MOUNT VERNON, Ill.—When Matthias Schoenberg was named CEO of Continental Tire North America Inc. in September 2006 the Continental A.G. subsidiary hadn't been profitable for close to a decade.
But that doesn't mean everything was in bad shape when he took the helm at Conti Tire North America after three-year stints at Continental's tire businesses in Portugal and Mexico.
“Obviously we were still not profitable,” Schoenberg said. “We had a couple of good things in the pipeline. What had to be done was formulate the strategy.”
He said CTNA had a good management team in place so not much needed to be addressed on that end, but there was work to be done aligning the strategy for the company's businesses in North and South America.
So the team members worked on developing and launching new products. They worked to re-establish the General Tire brand in the marketplace. They ramped up production at the group's newest tire plant in Brazil.
With a finance background, Schoenberg also drew on experience he gained in Portugal and Mexico in instituting a program where Conti works hard to make sure each of its tire lines are properly priced in the marketplace.
But by far the biggest initiative the new Conti CEO said he brought to the table was improving the communication among the firm's marketing, sales, logistics and manufacturing staffs.
The problem with aligning the goals of these different functions is that often the objectives of each aren't necessarily compatible, Schoenberg said.
Factories, for example, normally are geared toward hitting the “production ticket” and making as many tires as possible. The sales staff obviously tries to sell as many tires as they can, but those tires aren't always the same tires the plants are manufacturing.
“We tried to make everyone work in the same direction,” he said.
So CTNA worked toward making sure its production aligned with specific targets. “This is more important than the ticket,” Schoenberg said. “If a plant that is supposed to produce 20,000 tires a day only produces 18,000 tires, this doesn't create headaches as long as the 18,000 tires are the tires the customers really need.”
Having this closer coordination between the different functions also enables the tire maker to keep its inventory under control, which in turn helps it to have more reliable pricing.
Part of the strategy also included conveying the firm's sales and marketing strategy to the employees on the plant floor. “So for them it's not just a tire anymore,” he said. “It's a tire that might end up on a Lucas Oil truck or that might end up on a Baja truck. It's important to communicate to the people in the plant why they do it and what happens to the tire.”
Long road to profitability
Various factors prevented CTNA from making money for so many years, the chief among those being the high-cost tire plants Conti previously operated, according to Schoenberg. He said labor costs at its tire plants in Charlotte, N.C., and Mayfield, Ky., were too high, causing them to close Mayfield and cease producing tires in Charlotte, where the firm still mixes rubber.
“We've never been able to really produce tires in a competitive way here in our U.S. plants,” he said.
The CTNA chief executive defended the decision to curtail tire manufacturing at those two sites while he was in Mount Vernon to announce another $60 million in investments that will increase capacity there by 2 million tires a year. Conti has announced spending at Mount Vernon of $220 million in recent years.
“The fact that we invest now in Mount Vernon is a result of the wage/labor cost restructuring we were able to do two years ago when our workers in Mount Vernon took quite a hit in wages, but as a return made the plant competitive again and allowed us to invest significantly,” Schoenberg said. “The investment in Mount Vernon is justified because it is competitive and it is efficient. But it wouldn't have been justified in the other plants because of the huge labor cost we had there.”
Conti also was guilty of trying to make its customers in North America happy using a German- or European-minded marketing and product offering approach, a strategy he said doesn't work.
“If you look at the history of European companies investing into the U.S., it's not always a story of big success,” he said.
To change this thinking, CTNA recruited a number of people who understood the market and the product needs, which vary differently from Europe.
“In Europe, it's more about the performance of the tire,” Schoenberg said. “Wear is not a big issue. You drive your BMW and you want it to brake, so you need tires that brake well. Here it's different. In Germany, no one watches a truck pull. Here we sponsor it.”
A reworked lineup of both Conti- and General-brand tires brought double-digit growth to the firm's passenger and light truck business in the U.S., Canada, Mexico and Brazil. And he said the new pricing strategy allowed CTNA not only to increase overall sales but revenue per tire as well.
“It's a long way to really increase your brand image, but I guess we really surpassed our targets,”
Despite a decline on the original equipment side of the market this year, Schoenberg expects continued strong demand for its replacement tires to keep the firm profitable for 2008.
Ability to compete
The new tires CTNA has started selling in the U.S. in the last year—he specifically mentioned the General Altimax, the Conti-brand CrossContact UHP line and a General-brand UHP tire—enable a smaller tire maker such as Conti to compete against the larger firms such as Goodyear, Michelin and Bridgestone.
“In a very difficult and competitive market, if you have the right product and the right marketing strategy, you can gain significant market share,” he said. “I feel we are in a very good position with the flexibility we have and how we are very fast at recognizing trends, so I feel we are very competitive.”
The firm's fill rates currently are in about the 80-percent range, he said, a number that should improve as additional capacity comes on line in Mount Vernon. CTNA also gets feedback and input from its customers through its business council, where it meets and discusses company initiatives.
Going forward, the CTNA CEO said the key to his company's success will be in continued product innovation. The firm is working on launching a new Continental-brand summer and all-season high performance line for the U.S., with products to be unveiled at this fall's SEMA show and brought to the market in 2009.
While sales are expected to continue to climb in the U.S., one of its biggest growth markets is in Brazil, and sales activities have begun in Argentina as well.
Schoenberg also believes CTNA benefits from being part of a larger Continental that has expanded its automotive scope well beyond tires. “You can see the logic of our group,” he said. “If you look at the major mega-trends of the automotive industry, all these mega-trends are covered by our product portfolio.”
The synergies created by these capabilities helps Conti stand out as the only tire company with in-house knowledge of chassis and vehicle control.
“That's the future,” Schoenberg said. “The tires are not an independent component of the car. The tires are part of a system, and we are the only one who can deliver the whole system.”