Kreitzman helped found the first version of China Manufacturers Alliance in 1998 as a partnership with a major Chinese tiremaker. In 2003, the company splintered, with the manufacturer-partner taking part of the business, and Kreitzman moving on to form what is now named API Inc.
Since the split, API has developed joint ventures and alliances in China and beyond and has developed complete branded programs offering radial passenger and high performance tires, radial and bias light, medium and heavy truck tires, as well as industrial, specialty, OTR and agricultural tires. Soon, API will launch its Gladiator radial giant OTR tire program, hitting the 51- to 63-inch earthmover segment and adding growth to a company with sales of around $200 million.
At the recent SEMA Show, Tire Review sat down with Kreitzman to discuss API’s growth, as well as last year’s recall of China-produced tires and recent action, initiated by Titan International and the United Steelworkers, to impose countervailing duties on China-produced tires.
Give us your views on Foreign Tire Sales’ recall last June of Chinese-made tires and how that impacted API.
I think the important thing is it doesn’t matter if the products are coming from China or from India or Turkey, what a good importer or distributor should be cognizant of is that they have a responsibility to customers and to the market and to consumers. Whatever it is you are buying and selling any product it has to meet on a consistent basis the quality standards that are reachable for those products. And if you’re not, then shame on you.
You cannot ignore quality. We have said that from day one, and I’ve been in this business for a long time and we have developed a lot of well-known brands. We’ve worked with the Japanese, the Koreans, the Chinese, the Taiwanese, the Indians and others, and the products we developed have gone on to become well-known brands that are still sold in North America because we paid attention to quality.
If you’re only chasing price you have no future. I think that kind of sums up what motivates us to make sure our products are the best they can possibly be.
We also own our own engineering firm International Tire Engineering Resources which shows how serious we are about quality. At most of our factories, we literally have our own management in place, either on the API payroll or the ITER payroll. We’ll spend anywhere between $2 to $5 million a year just on engineering, and that’s a big number. When you say we’re a pseudo-factory, well almost everything we build is engineered by us from the ground up. We just don’t want failures, we don’t want problems. You just can’t afford them.
You can clearly see with what’s happening with FTS that you really have to be cautious about the way you run your business. You have to be really anal about quality. And it’s not just about testing a tire and saying it’s good and it does this and this and this. You better be in the plant all of the time. You better check your raw materials. You better make sure your compounds don’t change. You better make sure you’re randomly pulling tires for testing. Our test standards are very high. I think DOT duration test is 44 hours, but we’re at 176 hours on a duration test. Our test requirement for all of our tires is just ridiculous because we know we can engineer them to meet high standards so we can sleep at night. We’re probably one of the very few companies that go in and say our compound for front-end tires should be this and the compound for drive tires should be this, and tell the producer that they have to change this, this and this.
I think a lot of people get caught up in selling tires, and they think that the more they sell and the more they make the better. They are in the whole game of collecting money. You can’t build a business that way. You have to go at it one customer at a time and make sure the programs and products are solid so that you can get a dividend for the next 10-20 years.
How does ITER interrelate with API? Is this a for-hire engineering company?
It’s totally a for-hire company. We have maybe 30 engineers working on a global basis. Mainly we specialize on work in China, but we have done work in India, Turkey, Indonesia and North America. And we have compound guys, quality control guys, factory engineers, and we can provide all of the services needed relative to tire manufacturing or rubber mixing. We’ve been working with this firm since the mid-1980s, and we then we became partners with them a couple of years ago. They now fall under the API group. They are the reason we have been able to develop the products we have and the quality level that we maintain.
You do all of your own design work on tires the treads, sidewalls.
All of the design work, from the tread to sidewalls to speed ratings and testing. We work with the factories and look at what their capabilities are and then we design a program to fit those capabilities. Otherwise it would be futile.
We work very closely with the factories, and, in some cases, we share responsibility for a brand. In the case of Achilles, we’re working on building a global brand. We have responsibility for the brand in North America and Latin America, and they have responsibility for Achilles elsewhere. But we do all of the development and design work.
Talk a little bit about the countries you currently source from and the relationships you have with the producers there.
By far, China is the largest source and it will continue to be for the foreseeable future. We have branched out into Indonesia and we’re building a UHP line there and supplying technological support there, as well. We’ve been working off and on in India for about 15 years. India may become a lot more important because of this anti-dumping situation. We’ll expand our presence there. We’re building ag and industrial tires there now. In China, we’ll start to develop more of a brick and mortar relationship in the future. We already formed a joint venture in China about a year ago.
We’re fortunate in that we have a great customer base, we have really good following and a really good reputation. We build a number of tires for other manufacturers and we have for a long time. And that really forces you to be very quality focused. A lot of those tires go to OE, so we’re very familiar with how to build tires to meet OE requirements. We sell a lot of UHP tires in Europe, and we have very stringent quality control on the tires that go to Europe; they’re much more exacting than anywhere else in the world.
Over the last four years, we made a lot of contractual arrangements with our manufacturing and where we run factories. Now that our business has grown as large as it has, we’ll start acquiring factories and we’re very comfortable doing this because we already run a lot of those factories. To be a recognized joint venture in China, you have to at least own 25%. We’ll be somewhere between 25% and 51%, but in any case we will have management control of the factory.
So you will be putting a lot more of your people on the ground?
Yes. It’s just the future. We already own our own shipping company and we own our own engineering firm. We do all of our own marketing and POS materials in house. We really take a lot of pride in the fact we can do that. I mean, we are a small company but we compete against companies with hundreds of employees doing all of these things.
Have you had any discussions with truck makers about getting OE positions?
We are already delivering Gladiator medium truck tires for OE. We’re delivering through to Trail King and we have a couple of other OE customers we are delivering to through our distributors. We don’t have enough units yet to really get aggressive with OE. We have focused on the replacement market primarily. We have significant replacement sales, and we’re doubling our medium truck capacity in 2008. I would venture to say that next year Gladiator will be the largest selling brand in North America including Mexico.
Someday we may go into direct OE, but we’re committed to our dealers and the manufacturers we work with. We don’t need to go to OE.
Near-term, are you planning any expansions or new brands?
We’ll be announcing a joint venture on a Gladiator brand radial earthmover factory within the next few months. It will be a huge facility in China. So we will be forming an API OTR division specifically to handle giant radial earthmover tires. We’ve been working on this program for about three years, and last year we hired Jack Fenner who ran Continental’s OTR division in the U.S. We will be adding engineers and sales people and field engineers to go to the mines and work with them. The factory will be making tires next year, and capacity will be about 10,000 giant 51- to 63-inch radials per year.
We’re going to do this the same way we handle the Gladiator brand. The tires are not going to be dirt-cheap. That’s not our intent. Our intention is to fill a market void but we’re not going to get the same money as Michelin does. We don’t expect to. But if a Michelin earthmover tire gives a service level of 100, we would expect to give a service level of 90-95 and it will be priced accordingly. It’s not our intention to just jump into a niche and make a bunch of money and turn our backs to the quality aspect of our products. That’s not how we do business. This is a long-term project and we want to build that brand.
You’ve not really talked about this in the past, but how difficult was the transition with the split from CMA?
We needed to do that. It was hard because we built the company, we built the brands, and we designed all of the products. It was a labor of love. There were some differences in the partnership arrangement that didn’t make sense. When you have partners that are manufacturers you can run into differences of opinions on how things should be done. Currently with API there are no partners. We control our own destiny.
I wish them well. We created that brand (Double Coin) and in its day that was a great brand. There is a lot of room in the market for everybody. What we do is significantly different. We have a vision and a future. I know for a fact that they don’t like us, and I can’t help that. It’s not a popularity contest. One of the things that we do that irks our competition is that we are pretty successful. We do what we say we’re going to do and we’re pretty hard to compete against. I wouldn’t want to compete against me.
We believe in selling. We believe in marketing. It’s not about price. And I keep telling not only our salesmen that but also our dealers. There’s 27 Chinese radial truck tire plants out there and you’re getting offered all of this crap from everybody, but you better look at the technology and how it performs and the warranty and the service and the liability insurance and how it comes in and how it looks. Can you go to a Web site and place your order and track your order and know where the container is? Can you get a factory rep out if there is a problem, does somebody stand behind that product, do you have a written warranty, do you have good-looking point of sale material?
Talk a little bit, as you are able to, about the Commerce Department action and how it is affecting you?
I think they are targeting us for sure. We’re listed in the complaint as one of the importers. I don’t believe in protectionism. I believe in letting the chips fall where they fall. I feel bad that Titan cannot identify what its advantages are and how it can sell in the marketplace. I feel sorry for them. I would never take action against a competitor because I wasn’t able to compete with them.
From our perspective, we don’t see where Titan has been injured. Its stock is trading at an all-time high. The company is profitable. We just don’t understand why China is being singled out. Did they forget about India or Sri Lanka or Turkey? The product is going to come in from somewhere else. And then what are you going to do? We’re in a bad economy and you’re going to hammer the commercial dealers? You’re not going to let them have products to sell in a tight market? You’re going to make the economy worse? You’re going to make the housing market worse? The construction market worse? I don’t get it.
I really feel bad because it’s really not right. You don’t see the Chinese bashing the Americans in the marketplace. I really like Morry (Taylor, chairman and president of Titan). We used to be friends. Is it a political move? I don’t know. I can tell you it’s caused the Chinese a lot of heartache. And it’s caused us a lot of hardship in the sense of weeks and weeks of paperwork we’ve had to do for the Commerce Department. A lot of it’s voluntary, but we feel obligated to provide the information. What’s funny is that we had to list our top 10 accounts for Chinese tires during a particular period of time, and Titan was on that list. We sold to them during that time frame.
How has China’s change in VAT rebates affected you?
We call it the Big Bounce. That’s how I refer to it. Not all of the Chinese manufacturers are doing great because of raw material costs and other costs that are increasing. Business may be good but profits aren’t where they wanted them. So when they saw an opportunity to take increases, they did. If they took it up 7%, everyone took theirs up 5%. Blip! Everybody took it in stride. We didn’t have a single customer complaint, there was zero effect. It was good in the sense that we were able to increase our selling price.
I think you’re going to see some more change because of the currency devaluation. Raw materials are continuing to increase oil is at $100 a barrel and carbon black is at record highs. Natural rubber and steel are up. You’re going to see some increases coming.
Talk a little about how you structure your tire brands.
We try to build each of our programs to stand alone. Gladiator stands on its own. Achilles stands on its own. Armor and Farm King stand on their own and so forth. They are all stand-alone programs. The new OTR program will stand on its own. Now it just so happens that a lot of our Gladiator dealers are Armor dealers too. Because they’re commercial dealers. But it’s not necessary that they are the same dealer, there could be separate dealers.
The other thing that we do that I think is unique is that we don’t try to build the same type of products as everyone else. We try to build our products unique in their tread designs, appearance, and performance so that we have something unique to sell. And if we have something to sell, then our customers have something to sell. It’s simple.
Right now China is everyone’s focus and you mentioned that India has the capabilities perhaps to join them? Do you see any other frontiers out there in terms of tire manufacturing?
There are pockets. I think that the mentality of big importers like us is that we are going to separate ourselves. We’ll become more and more brick and mortar and the volumes will be significantly greater. There will always be guys entering the game because as long as there is someone with a laptop who builds a relationship with a guy who owns a factory he’s going to squeak out some tires. I think dealers and consumers are going to get smarter and they aren’t going to buy those tires. They aren’t going to take the risk. Are you going to risk your company and your reputation on a container of tires that you saved 10% on? Are you kidding me? Because if you are then you really need to rethink your business. I certainly am not willing to do that. It’s just not worth it.
What do you see as the short-term and mid-term future for the growth of other foreign brands in the U.S.?
I think the Indians have a good future. We’re doing business in India. I think it depends on whom you do business with. I don’t think any of the smaller foreign manufacturers truly understand the North American market and what it requires. I think they are scared of the legal system and they should be. And I think too many of the people they could hook up with are more concerned with price.
Price is important, don’t get me wrong, but without quality and service price is meaningless. These smaller manufacturers need to make sure they address the market and approach the market in a proper manner. There is room for them, no doubt, and they will figure it out. Look at the history of the industry. Bridgestone and Michelin, Toyo and Yokohama, Hankook and Kumho and so on. They were all nobodies once. Business changes and markets change. If you are flexible and stay ahead of change, you will succeed.