FINDLAY, Ohio (Oct. 1, 2008)—Cooper Tire & Rubber Co. expects its pending acquisition of a 38-percent interest in Mexico's Corporacion de Occidente will help the company establish a foothold in Mexico while providing a source of low-cost tires for U.S. customers.
Cooper will purchase the stake in the Mexican tire maker—also known as Pneustone—and participate in plans to nearly triple the El Salto, Mexico, factory's capacity by 2011. The $31 million deal is expected to be concluded soon.
Cooper wouldn't comment on its expectations for the venture, but its earlier off-take agreement called for Occidente to provide 1.5 million car and light truck tires to Cooper.
Occidente plans to add capacity by year-end 2010 for 2.2 million radial car and light truck tires and 1.4 million more beyond that during 2011. The plant currently turns out 2.4 million units with 700 employees.
The venture will be jointly owned by Cooper, IBSA (a Mexican holding corporation) and Cooperativa Tradoc S.R.L., the employee owners of the Occidente facility.
Hal Miller, Cooper international tire division president, said the relationship with the Occidente owners started at the 2005 Specialty Equipment Market Association show when the two parties began discussing potential collaborations. At the time, Miller said, Cooper was interested only in discussions regarding off-take production with the Mexican tire maker.
After a year of going back and forth to identify which products Occidente should make for Cooper, the Findlay-based tire maker signed the off-take agreement in October 2006.
Miller said this process strengthened the relationship be¬tween Cooper and Occidente, leading to further discussions over a commercial agreement that they signed in October 2007.
Occidente was looking for a manufacturing partner that could help the company compete in the marketplace as well as provide technical support and manufacturing expertise, Miller said.
From Cooper's perspective, the company saw it could help Occidente lower the overall production cost at the Mexican plant with its technology and management expertise, something Cooper probably wouldn't have been able to do with only an off-take agreement in place, Miller said.
The partners will continue to increase output at the facility and Cooper is looking to build upon the market presence it already holds in the Mexican market.
Cooper started commercial operations in Mexico in 2007 in a 50-50 joint venture trading company with Nemet International S.A. de C.V., responsible for the marketing, sales and distribution of the Cooper and Pneustone brands in the country. Since then, Cooper has found that the company was fairly well known as a manufacturer by its private brand customers, but that the Cooper brand itself wasn't as well known, Miller said.
He said that with the permanent manufacturing presence established, the company will have the opportunity to focus on its brand and marketing position by focusing on the premium replacement segment and developing a strong dealer base with the key markets in Mexico.
“Our strategy really is to go in, build a strong Cooper brand equity position in the marketplace, and to do that, I think we've got to have a strong presence with the top independent retailers in the country,” Miller said.