ROME, Ga. — When Pirelli Tire North America Inc. moved its headquarters five years ago to the rural Georgia community of Rome and opened its high-tech tire plant, it really was a time of rebirth.
By then, Pirelli had closed all the tire facilities it inherited when it purchased Armstrong Tire Co. A three-year alliance with Cooper Tire & Rubber Co. also was ending, and Pirelli's tire sales in North America had dwindled to $159 million.
"We pretty much started from scratch five years ago together with the factory," said President and CEO Gaetano "Guy" Mannino.
Forget mistakes of past
Mannino doesn't like to talk much about Pirelli's experience in North America prior to 2002. The 25-year Pirelli veteran's first stint with the U.S. unit lasted from 1995-98, when he was first in charge of sales with Sears and Sam's Club, then vice president of operations.
Following a three-year run in Venezuela, he returned as president and chairman of Pirelli Tire North America in 2002 as Pirelli was moving its headquarters to Rome from New Haven, Conn.—a leftover location from the Armstrong days.
Pirelli also was returning to U.S. tire production on a limited basis with the Modular Integrated Robotized System. Being highly automated and flexible, the MIRS production modules meant Pirelli could boost production to match demand without tying up capital in a massive tire plant that needed high-volume runs to take advantage of economies of scale.
Mannino said Pirelli based its new North American strategy around the MIRS technology. One of the first steps was going after original equipment business with the three major Detroit-based auto makers, something the firm couldn't do previously because it didn't have the production capability to back it up.
"Now we have the MIRS factory on one side and the factories in South America that could help us get into original equipment in Detroit," Mannino said. "Until then we were piggy-backing on the import of luxury vehicles from Europe. But we didn't have a presence in Detroit. When you don't have a presence in Detroit, you're pretty much missing most of the center of the country."
While Pirelli's brand awareness in the U.S. far outweighed its miniscule market share, the push for OE fitments was needed to pull through sales into the more profitable replacement market, Marketing Director Pierluigi Dinelli said.
The tire maker also wanted to expand its image from being associated just with high-performance sports and luxury vehicles to one with more broad-market appeal. That included fitments on such vehicles as the Lincoln Town Car, sport-utility vehicles, pick-up trucks such as the Ford F150 and F250, the Ford Focus, the Chevrolet Cobalt and other vehicles with mass appeal. All this without giving up its place supplying the Ferraris and Porsches of the world.
"We're trying to widen our image, not change our image," said Peter Tyson, vice president of advertising.
Building product for the U.S.
Besides putting an emphasis on gaining OE business in the U.S., Pirelli also stopped treating the market like a poor stepchild. It started designing tires specifically to be sold in North America, rather than just importing products from Europe that really were aimed at that market.
One of the main differences between the two markets is that Europe generally has separate tire lines for summer and winter, said Product Manager Gianluca Grioni. But much of the U.S. is more suited for an all-season tire, and Pirelli hadn't been well-equipped to satisfy that need.
Since 2002, he said Pirelli has worked hard to change over its product line to have tires that cover the whole range of the market. That includes the P4 and P6 Four Seasons all-weather tires, Scorpion tires for SUVs and the P Zero family of tires for the ultra-high performance market.
Grioni said the P4 Four Season tire, available in 14- to 17-inch sizes, is a prime example of Pirelli expanding its appeal into mass-market tire lines. "This was a new segment that Goodyear and Michelin had to themselves, and we came in to compete with them," he said. "We're managing to sell every tire that we're bringing in. We didn't even launch it. We just brought it to the market and people started to look at it and started buying it."
Dinelli said of all the moves Pirelli has made in North America, developing products just for this market may be the most vital. "This had never been done before in the past by Pirelli," he said. "This for me is the biggest change in our strategy and the biggest effort we have put in our North American operations."
Another important initiative for Pirelli was to rework its distribution network while simultaneously expanding its U.S. coverage.
"When you look at the distribution we had in the 1990s, it was U-shaped," Mannino said. "You could see Pirelli around on the coasts."
Now the company is building a network around the country, selling through independent tire dealers and car dealer programs, such as Ford Around the Wheel and GM on the Road.
"It has been a slow process," Mannino conceded. "But the fact that we moved here with a new facility was a great choice to have a fresh start and gain the confidence of our dealer network."
More room to grow
To show that its strategy is working, the Pirelli Tire North America chairman points to figures that show sales rising from that $159 million figure in 2002 to a projection of about $500 million this year.
Mannino said the firm could have gotten to $500 million faster if OE sales had grown at a stronger pace, but 2006 wasn't a good year for the domestic auto makers, especially Ford.
He said Pirelli's North American operation is very profitable, a situation he prefers to having higher volume. "Biggest is fine, but in the end you have to explain to your shareholders if you're making money or not," he said. "I don't think shareholders will care much if you're big or not. But they care more about how much money you bring to them this year and next year and the year after."
Pirelli also is taking its MIRS operation one step at a time as well. It sources about 10 percent of its North American unit sales from the MIRS operation in Rome, though Mannino said those tires account for 20 percent of sales because they are focused on the higher-end lines.
By contrast, 50 percent of the tires are brought in from Pirelli's Brazilian operations and 40 percent from Europe.
Pirelli has four MIRS modules operating in Rome, each capable of producing about 125,000 tires a year, depending on product mix. The plant can accommodate about 17 modules and a decision on when to add a fifth module likely will come by the end of this year, Mannino said.
Employment at the Rome location is 230 overall, with 120 of those in the factory.
"The advantage of MIRS production, being modular, is you just add production without the classic environment of a traditional factory where you have to have the mixing and all the semi-finishing lines," he said.
Pirelli outsources the mixing at the factory, a situation Mannino expects to continue.
Despite the higher sales, there still is plenty of room to grow, he said, noting that Pirelli's overall market share in the U.S. still is just 1.4 percent. Within five years, Mannino believes the company can again double sales and be a $1 billion tire firm in North America and an even more recognizable name in the market.
And he sees one trend continuing that was absent at the operation prior to 2002: stability.
"There's quite a difference from what happened in the past where we were changing CEOs all the time," Mannino said. "That's not good for the company because the people in the market like the stability. Generally, when you keep changing, you change strategy and people don't like it. They get nervous, and then you start losing the confidence of the market."