Highly Focused: Double Coin Making Progress in Goal to Reach Second Tier

“We are trying to shorten the gap between us and our competition globally. Having a good brand means having good quality, good service and reasonable price. We are working on all aspects to improve ourselves. We are not the best right now but we are doing our best to improve.”
– Fan Xian, Chairman, Double Coin Holdings

The slogan for the company’s plant on the outskirts of Shanghai is at once simple and highly complex:

“Make Progress Every Day.”

While exhorting the factory workers to give their best effort, those four words have become a cultural mantra for a company looking to break out.

Double Coin Holdings Ltd. – once known as Shanghai Tyre & Rubber Co. – knows its place in the world tire market, knows where it wants to be, and knows it has a lot of work to do to reach that goal. And it has more than 5,000 people all pulling in one direction – up.

To dismiss Double Coin as just another Chinese tire company (definition: cheap, low tech products) would be a mistake. Bridgestone, Toyo, Michelin, Hankook and Kumho – all started with outpost sales offices on these shores, supported by eager engineering and production teams in their home country – were major players in North America within a handful of years.

Double Coin appears to be well on its way. CMA, its U.S. arm, has grown from sales of $40 million in 2004 to revenues of some $200 million in 2007, and is spending a lot of energy on building a brand, relationships and a reputation on these shores all while improving product quality, and continuing to learn and improve every step of the way.

“We don’t want to be thought of as a Chinese tiremaker,” said Mike Yang, president of CMA LLC. “We want to be thought of as a tire manufacturer that happens to make tires in China.”

To get a better sense of Yang’s statement, Tire Review visited CMA and Double Coin facilities in California and China, met with management and staff, and toured its two primary tire plants, both producing radial medium truck and OTR tires.

Based at CMA’s headquarters in Monrovia, Calif., Yang is clearly the bridge between Double Coin and North America, and between where Double Coin is and where it wants to be. And where it wants to be is a solid Tier 2 global tire company.

Aiming for Tier 2 may seem like a low target, especially for a tiremaker riding the rapid industrialization of a massive country. But Double Coin’s sense of self prevents it from being overly ambitious. And converting a production-first company into a market-first global player cannot be accomplished overnight.

Not that many years ago, Double Coin had maybe 35 SKUs and pumped out millions of tires with no regard for where they were to be sold. Today, Double Coin produces nearly 500 SKUs, a selection tempered to meet the specific needs of the 88 countries to which it exports, Yang said. That transformation did not come without a lot of work.

Long History
Double Coin Holdings can trace its origins back to the 1920s when its forbearers first produced rubber shoes. It wasn’t until 1934 that the Great China Tyre Co., as it was known then, produced its first car tire, and it would be another 50 years before it made its first radial car tire.

At the urging of the government, the assets of Great China Tyre and another producer were combined in 1990, creating Shanghai Tyre & Rubber Co. The following year, the company built its first radial truck and OTR tire plant near Shanghai. In 1992, the company built a radial passenger tire plant, producing its Warrior brand tires for domestic and export, right next door.

And produce it did. Countless millions of tires with no market in mind. To rein things in, the Chinese government, which remains majority owner of the company, brought in Fan Xian as chairman in 2000. Fan, armed with an education in engineering, marketing and economics, applied some deft Western-style management to bring order to a bloated, inefficient company.

In 2002, Groupe Michelin and Shanghai Tyre agreed to a joint venture, with Michelin assuming a 70% share and 100% control in the passenger tire plant, renaming it Michelin Shanghai Warrior Tyre Co. Refocused entirely on truck and OTR tires, Shanghai Tyre then went public, with a minority stake traded on the Shanghai exchange.

At the same time, Fan slashed Shanghai Tyre’s employment, taking it from a company with almost 18,000 employees down to around 3,700 employees. Today, thanks to business growth and with its Rugao plant on-stream, employment is back up to around 6,000.

Upgrades were made to its first radial truck tire plant, and in 2005 Shanghai Tyre opened a modern sister plant in Rugao, about a two-hour car ride from Shanghai.

Trading on its well-known brand, Shanghai Tyre changed its name to Double Coin Holdings in 2007. Today the company produces Double Coin and Warrior branded truck, OTR and industrial tires. And while it still owns the rights to the Warrior name for passenger tires, the joint venture plant has discontinued making Warrior or Wynstar tires, Double Coin said.

Passenger tires are back on the horizon, though. Opening next year is an all-new passenger and truck tire plant in Chungqing, a burgeoning city of nearly 17 million that has become an auto production center. The Warrior brand will figure prominently in that plant’s future.

North American Growth
When those passenger tires come, it’s a good bet that CMA will be looking to broaden its North American horizons. For now, CMA is as singularly focused on the truck and OTR markets as its parent company.

Over the past three years, CMA has embarked on a steady brand image and awareness effort, coupled with developing products and support programs to enhance its market position. The payoff has been solid. In January 2007 CMA signed an OE supply deal with Navistar, putting Double Coin tires on International and IC platforms. Last October it opened its first U.S. warehouse, a 150,000-square-foot facility in Memphis. Just last month, CMA announced that Double Coin radials will be available through Love’s truckstop locations.

“Comparatively speaking, our tires are pricy. We’re not the cheapest in the market. We are the highest-priced radial truck tire coming from China,” said CMA vice president Aaron Murphy. “But we also have the best quality, the most number of SKUs, the biggest product range, the OE contracts, a great warranty program, marketing programs and all the support services our customers love.”

And customers are showing the love. Double Coin radial truck tires held a 1.10% share of the U.S. medium truck tire market in 2006, according to Tire Review estimates, a figure posted before high fuel prices and a tightened economy put the squeeze on truck fleets, pushing them to look for less expensive alternatives.

Last year, Double Coin registered in the medium truck tire category of Tire Review’s Tire Brands Study (September 2007) for the first time – a sign that its distribution and sales are reaching broad status. Despite finishing toward the bottom with an overall score of 7.3 against an average score of 7.7, Double Coin and CMA officials see that as a positive – and a clear set of goals to attain.

Two things CMA and Double Coin don’t expend energy discussing are their relationship with joint venture partner Michelin and CMA’s 2003 internal divorce, both of which, ironically, have worked to the company’s favor.

Because it has no say-so in the operation of the plant, Double Coin has no comment to make regarding Michelin Shanghai Warrior Tyre Co., other than to remind that it still owns the Warrior brand name.

CMA, at the same time, benefited greatly from its split with what is now American Pacific Industries. API remains active and successful with the multi-branded programs it manages through a series of tire plants in China, India and other parts of the world. CMA, on the other hand, was able to devote 100% focus to building the Double Coin name and product line.

Thanks to its growth in North America, Double Coin Holdings is now China’s second largest tiremaker and says it is the 19th largest in the world, with 2007 revenues of nearly $1 billion.

In 2006, Double Coin produced some 3.5 million radial medium truck tires, 50,000 radial OTR tires (up to 25 inches), and 1.6 million bias truck and bus tires. For 2007, radial truck tire production hit 3.8 million, while radial OTR production doubled with the introduction of 35-inch sizes. Come 2009, the new Chongqing plant will add another 1.5 million units to its capacity.

As a company, Double Coin Holdings holds a 25% share of China’s replacement truck tire market, and fully 75% of its radial OE truck tire segment.

Steadying Force
Like many of his western colleagues, Fan is rather frenetic, constantly on the go, constantly needed, and constantly juggling many balls. Still, despite the demands and the position he holds, the affable executive talks and jokes easily with his staff.

It is Fan’s job to keep Double Coin on its path, and his words have echoed throughout the organization. And while he was chosen by the Chinese government – which holds a 60% share in Double Coin – to run the company, Fan is no patronage appointee. Already successful in other businesses, Fan brought his experience and expertise to turning around a key component of what the government states is a vital industry for the country’s economic future.

After all, economic growth will take modern transportation – and that means radial tires, lots of them.

“In 10 years time, our tire sales will be in the top 10 in the world,” said Fan, “and we will have the largest TBR capacity in the world – maybe 20 million tires per year – and be the number one exporter.” Though he does not speak of passenger tires specifically, one can sense that attacking that segment is on the dial.

Fan is also a Tire Review reader, and studies the data and statistics provided in our annual Sourcebook issue.

“In your Tire Brands Study, we were very excited to be on it,” he said. “We see the areas where we need to improve and we are working hard to improve on those.

That improvement also means expansion. “We are looking for investment funds to help us grow and expand. We need to have experienced people to join our family and help us grow in those export markets,” he said. “That will help us speed development of our company.”

The future may well rest outside of China, Fan suggested. “The labor cost in Shanghai is high. We are looking to move production to lower cost cities in China,” and may look for expansion opportunities in the Asia-Pacific region, eastern Europe or Africa, “where we can be close to raw materials sources.”

Double Coin is actively recruiting “experts in technology and management” to help it grow business in Europe, the U.S. and the Middle East, he noted, and the company has close relationships with top universities to help develop technology and management. Double Coin employees, in fact, enjoy expansive access to advanced training, part of Fan’s plan to grow from inside and out.

The company also operates the Tyre Research Institute, a separate company that is essentially Double Coin’s R&D center. Opened in 1993 on the grounds of Double Coin’s Shanghai plant, the Institute’s 200-person staff works on new products and product testing.

The Institute is also home to the only OTR test equipment and only radial truck tire noise testing system in China. Plus, it works with Double Coin suppliers to develop tire production equipment to meet specific technical needs.

Plants are Backbone
The large white rock outside the entrance to Double Coin’s Rugao plant features Chinese characters that make a simple statement: “Taking Flight.” As Double Coin’s crown jewel, the three-year-old facility is expected to lift the entire company to the next level.

Yue Chun Chen is president and senior engineer of Double Coin’s Rugao plant, and the plant’s designer and guiding hand. It is he and his 2,000 employees that supply most of CMA’s OTR tire needs and a growing portion of its radial truck tire requirements.

Located in Rugao Economic Development Zone, near the Yellow River, the plant has 566,950 square meters under roof, including offices and warehouse space, and there is enough available land there to build a like-sized factory.

Land in Rugao is some 20 to 30 times cheaper than in Shanghai, he said, and while company officials won’t fully commit, Double Coin is looking to push more of its truck tire production to Rugao and out of its older sister plant in the city.

Double Coin said it invested $250 million to $300 million in building and equipping the Rugao plant, including modifying locally produced and imported tire making equipment to meet its needs.

For instance, Double Coin modified an Italian-made calendar to double capacity from one to two million tires per year. Curing presses, too, were modified, cutting 10 to 15 minutes from cure times, effectively increasing the plant’s output.

For 2008, the Rugao plant was set to produce 2.4 million medium truck radials and 100,000 radial OTR tires.

The plant itself looks like any in the U.S. There is a certain level of automation – not as much as one might see here – but management’s choice of manpower vs. automation has not hurt product quality; the plant sports all of the recognized quality certifications, including ISO9001.

With only time off to celebrate the Chinese New Year, the plant runs constantly seven days a week. The workforce there is proud of their accomplishments, which are well-noted in the plant’s showroom area, and they carry the confidence of a company on the move.

While Rugao makes only radial tires, it also produces some tube-type lines to meet domestic market needs. China-made steel truck wheels are inconsistent and tend to leak air, said Yang, so Double Coin produces tube-type radials, and sells complete tire-tube-flap packages to customers.

Last year, Rugao added production of 35-inch radial OTR products, most of which ends up in the U.S. All OTR tires made there pass through a complete X-ray inspection.

One Step at a Time
Double Coin’s original truck tire plant in Shanghai stands in contrast to the newer facility in Rugao. But older does not mean less capable.

Though it opened in 1991, before the company’s emphasis on global presence, it has not been left in the dirt. Over time, Zhang Wan You, plant vice general manager, and his staff have made multi-million dollar upgrades to improve quality and expand capacity.

Today, Double Coin’s Shanghai plant is the largest truck tire plant in the country and China’s single largest exporter of tires. Not bad for a plant that produced just 300,0000 units in its first full year. Ten years later, the plant produced 1.06 million tires.

Today, it cranks out 2.9 million radial truck tires – the maximum the plant can possibly produce, Zhang said. With no land available for expansion, the only thing Double Coin can do is maintain production levels.

Because the Tyre Research Institute is located there, all of the company’s new products are made at the Shanghai plant first, Zhang said. Once perfected, production can then be shifted to the Rugao plant – and, later, the Chongqing plant.

Of the plant’s 1,860 employees, Zhang quite proudly points out that nearly 30% have a minimum of a tech school certificate or some level of college education.

“Our target from many years ago is to try to differentiate ourselves from all of the other brands, to be a premium brand,” Zhang said. “We are working from all aspects – manufacturing, technology, marketing, training – to move Double Coin the next level.

“But we have to be practical and assess ourselves,” he reminds. “Maybe someday we can be a first-tier brand. But we are most focused on the first step – to move to be among the best.”