A market share shy of 4 percent may not seem impressive. That is, unless your piece of the North American replacement tire sector was less than 1 percent in 1999.
That´s the progress made in this continent during the last eight years by Toyo Tire North America Inc. And there´s no reason not to see that growth continue, according to Carlos Kibata, president of the business and a senior corporate officer for Japanese parent Toyo Tire & Rubber Co. Ltd.
Toyo sold a little less than $800 million worth of its Toyo and Nitto brand tires in North America last year, Kibata said, and revenue should approach $850 million in 2007. More importantly, North America is the biggest profit area for Toyo outside of Japan. By 2010, Kibata sees no reason his company shouldn´t achieve a 5-percent aftermarket share in North America and have $1 billion in sales. Based on the size of the passenger and light truck market, he figures 5 percent would represent roughly 12 million tires, compared to sales of 8.5 million Toyo and Nitto tires expected this year.
Further, the executive said Toyo Tire North America has identified some tire lines it can enter that could increase sales by 2 million units, though he wouldn´t reveal what the lines are.
"This is not a difficult target," Kibata said. "It´s a doable goal."
New factory the biggest change
Other than the added revenue, the biggest obvious change for Toyo Tire North America was the opening of its first U.S. tire plant, located in White, Ga., about 50 miles from Atlanta.
The firm started operations in late 2005 at the factory, which boasts Toyo´s highly automated Advanced Tire Operation Module-or ATOM-tire production system. Toyo invested $180 million in the first phase of the plant. Production stands at about 1.2 million tires a year, or roughly 1/8 of what Toyo sells in North America, Kibata said.
The facility is automated from mixing through curing, with no human hands touching the tire until first inspection. This allows employment to be much lower than at a traditional tire factory, with Toyo currently having about 370 employees, including those in the on-site distribution center.
Flexibility also is a key benefit of ATOM, with the system able to alter such things as aspect ratios from tire to tire, said James Hawk, senior vice president and plant manager. That allows Toyo to schedule production based on the needs of its customers, rather than building long runs of the same tire.
"The complexity is pretty phenomenal," Hawk said. "We actually schedule tires in 24-tire lots, mostly for dealers and inventory. We don´t have to have six months worth of inventory coming from China so the dealer can get what he wants."
Toyo also is able to easily shift production mix based on market fluctuations. For example, when the facility opened, the tire maker expected output to be 60 percent sport utility vehicle and ultra high performance passenger tires, with the rest being light truck. But because of market shifts, the needed supply now is reversed, with light truck tires making up 60 percent of production.
"That´s the beauty of this process," Hawk said. "We were able to change with the same equipment. All we had to do was buy some new tooling, make some subtle changes and just make more light truck and less of the other tires."
Setting Toyo apart
Toyo does a number of things to distinguish itself from the competition, Kibata said. Chief among the strategies is selling strictly through independent tire dealers, shunning overtures from warehouse clubs or retailers such as Wal-Mart and Sears. Any Toyo tires that end up in those channels, he said, would have been purchased from Toyo wholesalers.
"We protect the territory as much as possible to eliminate competition between Toyo and Toyo," Kibata said. "That is a very strong point for Toyo and Nitto. Our dealer selling price does not compete with other Toyo dealers or mass merchandisers."
Consequently, he said some Toyo lines enjoy higher selling prices than comparable Goodyear or Michelin tires in some areas, meaning a higher profit for both the dealer and Toyo.
The tire firm´s strongest area in the U.S. is the Northwest, but Toyo always is looking at areas where new dealers won´t infringe on regions covered by current dealers. At the head of the list are dealers that will position Toyo at the top of their product lines, as the Japanese-owned firm doesn´t sell entry level products in North America, said Armand Allaire, vice president of sales.
"It takes a little more competence to sell and service a Toyo product properly," he said. "They´re very specialized, they´re high technology. That´s why we want to specialize in independent dealers who will commit to having the right technical equipment, having the right inventory, and having trained personnel available to sell and service an upscale consumer."
Those consumers generally are younger buyers who don´t want any mass-produced tires for their vehicles. "If you want something that´s not mom and pop, and distinguishes you and your vehicle and your lifestyle, Toyo´s the product to have."
When done right, Allaire added, the tire business can be profitable for all involved. "Going after a mediocre product just to demonstrate a capacity to generate volume is useless," he said. "We want well-done business where people make money and continue to grow."
Kibata said Toyo also excels in being ahead of the curve and creating new markets, such as specialty light trucks. "As long as cars and trucks change, we have a chance," he said.
What lies ahead
While the Nitto brand to this point mainly has been to sell to "extreme niches," Kibata said some broadline tires may be in Nitto´s future. That´s because niche markets tend to be less stable and subject to falling prices once competitors file in with "me-too" products.
When raw material prices kept climbing last year, he said the firm was able to boost prices on Toyo-brand tires, but not for Nitto´s niche lines. "Having broadline tires is very important," he said. "Now the Nitto brand has become familiar, so I think it is time to look at this."
Toyo also will abandon its aftermarket-only position in the U.S. in the next couple of years, according to Kibata. Its parent firm in Japan is working with an unnamed Japanese auto maker to develop a tire to be supplied as OE from the White facility. He doesn´t know which model the tire will adorn, but it probably will be either a 2009 or 2010 vehicle.
Kibata said working with a Japanese auto firm will be good for his company because of the stringent quality requirements. "It´s very helpful for us to have audits from auto makers to improve our plant," he said. "It will make us a better company."
Expansion also may be in the near future for the infant Toyo factory. Kibata is awaiting approval from Japan on what he is dubbing "Phase 1.5" for the White plant. That would bring in new equipment that would fill out vacant floor space and could add up to 150 jobs. Hawk said that if approved the new machines would focus more on high-performance radial tires. He added that while Toyo was "totally committed" to the facility from the start by investing heavily in infrastructure and mixing capability, the firm is conservative in adding volume-doing so only when sales justify it.
If all goes well, an official "second phase" expansion-involving an actual addition to the building-would follow in two to three years, Kibata said.
The manufacturing site has been profitable since October, he said, and future capacity expansions will help earnings by bringing down fixed-cast ratios.