map strategy accordingly.
His predecessor at PATC, Giuseppe Morhchio (now promoted to the post of running Pirelli’s cable activities worldwide from Milan), pushed development of new products designed for North American roads and built in the U.S., a strategy now paying dividends in strengthened sales of both Pirelli and Armstrong tires.
Calvi has concentrated on cutting costs and increasing efficiencies, hoping to make possible the profitable operation of the company’s three relatively small American facilities. His strategy has been to lay the financial cards on the table and bluntly point out to employees what must be done to make PATC competitive.
In this exclusive interview with MTD Editor Lloyd Stoyer –conducted prior to the mid-July contract negotiations with the United Rubber Workers (URW)—Calvi candidly discusses what he has learned since taking over the company and what goals he believes must be met for the long-term good of the company.
On what surprises he has found since taking over the company
I found many good people inside the company, but I was surprised at the rigidity of attitude that I found in many areas of the plants.
Many people seem frozen in time and it appears that no matter what you do or say, you are viewed with suspicion.
I realize that negotiations are coming up (they were scheduled to begin in mid-June), but people must realize that the customers can’t wait.
Things change every day. This is the message I have been trying to get to the people.
On his tying money spent on plant improvements to the willingness of employees to make concessions
We have released a little money at Hanford (Calif.) and Des Moines (Iowa) for plant improvements because employees have agreed to a few changes.
But so far the employees have not made the big moves we have been waiting for.
Until people are willing to participate in making things better we will not spend our money improving the plants.
The union wants to negotiate.
How do you negotiate cooperation and desire to improve?
On why making changes and winning concessions has become such an issue
We are losing money and we must remedy the situation.
Our labor costs are higher than most of our competition and we need to spend money improving our plants.
Because of a new accounting requirement we must be responsible for the medical care of present and future retirees.
So we must forcefully address our financial situation.
On speculation that PATC’s comparatively small tire plants make high-margin tire production a necessity if the company is to make a profit
It’s true that out plants are smaller than most of our competitors’ and we must have a good product mix to operate in the black.
On the other hand, our smaller plants could be more flexible, more nimble and, with the proper work environment, turn things around more quickly than larger ones.
On what affect the need for high margins will have on the future of lower-cost Armstrong brand tires
We make most of our Armstrong tires in Nashville and this is a high-labour-cost facility.
And our new lines of Armstrong tires — such as the Evolution and the Formula A/T light truck tire — are selling well. In fact they are more than 15% ahead of our projections.
However, this is a mixed blessing because we have been required to work a lot of overtime, which adds even more additional costs.
And we have problems with back orders, partly because we are unwilling to add even more production costs.
On what affect the Armstrong brand cost problems has on PATC’s shipments to Sears and how independent Armstrong dealers view this relationship
Once we have solved our production cost problems we’ll be able to create more demand for these products.
Our independent dealers have no problem with our Sears arrangement. We’ve had a long-standing relationship with Sears which is respected in the industry.
This partnership is evidenced by our “Partners in Progress: award that we received again in 1993.
On Pirelli brand tire sales
Our tires designed for and built in the U.S. have been selling very well.
The P4000 Super Touring Tire is a good example. We can’t make enough of them.
And we will soon be introducing more new and exciting products.
The truth is we can sell all the tires we can make in both brands. Our current problem is back orders.
We will be able to make more tires once our plants become more efficient and we get our production costs in line.
On projections for future tire sales
We should be able to grow. We are in the fortunate position of having brand awareness that exceeds our market share, giving us a good opportunity to move ahead.
On your projections at the ‘94 dealer meeting that PATC will probably lose money this year, but should be profitable in the last half of 1994
We are still on target and we are meeting our budget, but it’s still too early to tell.
The price increase is sticking, but we still need to maintain our product mix improvements and successful labour negotiations to make good on that projection.
On financial prospects for 1995
I have not yet looked at 1995 in detail, but it appears to be positive.
Working with North American consultants, we have put together a three-year plan and our marketing strategy will be carried out over that period.
On relations with independent tire dealers
Obviously tire dealers are very important to us and I get the feeling our sales people have good relations with them.
Especially for a company our size selling many high-performance products having quality, knowledgeable dealers are vital.
Our emphasis in the U.S. is having good independent tire dealers and serving them well.
We have also protected our dealers by resisting the inconsistent sell-invoicing that has hurt dealer profits in the industry over the last 12 months.
Perhaps it is easier for us to do that because we do not have the high-volume production facilities of some of our competitors.
But we also know what our tires are worth.
On where better distribution is needed
We already have many excellent key dealers. I have found that our better dealers enjoy the most growth and we can grow along with them.
We’re in good shape in the Northeast, but we could improve our distribution position in certain target markets.
I’d say we should target growth to the large metropolitan areas where there is a concentration of expensive luxury cars.
On what tire manufacturers you see as primary competitors
Our strongest competition for Armstrong tires comes from Cooper and Kelly-Springfield.
Michelin and Goodyear are chief competitors of Pirelli tires because they have such a large share of the performance tire market.
They may be larger, but in technology and quality Pirelli can go head-to- head with either of them.
We feel our products speak for themselves. Our job is to get people’s attention.
On product development
Pirelli has long enjoyed a reputation as an innovator, but we must speed up our development cycle.
Once we spent four to six years bringing a new tire to market. Now we must reduce that to 12 to 18 months.
With cooperation between our research and development people in New Haven (Conn.) and Milan (Italy) and with computers and advanced technology, this is possible.
On what PATC hopes to achieve in the next five years
With our excellent new products in both brands, I see no reason why we should not think in terms of a 5% to 6% share of the replacement passenger tire market for the Pirelli brand.
And we logically must think of getting into the original equipment market — either with the Big Three automakers or with transplants.
Pirelli tires are obviously ideal for luxury cars such as BMW, Mercedes and Lexus.
On marketing plans
We already have a reputation for producing performance tires, but we also make excellent products for family cars and ordinary driving.
I’m serious about our advertising — “Pirelli — No Matter What You Drive.”
We must promote that idea internally as well as with the public.
We obviously don’t want to lose our premium position. But consumers had too narrow a view of our product offerings and related price position.
And to align ourselves with key dealers, we felt it essential to meet more of their market needs. In Europe a large share of our tires are on cars designed to go 150 miles an hour.
In America needs are different.
We still need high technology lines for the performance and luxury cars. But we also want a $20 tire.
Our engineers said, “We can’t do it,” but now they have accepted the challenge.
That’s one reason the Armstrong Evolution is such a good value.
There’s a great deal of Pirelli engineering in this lower cost tire.
We must realize that in market segments where we can’t change the price, we must change our production cost structure.
On autonomy of PATC operations in the U.S.
Our parent company is taking a more aggressive attitude in all its operations and a more focused approach to investments.
If we need money, we must prove we have a good well-thought-out strategy and we must show it will produce a good return on the investment.
But if we can justify our request we have a free hand in carrying out our program.
The people in Milan rely on PATC’s knowledge of the U.S. market and recognize conditions are different here than in Europe.