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January 28, 2008 01:00 AM

New owners bolster Alliance Tire with investment package

David Shaw
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    HADERA, Israel — The new owners of Alliance Tire Co. (1992) Ltd. are looking to turn the Israeli farm tire manufacturer into a global leader in the off-highway tire business.

    With that goal in mind, they put together a $125 million investment package for an off-the-road tire plant in India and needed upgrades to the firm´s Hadera plant.

    The owners, together with the firm´s management team, believe they can leverage Alliance´s strengths to gain a big foothold in the global marketplace, said Yogesh Mahansaria, who together with his father A.K. Mahansaria-formerly part of senior management at India´s Balkrishna Tires Ltd.-acquired Alliance last July for about $150 million with substantial backing from international financiers Warburg-Pincus.

    Opening a plant in India will allow Alliance to shift production of lower value-added, entry-level tires to India and focus more resources in Hadera on higher value-added radial products, according to Alliance Chairman and CEO Joseph Anglister.

    "The potential for increasing sales of high-end tires is very high," Anglister said. "Alliance could not exploit this potential due to the fact that up to now we had to supply to our customers the full range of tires, the high-end tires and also the conventional tires. By producing the conventional tires in a low-cost country, this can release capacity to produce in Israel the high-end tires and increase capacity for those significantly, much more than we could up until now."

    Although the Hadera factory is more cost-competitive than many Western European plants, the Chinese and other low-cost producers were able to win market share in the low-end conventional tires based on low prices.

    Results oriented

    The new owners expect their investments to produce tangible results. Anglister said management forecasts the firm´s sales should hit $500 million by 2012, more than twice the $200 million anticipated for 2007, which in turn is more than double the $94 million reported in 2002.

    Of the $125 million investment package pledged by the new owners, around $100 million will be used to build the Indian factory, Mahansaria said. The tires made in this plant will be at the lower end of the technological spectrum, but once the new plant is on stream, it will relieve pressure at the older plant in Hadera.

    The Israeli plant will be upgraded with the remaining $25 million to expand capacity for large OTR tires aimed at the top of the technology spectrum-high-speed, high-load radial tires designed for use on modern high-power tractor units.

    Anglister said the firm´s Indian tire plant will use all new equipment. The machinery taken from Hadera will be sold, not transferred to India. He said the company is now developing design plans for the facility. "We are working on the optimum equipment and types of machine, but it will be a state-of-the-art factory, using the latest technology," he said.

    The investment package aims to equip Alliance to compete throughout the product spectrum, with tires aimed primarily at customers in the relatively sophisticated markets of Europe and North America, but with prices that reflect the lower labor costs of Alliance compared with its competitors, the company said. These include Michelin, Trelleborg A.B., Nokian Tyres P.L.C. — all of which are based in higher-cost countries.

    Alliance is best known for its agricultural tires, ranging from high-performance tractor tires to trailer and implement tires. Anglister said the company has been developing tires for the forestry and mining industries, but he does not expect them to generate significant sales in the short term.

    While Yogesh Mahansaria was responsible for developing the international and export business of Balkrishna Tires in India, his father — and business partner — was in the senior management of that company.

    Mahansaria said the fact that some shareholders are now of Indian nationality makes no difference to the mission and values of Alliance. The company will continue to supply a full range of agricultural and OTR tires to customers in Europe, North America and other markets.

    One of the main tenets of competing in the agricultural tire business, Anglister said, is that any supplier must have a complete range of products to meet the market needs.

    Limited capacity

    Unfortunately, this meant that Alliance had to make its low-end products in the Israeli factory. "We lost sales of the high-end technical tires because of limited capacity. Due to the need to serve the customers with the full range, we had to make these conventional tires in Hadera, and that limited our ability to make the technical high added-value tires," he said.

    The projects continue a history of investment in Alliance factories. The company spent about $85 million between 1996 and 2000, which involved closing a tire factory near Tel Aviv and upgrading the Hadera plant.

    "Since 2004, we added capacity for high-end tires, large diameter, harvester tires, flotation radials and increased capacity for large size presses to accommodate these large tires," Anglister noted.

    The agricultural tire market is known to be one in which distribution is critical. Individual farmers, or small-scale operations, are not, on the whole, very interested in tires, so they will tend to look at price or follow the recommendation of their dealer, though these farmers often buy the higher-value tires.

    Large contracting companies, on the other hand, buy sophisticated machinery and need to keep it running as much as possible.

    To these companies, tires are a critical part of their service package, as better tires permit a tractor to pull a larger plow or to move more quickly from one field to the next. Alliance said it operates through dealers in many countries, and almost all of them also deal in wheels, so the tire maker can supply a complete tire-wheel assembly for an OE customer.

    Most of Alliance´s expertise in OTR tire design and development has been focused on agricultural applications. Anglister said the company also makes all-steel radial truck tires for the domestic market, so it is a small step from knowing about all-steel truck tires and agricultural applications to developing tires for the mining and forestry industries.

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