Conti's Etzel: 'North America is strategic growth market'

This is a big year for Continental Tire the America L.L.C. Not only did the tire maker recently inaugurate a new campus in Rock Hill, S.C., three of its U.S plants are celebrating anniversaries: in Clinton, Miss., 5 years; in Sumter, S.C., 10 years; and in Mount Vernon, Ill., 50 years.

Jochen Etzel, CEO of the U.S. business unit, told tire Business that North America is a "strategic growth market."

 

How would you describe business thus far in 2024?

We began 2024 with a slow start with continued pressure from inflation, high interest rates and hesitancy in purchasing. In the passenger/light truck segment (PLT) segment, we expect improvement mid-year. The truck, agricultural and material handling segments have also experienced a challenging start to the year but anticipate a more normal level towards mid-year.

The earthmoving and port segments have demonstrated greater resilience and growth. The original equipment (OE) PLT segment has had a slow start, especially in the upper segments of the market.

Vehicle sales have slowed with affordability being a concern. In line with our 2024 forecast, we anticipate manufacturers will increase production of more affordable vehicles, which will result in a different product mix between 2023 and 2024.

 

Where do you see opportunities for growth the rest of the year?

Positive opportunities continue around light truck segments and in higher rim diameters, where we have devoted our attention.

In keeping with our promise of being an integrated solutions provider, the truck tire team sees opportunity for growth in both our digital solutions and intelligent tires solutions. Since 2020, Continental has doubled intelligent tire sales.

As more fleets look to reduce costs, we have the opportunity to offer a complete solution with Continental's digital tire monitoring system; ContiConnect has proven to improve casing life, tire mileage and reduce the number of breakdowns.

We anticipate significant growth opportunities across all specialty tire segments, as markets begin to stabilize following the economic challenges that have impacted businesses globally over the past few years. Specifically, we are excited about the ongoing diversification of our portfolio, which is poised to enhance our offerings for both dealers and end-user customers.

 

How has inflation affected business?

Average new-vehicle transaction prices have increased at a faster pace in the past two years. After a rapid increase of demand in the upper segments of the market due to semi-conductor component shortage, we observe a shift in the market to more affordable vehicles as consumers become reluctant to purchase upper segment models as new-vehicle availability is not a constraint anymore. We work closely with our customers to ensure the shift in demand and supply is aligned.

We see a higher level of price sensitivity from our replacement consumers, as household budgets are stretched due to overall inflationary pressures. We are continuing to put a high level of focus on delivering a strong value proposition to our customers, particularly in the current environment.

Specialty tire customers are conscious of inflation's impact and the subsequent pressures it exerts on cash flow management. While this presents a challenge, it reflects the ongoing reality of our daily operations. Now more than ever, it is crucial that we collaborate closely with our customers to navigate these obstacles and assist them in generating value in the marketplace.

 

Are you seeing any volatility in the supply chain?

Throughout 2024, Continental's supply chain team continuously improved our fill rates and reduced our backorder across our portfolio. In addition, we have strengthened our sourcing flexibility. With those measures, we are able to protect our customers from ongoing volatility and risks coming from ongoing geopolitical tensions, changing weather patterns, emerging strike trends and an increasing number of cyber attacks toward essential supply chain execution systems.

Together with our customers and suppliers, we are working closely on a resilient tire supply chain.

 

Three Continental plants in the U.S. are celebrating milestones. What does that say for Conti's commitment to North America?

Over the years, North America has benefited from an increase in sales annually.

Contributing to this achievement have been our dedicated and focused team members at our Americas manufacturing facilities.

In the U.S. alone, we have invested more than $1.5 billion in our Mount Vernon, Sumter and Clinton locations. There is continuous annual investment in the North American plants to guarantee efficient, sustainable, safe and productive environments for our team members and our customer needs.

The investments in the plants and in our employees benefit our dealers with premium products and service, which is paramount for their success and bottom-line results.

North America is a strategic growth market for our tire business. With our four manufacturing facilities, we continue to reinforce our focus and commitment toward the replacement market and the dealers and distributors responsible for reaching the end users in North America.

At Continental, we believe manufacturing our products locally is a key driver behind many of our Vision 2030 strategic initiatives. With over 80 percent of our truck tires designed, produced, and manufactured right here in the U.S. for local customers, we remain committed to our local economy, environment, and end-users.

The new headquarters is quite a commitment as well. What are the benefits of the campus?

With the Americas, and particularly the U.S., identified as a strategic growth market for the Continental tire business, it was imperative to expand our existing campus in a strategic way for both our existing employees and to attract future employees.

We invited our team members to participate in the planning and development process from the project inception, providing input from workspace layout and meeting room functionality to color schemes, furniture selection and unique amenities within our work areas.

I am not sure how often it happens, but the process inspired everyone to think about our projects, our working environment and collaboration. We did not want to develop a typical office of the past that employees had to come to with desks and meeting rooms, but rather, we created an environment that our team wants to come to. It is our workplace of the future and a destination for our staff in the post-pandemic work era.

Our new Americas headquarters expansion was built to attain and qualifies for LEED Gold certification (Leadership in Environmental and Energy Design by the U.S. Green Building Council). The building incorporates energy-saving and efficient materials and was carefully planned to showcase Continental's sustainability ambitions.

The project incorporated key LEED building standards including sustainable site development, water savings, energy efficiency, materials selection, and indoor environmental quality. Collaborative spaces of various sizes are located on all three levels of the building, as well as quiet areas for focused work.

Being an integral part of this community for the last 15 years, it was important to remain in the vicinity of our current location. Team members are raising their families here, have lives outside of the office and while at work, engage with our community partners. That is an important part of our culture and one of the reasons Continental is repeatedly recognized as an employer of choice. This expansion reinforces our focus and commitment towards our employees, the community, our customers, and our markets.

Our new headquarters expansion has been an outstanding place not only for our team to collaborate, but also to host our customers and community partners. The building's amenities and modern meeting spaces have made quite an impression. We look forward hosting future events with our partners and forging long-lasting relationships.

 

What was the thinking behind the investment in the Retread Solutions Development Center?

As a Tier 1 tire manufacturing company, offering retread services is a vital part for our truck tire product portfolio. This center allows us to make improvements to our ContiLifeCycle process and offer our Continental Retread Solutions Partners hands on training and technical support.

With this new Solutions Center we are making great progress towards improving processes, developing and testing new technologies.

In addition to the loyal Continental Retread Solutions Partners that we have had for years, we will expand our network coverage with new partners across the United States and continue to make headway to become a major player in the upcoming years.

 

Your EV tire strategy has been consistent: all tires can be used for EVs. How has that been accepted by customers?

Our EV compatible message has been received very positively by our customers overall. They understand the performance differences and tradeoffs between original equipment and replacement only products and that those tradeoffs are no different for tires supplied for ICEs and EVs.

This understanding has helped them more successfully qualify consumers based on tire performance preferences and not vehicle propulsion type exclusively. Another part of this strategy is complexity management for the dealers, who continue to applaud us for not adding yet another new line to our portfolio knowing that we already offer products that will meet the needs of EV customers.

Based on this customer feedback and our in-depth OE expertise working with EV manufacturers, we will maintain our EV compatible product line.

 

What are some of the pleasant surprises you are seeing in the industry?

The PLT business continues to be resilient, even in challenging times. We are always encouraged to see new and innovative solutions from our retail and distributor partners to bring value to our common customers.

Continental has had success both partnering with fleets and expanding our fleet business. We have also seen an increase in the acceptance of our integrated solutions including retreading and digital solutions. Dealers are seeing the importance of digital tire monitoring solutions and how we can assist them in reducing costs and providing a better experience for their customers.

Amid a challenging economic climate, we have observed sustained market interest in Tier 1 specialty tire products that deliver the lowest overall cost of ownership. Furthermore, we have successfully captured attention with the introduction of several new product sizes, particularly with strategic fleets looking to diversify their selection of approved products.

 

What kind of trends are you seeing in the marketplace?

Consumers using online research as part of their PLT tire buying process has continued to increase in the U.S. As a result, Continental has continually invested in our digital marketing approach to help consumers become more informed about the right tire choice and where it is available.

In truck, we have seen the growth of non-USTMA imports within the replacement market. We continue to work with our dealers and fleets to position ourselves as more than just a tire manufacturer—we offer total solutions for fleets and partner with our dealers to ensure successful sell out of our products.

 

You recently rolled out several products. Which one excites you most? Why?

Last year we launched the new General G-MAX AS07, an all-season ultra-high-performance tire for passenger cars, crossovers, light trucks and SUVs. We have raised the bar in performance in the Tier 2 Ultra High-Performance All-Season segment.

Specifically, the tire has best-in-class wet braking, dry braking, and snow traction while maintaining long lasting treadwear. The new ire line replaces two predecessor tire lines, the G-MAX AS05 and Grabber UHP into one UHP powerline, which reduces complexity for our dealers.

Last year we have started supplying tires to Lexus in U.S., a first for Continental. With that we now can say we supply all premium OEMs in North America.

In truck, our first Continental Generation 5 products, the Conti HSR 5 and Conti HDR 5, were developed over the past few years at our R&D centers in Hanover, Germany and Uvalde, Texas. Recently launched, they are designed to accommodate a sizable portion of the truck tire market.

Our specialty tire portfolio is continually evolving with numerous new products introduced in the last six to twelve months. Noteworthy among these is the inclusion of metric Earthmover sizes, such as the 875/65 R29 EM-Master, which demonstrates our ongoing growth within this segment. This addition shows our commitment to the continuous expansion of our offerings, aligning with the rapidly evolving demands of the marketplace.

 

What other products do you expect to introduce in 2024?

In Q3, we will introduce the Continental TrueContact Tour 54 as a premium all-season touring tire for passenger cars and CUV's. Not only will this new tire improve performance for the consumer, but it will also reduce complexity for our dealer partners by combining the current TrueContact Tour and PureContact LS into a single power line.

We will expand the Continental Generation 5 line up which will include Continental truck's first EV compatible tire. This means that the tire meets the diverse needs required of internal combustion engine vehicles, hybrid vehicles and electric vehicles.

Throughout the remainder of 2024, we are positioned to introduce new specialty tire products across all of our segments—including material handling, earthmoving, port, and agriculture. Among these innovations, the market can anticipate new fitments for forklifts, featuring integrated treadwear indicators within the solid tire segment.

Additionally, we will continue to expand our Earthmover sizes to serve various vocations, introduce new solutions for ports with a focus on pre-equipped digital tire monitoring, and broaden our range of VF farm products and our industry leading MPT portfolio.

 

Has Artificial Intelligence (AI) begun to impact business?

AI, and technology in general, are changing the way brands communicate to consumers. We leverage these opportunities across the digital and social spaces to ensure we are communicating the right message at the right time to the right consumer to help them make the smart tire choice.

Data is becoming a bigger tool to identify efficiencies in our processes to improve our planning processes to provide the best service levels to our customers. We expect the AI 'toolbox' to help us become even better in this area.

We are investigating ways that AI can support various processes to streamline the collection and interpretation of information which ultimately will allow us to be a more agile partner to our customers.

In OE, virtual tire development is already part of the product development process at Continental, new AI tools are giving us even better tools to expand the capabilities of our tools and processes.

 

How do you get your customers to embrace sustainability?

Under our Vision 2030 strategy, we will continue our ambition to become the most progressive tire manufacturer in terms of environmental and social responsibility. We focus on our products, people and the environment. Our ambition is to achieve carbon neutral production for all tires by 2040 and to use 100 percent sustainably sourced materials in our tire products by 2050.

We pursue a holistic approach to make the material sourcing, production and use of our tires, as well as the retreading and recycling of end-of-life tires, as environmentally friendly, energy-efficient and carbon neutral as possible.

The ambition of Continental Tires is to reduce its energy consumption by 20 percent by 2030. Since the end of 2020, the electricity that the company purchases for all locations worldwide.

As an example of this ongoing effort, Continental recently announced that an important step has been taken towards the goal of complete CO2-neutral production. Continental can now produce CO2-neutral tires at the tire plant in Lousado, Portugal by switching from a boiler using steam to an innovative boiler that operates entirely on electricity.

Sustainability is a paramount topic across all aspects of the value chain, and more than ever is at the top of our customers' list of requirements as a prerequisite for doing business. Continental is continuously working to advance innovative technologies and sustainable products and services along the entire tire value chain, from the procurement of sustainable materials to the recycling of end-of-life tires.

On the PLT side, we see more and more attention being paid to the subject of sustainability by our customers. Whether it involves improving the CO2 footprint of their logistics operations or the continued pursuit of more environmentally friendly 'end-of-life' solutions.

In truck, we encourage our customers to embrace sustainability by partnering with them in retreading their tires and utilizing Continental's digital tire monitoring system, ContiConnect. Compared to a new tire, a retreaded tire can save up to 70 percent of material and 24 percent of CO2 emissions. It uses 19 percent less water consumption and contributes up to 21 percent less air pollution.

Partnered with Continental's digital tire monitoring system, ContiConnect, a fleet can maximize the life of their tire to ensure optimal pull-point prediction. Through monitoring the temperature and pressure, a fleet can protect and preserve the tire casing, ensuring a better retread.

 

What are some of the challenges of the industry?

There will continue to be pressure to improve the overall performance of our tires (improved wear, better fuel efficiency/range, increased sustainability) while also keeping costs under control. The companies that can best accomplish this will be the winners.

A key challenge facing the industry is the ongoing need to adapt to a shifting marketplace, which has experienced considerable fluctuations during and in the aftermath of the pandemic.

Continual innovation and listening to our two-wheel customers guarantee that we remain relevant, leading edge, and trusted with the products we provide.

Uncertainties around EV adoption rates will make the planning for short term and midterm a challenge for the OE industry.

 

What do you want tire dealers to know about the company that they may not know?

Hopefully, it is known to our PLT dealers that we remain strongly committed to understanding the challenges in their business and utilizing their direct feedback to bring solutions that can support their success. The voice of our customers is embedded in our internal decision-making processes.

Continental is continuing to partner with truck tire dealers to provide an integrated solutions approach to our products and services. As a top tier brand, Continental offers the full gamut of products such as replacement tires, Original Equipment (OE) tires, retreads, digital tire monitoring and other services.

Continental remains dedicated to delivering the highest value to our specialty tire dealers and end users, standing out as a leader in the industry. We are committed to ongoing investment in resources that foster both internal and external value creation. In the coming years, we aim to significantly broaden our product offerings within the specialty segment, positioning ourselves as a full solutions provider across all areas of our participation.

We continually strive to facilitate the best customer experience at every stage—before, during, and after the sale—and take pride in being a preferred partner to some of the most prominent names in the industry.