SILAO, Mexico—Mayors, movie stars and governors are one thing, but it's not every day heads of state literally drop in to celebrate the launch of a plant. But that's the way Pirelli Tire rolled out its factory in Silao May 31.
A squadron of helicopters, one bearing military personnel, brought Mexican President Felipe Calderon to Pirelli's sprawling new plant in Mexico's Guanajuato state. There he met local political and business leaders as well as Marco Tronchetti Provera, Pirelli & C. S.p.A.'s CEO and president, and other top leaders of the tire manufacturer.
The presidential presence signaled the strategic importance of the plant in Silao, about 230 miles northwest of Mexico City. The 1.45 million-sq.-ft. facility is the tire manufacturer's North American beachhead in its goal to be the world's leading maker of premium tires by 2016.
Pirelli is spending $300 million on the tire factory's first phase, but that will rise to $400 million by the end of 2017.
The investment in human resources translates to 1,000 jobs by 2014 and 1,800 by 2018. Though highly automated, the Silao plant will not use Pirelli's Modular Integrated Robotized System tire-building process, which is aimed at special production batches, a Pirelli official said.
A smattering of tires made at the plant in Silao already has reached the U.S., but Pirelli said that trickle will increase rapidly. The manufacturing site will churn out 400,000 tires annually in 2013, 3.5 million by the end of 2015 and 5.5 million units annually when fully operational in 2017.
The facility incorporates natural lighting, water conservation and other “green” measures, Pirelli said. It also features an area for children of employees as well as disadvantaged local kids to play sports. The tire maker has sponsored a local youth soccer team, which presented Calderon with a blue-and-black striped jersey.
Key to North American plans
The Mexican facility is a linchpin in Pirelli's plans for high-performance, high-tech tires, according to Tronchetti Provera and Paolo Ferarri, Pirelli Tire North America's chairman and CEO, and Tom Gravalos, the unit's vice president of marketing, motorsports and original equipment operations.
“This plant will be providing much better service to our clients in the aftermarket,” said Tronchetti Provera. “Right now we serve the aftermarket from Brazil mostly, partly from Europe, partly from China. This is a way to deliver in four days to any place in the U.S. From Brazil it takes 45 days.”
The company also operates a passenger and light truck tire plant in Rome, Ga.
Tronchetti Provera said improving fill rates is one of his team's top priorities.
Ferrari—a veteran of international finance, including mergers and acquisitions who took the reins of the North American operation in February—said the tire maker's premium strategy doesn't just rely on the product and brand name.
“Our service levels, in terms of fill rate, are not premium,” he said. “We import 95 percent of the tires that we sell in this market. And the supply chain is long. à With one shot, with this factory, we're going to have a lot of premium production here. We're going to have a much shorter supply chain (and) we are going to produce in a more cost-effective way.”
A focus on efficiency is also why Tronchetti Provera said he reshuffled Pirelli's top ranks in May.
“To be premium, you need people working together (who are) outstanding in their professionality,” he said. “Be a real team, be real human beings and focus on priorities. When you change strategy, you also have to have the right people to implement it.”
The executive said he shortened the chain of decision-making process, eliminating two management layers that weren't making transparent decisions. “Reliability is the main issue with people in business, in life.”
Ferrari said his team is focused on maintaining Pirelli's growing market share in premium tires in the U.S. and Canada, which he placed at 6 and 15 percent, respectively.
“Our goal is to grow market share because we have a better fill rate and because we go into a virtual circle where we will also get more orders as we become more reliable in terms of service,” he said.
Under Pirelli's current three-year plan, Ferrari sees the firm's premium volume growing about twice as fast as the market by the close of 2015. “That could lead us to a gain of at least 2 or 3 points of market share. If all goes to plan, that may even be conservative.”
If so, Pirelli officials said that the Silao location has been designed to easily accommodate a second or “mirror” tire factory, which could lead to a potential annual output of 11 million tires.
Pirelli said it also is working on a premium tire that will debut later this year. Digital marketing is being prepared and rebates are under consideration—all part of the North American team thinking “big.”
“We would like to set a new standard in the way Pirelli launches new product,” said Gravalos. “We invested hundreds of millions of dollars here. It would be foolish of us not to spend the last few million to close the loop and get your return on this investment.”
Silao is no stranger to the automobile industry. The city of roughly 150,000 is home to a General Motors plant that produces Chevrolet, GMC and Cadillac pickups and SUVs. Volkswagen has a parts factory nearby, and VW announced a few weeks ago Silao will be the location of a factory that will crank out 330,000 engines a year after it comes on line in 2013.