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[June 22, 2014]
Armes aims to keep on rolling as Cooper Tire plans for 2nd century of operation [The Blade, Toledo, Ohio :: ]
(Blade (Toledo, OH) Via Acquire Media NewsEdge) June 22--FINDLAY -- For much of its 100-year history, Cooper Tire and Rubber Co. has put the lion's share of its focus on a single kind of customer, someone who needed a new set of quality tires but wasn't overly concerned with performance and didn't want to pay premium prices.
The approach served the company well. Cooper joined the Fortune 500 in 1983, a designation it held for the next 11 years.
"We've been able to be successful off that strategy for a long time," Chief Executive Officer Roy Armes said. "Then when global competition came in, we were really getting challenged from imports. It began to penetrate more of that area where we were more exposed, which was that broadline, lower price-point, entry-level products." Cooper, based in Findlay, since has widened its approach, both in the types of tires it makes, and where its tires are sold. The company has looked to new markets such as China and Latin America, upped its marketing profile, and put more of an emphasis on developing top-tier tires while continuing to play up its value proposition.
Mr. Armes, who sat down last week for an interview with The Blade, looks to further those initiatives as the company enters its second century of operation.
Last month, Mr. Armes and his executive team outlined a number of goals that they say should result in a double-digit operating margin and grow Cooper's revenue as much as 75 percent by the end of the decade.
Cooper recorded net sales of $3.4 billion in 2013 and $4.2 billion in 2012. Mr. Armes believes the company can achieve annual sales of $5 billion to $6 billion a year by 2020.
Continuing to focus more on the premium-tire segment is one of the keys to meeting those goals. Mr. Armes noted that the segment is one of the industry's fastest-growing, and it's changing even more rapidly than the company expected.
"We're growing more in that segment than we'd anticipated. That's helped us move away from our core business from a long time ago, the broadline entry level.
"We still produce products for that segment, but it's not to the same level it was 10 or 15 years ago," he said.
Performance or specialty tires may offer higher speed ratings, lower rolling resistance for better fuel economy, a quieter ride, or superior wet traction. They also tend to be more profitable for tire manufacturers.
The company has had some splashy sponsorship deals in recent years, including ABC's college football halftime show. Cooper also targeted the Professional #8226 Riders tour for a sponsorship deal. Officials say that's a particularly good fit for the company because many of the tour's fans drive trucks, and Cooper is one of the largest suppliers of light truck tires.
Beyond marketing, Cooper is trying to address underpenetrated channels in the United States. Some of that is simply focusing on regions where sales have not historically been as strong. Mr. Armes also believes the company has a great opportunity to get more of its products in the hands of national distributors, instead of relying more on independent tire dealers.
Original equipment Another way Cooper is reaching consumers? By making tires that come with their cars, right from the showroom floor.
Early last year, two models of the Ford Focus began coming from the factory equipped with Cooper rubber. It marked the first time Cooper had been an original equipment supplier in North America.
"We've looked at it almost every year to reassess whether we wanted to get into the [original equipment] business or not, and what the opportunities really were," Mr. Armes said. "We always knew it would push your technology, but the other thing it did, it really helped you build your brand awareness and brand equity." The original equipment business hasn't always generated strong profits, but Mr. Armes said the current economics make sense.
It also gives Cooper access to the dealer service network, where it hadn't previously been.
Officials said the company will evaluate opportunities to equip new cars with Cooper rubber, but they don't see original equipment making up more than 10 percent of its total sales in the United States.
A different story It's much more important in China, however.
Cooper said 80 to 85 percent of Chinese car owners will buy the brand of tires their vehicle came with when they need their first replacement set, and 40 to 60 percent will buy the same brand for their second replacement set.
In the United States, Cooper's research shows 30 to 40 percent of new vehicle buyers stick with the same tire brand when it's time to replace them.
Cooper has been an original equipment supplier in China since 2011.
Back in the United States, the company recently announced a $140 million investment in its plant in Tupelo, Miss.
Mr. Armes said the company wants to upgrade its plants with more automated equipment.
"We felt like the investment we would make in Tupelo was certainly going to have some good payback and we're going to evaluate our other facilities the same way," Mr. Armes said.
No decisions have been made about the Findlay or Texarkana, Ark., plants.
Overseas operations Cooper's manufacturing base extends well beyond its three tire factories in the United States. The company has tire manufacturing plants in Mexico, England, and Serbia, and two in China. Mr. Armes said that footprint was carefully constructed to give Cooper low-cost capacity to complement its other plants in all of its regions.
"The footprint we needed was one that had more low-cost capacity. We invested in Mexico, we've invested in Serbia, and we've invested in China," Mr. Armes said. "Our belief is and our strategy is over time those regions will become more near-sourced." That includes the need for near-sourced production in the United States. Just last week, Singapore-based Giti Tire announced plans for a new plant in South Carolina. Mr. Armes said Cooper too will continue needing U.S.-produced tires.
The plant in Mexico is valuable to opening up Latin America, an area that has experienced considerable economic trouble of late, but one which Mr. Armes believes has significant potential.
"We're not necessarily going to jump in and build manufacturing facilities there, but we think we can take our products out of Mexico and be able to distribute in those areas. We feel pretty confident over the next five to six years that we'll be doing several million more units sales volume in those regions," he said.
The company is similarly optimistic about its growth potential in China and eastern Europe.
"We've built a very, very good foundation for the business to catapult forward," Mr. Armes said.
Contact Tyrel Linkhorn at email@example.com or 419-724-6134 or on Twitter @BladeAutoWriter.
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