NEW YORK-Cooper Tire & Rubber Co. plans to cut costs by $70 million a year, improve profits by $100 million and reduce inventories by $100 million, interim CEO Byron Pond told securities analysts in New York recently.
"In the past we focused too much on growth and not enough on profitability," Pond said to analysts attending Credit Suisse´s Automotive Industry Briefing. "To continue on this course is unacceptable."
To get the company on the right track, Cooper will institute a more flexible manufacturing schedule, operating three of its four U.S. plants on round-the-clock schedules and the fourth on a variable schedule, Pond said.
The company intends to make more use of temporary workers to effect this plan.
Cooper also will increase its imports of tires from China to help it improve margins and allow it to operate its U.S. plants more efficiently.
Among initiatives Pond outlined to help shore up the bottom line, Cooper will reduce SKUs in North America by 10 percent; consolidate its ultra-high-performance tire offerings into one brand; rationalize associate brand offerings; and reduce its low-end products.
The actions outlined by Pond will require $76 million in investments and will result in a onetime restructuring charge of $19 million.
Cooper also will increase its imports of tires from China to help it improve margins and allow it to operate its U.S. plants more efficiently.
Among initiatives Pond outlined to help shore up the bottom line, Cooper will:
— reduce SKUs in North America by 10 percent;
— consolidate its ultra-high-performance tire offerings into one brand;
— rationalize associate brand products;
— limit "loader" incentive programs by capping participation based on the market, inventory levels and flex capacity; and
— reduce its low-end products.
Cooper declined to comment on whether the restructuring will cause job cuts, nor did it elaborate on its plans to rationalize associate brand offerings or consolidate UHP tires to one brand.
Regarding SKUs, Pond said, "Complexity is an efficiency killer. It creates additional (work in progress), lengthens cycle times, increases the cost of quality, bloats capital spending and grows inventory.
"Complexity isn´t going away, and it shouldn´t, but it does have to be managed better."
Jonathan Steinmetz of Morgan Stanley Research North America said Cooper´s revised strategy "makes sense," but that Morgan Stanley is concerned the approach is "conservative to the big step function change of greater off-shore sourcing."
Morgan Stanley sees Cooper Tire as "poorly positioned competitively" and has doubts whether Cooper can generate "enough earnings power/cash generation to support the share price."
In terms of improving product mix, Pond said Cooper will roll out early next year the Cooper CS4 Touring, a premium touring line backed by a 75,000-mile warranty.
The company also hopes to rationalize its distribution and improve efficiency by closing two warehouses and open one in a more strategic location, eliminate outside storage and "right-size" warehousing space throughout the system, Pond said.
Cooper did not say which centers will close or where it will locate the new one.
The actions outlined by Pond will require $76 million in investments and will result in a onetime restructuring charge of $19 million.