MONTEGO BAY, Jamaica—Bill Cald¬well brought it up first because he knew it was on everyone's minds.
What is Continental Tire the Americas L.L.C. doing to improve its fill rates, estimated at 45-55 percent depending on the tire, the company's vice president of sales and marketing asked rhetorically.
Based on the rumbling from the audience—dealers assembled at the company's annual Gold Dealer meeting April 1-5 at the Rose Hall Resort and Spa in Montego Bay—he clearly had hit a nerve.
Conti has taken some short-term actions over the past six months to reduce the product shortfall, which has affected the entire industry in North America, he said.
These actions include transferring some production to the company's plants in Europe and beefing up production at its factories in the Americas.
While these moves certainly will provide the company with more tires, Caldwell said later, he was reluctant to estimate how much because he didn't know what will happen with original equipment and replacement tire demand.
That's been the problem industrywide since the recession of 2009, when the tire industry reduced inventory en masse to cut costs.
Under normal conditions, tire manufacturers (those represented by the Rubber Manufacturers Association) keep an inventory of between 40 million and 50 million tires to fill customers' orders, Caldwell said. In 2009, that number fell to about 30 million, and it didn't change much in 2010 as demand rose higher than most anyone expected.
“We were not able to rebuild inventories on the manufacturers' side, which means fill rates and supply were tight the whole year,” he said.
This occurred even though the industry shipped 29.2 million more tires—or the equivalent of production from three tire plants—in 2010 than in 2009.
As a result, manufacturers' fill rates remain 25 percent below historical levels.
To improve its supply of product in the U.S. market, Conti in August 2010 began transferring “a significant number of tires” back to parent company Continental A.G.'s factories in Europe, Caldwell said.
Dealers who carry the General Altimax RT or HP, for example, will start to see tires this year manufactured in Europe, either from Spain, Portugal or the Czech Republic, rather than made domestically.
“Our European production footprint is still really the strength of our company globally,” Caldwell said. “Seventy-five percent of the passenger and light truck tires that we sell are built in Europe. That's where the capacity lies. That's where our strength is, and that's where we have much more flexibility than we have in the local market from a manufacturing standpoint.”
The company began reaping the rewards of this move in the first quarter, he said.
Conti also has taken steps to enhance daily output at its plants in the Ameri¬cas—Camacari, Brazil; San Luis Potosi, Mexico, and Mount Vernon, Ill.—over the past two years.
The Mount Vernon plant will see the biggest increase in 2011, up 18 percent, Caldwell said, following a 7-percent jump in output in 2010, without giving any production numbers.
The plants in Brazil and Mexico will increase volumes 5 percent each in 2011, following jumps of 28 and 18 percent, respectively, in 2010.
“So additional supply is coming,” Caldwell said. “It's always a challenge because it's never enough. Sometimes I believe our demand is growing faster than our capacity is growing. But more tires will continue to come to you, and we'll chase like crazy your demand level to make sure we can improve fill as we move through the year.”
Conti only recently disclosed $210 million in investments through 2015 at the Camacari plant to double output there to about 9 million car and 700,000 truck tires annually.
As for the company's Gold dealers, Caldwell said Conti will work with its Gold distributors to determine how best to use the product it does have. “And our intention is to focus as much of that product as possible to Gold dealers,” he said.
Still, that probably will not be enough, he said, and Conti will continue to keep pushing forward with capacity investments, spending 15 percent more corporatewide in 2011 than it did in 2010 on passenger and light truck tire capacity.
“Our investment in passenger and light truck tire capacity will be higher than it has been in the history of Continental Tire on a global basis,” Caldwell said.
Conti also is benefiting from an increased priority within the corporation for capital expenditures on tire capacity.
While Hanover, Germany-based Continental has a lot of divisions that are not tire related, all of them are fighting for capital funding, he said.
“But what we see in the numbers is that more and more of the overall investments of the company in capacity are coming toward passenger and light truck tires versus other areas of the company, and that's great news for all of us.”