Industry Report - Tire Review Magazine

Industry Report

New Tie-Up Focuses on Run-Flat Technology

22% stake in Penske Auto Centers, but has no direct management control. Penske took over Kmart’s then-faltering auto and tire service business in 1995. Penske officials were reportedly taking a wait-and-see approach as Kmart sorts out its short- and long-term plans.

Kmart filed for bankruptcy Jan. 22 in U.S. Bankruptcy Court in Chicago. The action came about a week after Standard & Poor’s severely lowered Kmart’s credit rating, and three weeks after retail analysts expressed deep concern about the firm’s financial stability. Kmart has struggled against discount competitors Wal-Mart and Target, and was the only major discounter to lose sales in the recent holiday season.

Making matters worse for the Troy, Mich.-based retailer: a number of its suppliers delayed or stopped shipping to Kmart due to late payments. Fleming Companies, a major food distributor, halted shipments to Kmart locations for a few days after the bankruptcy filing, claiming the retailer was owed $78 million in back payments on goods.

Kmart said it plans to emerge from Chapter 11 in 2003, but many Wall Street analysts took a harsh view of the retailer’s situation, one even suggesting that no one would miss Kmart if it vanished. "If Kmart went away tomorrow, the only people who would care are existing Kmart shoppers who don’t have access to a Target or Wal-Mart,’" said Steven Roorda, an analyst with American Express, in a Jan. 22 Reuters story. "At this time, I don’t see any viable merchandising strategy where Kmart can thread the needle between Wal-Mart and Target."

Goodyear Debt Rating Lowered to ‘Junk’ Status, May Hurt Flexibility

Standard & Poor’s lowered its ratings on Goodyear Tire & Rubber Co. to sub-investment grade status – which some refer to as "junk status" ®“ because of the company’s recent poor operating performance and deteriorating long-term profit potential "given challenging industry fundamentals."

The agency reduced the tiremaker’s senior unsecured debt from BBB to Ba1, which is S&P’s highest sub-investment grade. At the same time, it also cut Goodyear’s short-term debt rating from A-3 to B. The outlook is stable, S&P said in its mid-January action.

Some analysts said S&P’s move will limit Goodyear’s flexibility and make it tougher to raise the capital needed for further restructuring. Others wondered if S&P’s action wasn’t precipitated more by the recent Enron Corp. blowup, where Moody’s Investor Service, a S&P competitor, failed for months to detect the energy company’s financial problems. Regardless, analysts say S&P’s ratings drop is a blow to Goodyear.

Robert Tieken, executive vice president and CFO, said Goodyear management is disappointed with the move but has plans in place to improve profitability and reduce debt. "Tough global economic conditions and a highly competitive marketplace provide challenges for Goodyear and the entire transportation industry," he said. "During 2001, we took decisive action, focusing on improving liquidity and cash flow generation, introducing new and innovative marketing programs, improving the flexibility of our manufacturing operations and strengthening our cost and investment control processes.

"Going forward, the company remains committed to achieving a conservative financial structure through increased revenues, a continued focus on lower costs and working capital management resulting in improved earnings and reduced debt levels," Tieken said.

S&P said that while actions taken by Goodyear to improve capital management and cut costs will lead to better credit protection measures over time, the improvement is now expected to fall short of previously expected levels.


Frangenberg Steps Down, Wellen Takes Over as CTNA President

In a surprising move, Bernd Frangenberg, president and CEO of Continental Tire North America (CTNA), who has led the tiremaker through troubled waters for nearly eight years, will retire at the end of March.

Frangenberg, 61, who is also a member of Continental AG’s executive board, made the announcement at the start of CTNA’s recent dealer meeting in Hawaii.

Frangenberg’s retirement brought a major reorganization of the struggling tiremaker. Dr. Ulrich Wellen, who has served as CTNA’s COO since last March and who many felt would eventually succeed Frangenberg, was named president and CEO of CTNA.

Mike Barker was moved from the commercial tire group to vice president of sales and marketing for the PLT Replacement Group. Reporting directly to Barker are Jim Mayfield, director of marketing, and Jeff Jankowski, director of sales, as well as product development efforts.

Manufacturing and logistics operations, shared with the Commercial Group, will have a dotted line relationship with the PLT Replacement Group.

Tom Roydhouse remains senior vice president of the Commercial Group, with Jack Fenner, director of dealer sales, Clif Armstrong, national marketing manager, Bob Harner, director of OE and international sales, Andre Heijnen, director of product development, and Paul Hawkins, director/controller of logistics and Mexico sales, reporting to him.

In addition to the personnel appointments, Continental AG reorganized its global tire business units. The global passenger/light truck tire unit will be headed by Continental Chairman Manfred Wennemer, while the commercial business unit is now led by Dr. Hans-Joachim Nikolin. Barker will report to Wellen, who will report to Wennemer. Roydhouse will report directly to Nikolin, while Wellen will have management and profit/loss responsibility for all of CTNA.

DOT Says NHTSA’s Defect Reporting System Seriously Flawed

An audit by the U.S. Transportation Department released Jan. 9 found that the government’s system for identifying vehicle defects relies too heavily on industry reporting. And, NHTSA agreed with the findings of the 56-page report.

The audit was performed at the request of Sen. John McCain following Congressional hearings on the Firestone recall in September 2000.

NHTSA opened its preliminary investigation of Firestone tires on May 2, 2000, after the tiremaker had already been named in more than 60 lawsuits alleging defective tires. By the time Bridgestone/Firestone undertook its first recall in August 2000, NHTSA was investigating 21 tire-related deaths – a number that more than doubled less than a week after the recall was announced.

"The Firestone tire incident illustrates the need for NHTSA’s Office of Defects Investigation (ODI) to be more proactive and innovative in information gathering techniques," the report stated.

Critics said NHTSA should have detected the tread separation problem long before BFS recalled 6.5 million ATX, ATX II and Wilderness tires in August 2000.

The audit said federal investigators should use more accident information from insurance databases and plaintiff attorneys to monitor potential safety defects. The audit also pointed out the need for improvements in the reporting system, but said ODI had failed to use the available data to spot the trend of tire failures.

There was no word from NHTSA on how it intends to respond to the audit report.

MVP Program Termed a Success, So Michelin Calls It Off

Feeling that it had met its goal of protecting the pricing – and profit level ®“ of its BFGoodrich All-Terrain T/A and All-Terrain T/A KO lines ®“ Michelin North America ended its controversial Maximum Value Policy (MVP) program Feb. 1.

The three-year-old program forced dealers to charge a minimum retail price for the tires, but did not establish actual pricing. The lines were sold exclusively to direct dealers, and the program gave Michelin the right to audit a dealer’s books to assure compliance.

Dealers who violated the program – either in advertising or actual sales ®“ lost the ability to carry the tires, two of the company’s most popular light truck/SUV lines.

"The value of the product was not being reflected in the pricing in the market," said a Michelin spokesperson about the intent of the MVP program. Michelin feels the effort was successful because "dealers have seen consumers place more value in the products, and were getting that pricing in the market."

Michelin said most of its dealers cooperated with the program, but not all. "There were some dealers who violated the policy and had the lines removed," said the spokesperson, who would not elaborate on how many dealers undercut the MVP pricing levels.

While it has no plans to reinstitute the MVP program on any of its branded lines, Michelin said, "it’s a tool that we can use if we need to."

Posting Growth in a Negative Year, Kumho Sets Sights on Big 2002

After posting 2001 sales of over $217.5 million, Kumho Tire USA is looking to boost dollar sales by 32% this year, according to company officials, including increasing passenger tire unit sales by 30%, light truck/SUV tire sales by 13%, and medium truck tire sales by 40%.

Toward that ambitious end, Kumho is increasing its emphasis on grassroots racing programs, continuing its association with the BASS professional fishing series, launching new dealer and promotion programs, and building on its consumer advertising efforts.

In addition, Kumho plans to launch a number of new products in 2002, including two high performance lines, one new light truck/SUV tire, and two new medium truck offerings.

On the slate for this year are:

®′ Ecsta V700, a V- and Z-rated DOT-approved competition tire, featuring a silica compound directional tread, twin steel belts and two nylon cap plies.

®′ Ecsta MX, a street-oriented performance tire based on the V700, featuring an aggressive directional tread, a racing-developed tread compound, and rim flange protectors. The V- and Z-rated line will be available in 26 sizes.

®′ Ecsta STX, a SUV-oriented performance tire available in 14 V-rated sizes for 15- to 18-inch wheels, with six more 20- to 23-inch sizes due this month.

®′ KRS 02, a 20/32nds-inch steer axle radial designed for regional service, and the KRD 01, a 28/32nds-inch drive axle radial, also for regional applications.

China Quickly Becoming the Tire Making Capital of the World

China has become a very, very busy place for the global tire industry. Numerous major tiremakers have or plan to have joint venture plants in the country. Others are looking to cross the welcome mat the capitalism-minded Chinese government has put at the doorstep.

The government has made doing business in Communist China relatively easy. In fact, the government has specific programs to encourage foreign investment by auto parts and tire makers, including financial and other assistance toward establishing joint venture companies, and easily available and extremely inexpensive labor.

All China wants in return is help in improving its technological competence, and an ample supply of quality radial tires to meet its fast-growing passenger replacement market.

Analysts predict total demand in China will reach 108 million tires by 2010, and radial tire demand would more than triple within five years. Currently, foreign-funded companies account for one-third of the total tire output in China and two-thirds of the production of radial tires.

Those already participating in China have aggressive plans to increase production, for both export to higher price/higher margin countries and for sale in China.

Recently, joint venture company Nanjing Kumho Tire announced plans to build a second plant in Nanjing, an $85 million facility with an annual capacity of five million tires. Kumho reportedly holds a 20% share of the Chinese passenger replacement market, and plans to reach 25% with this new plant.

Hankook is taking advantage of lower labor costs by shifting low value-added bias tire production to China and focusing its efforts in South Korea on high-performance radial tires. Hankook aims to raise its market share in China to 30% and expand production capacity to 10 million units by 2010, so it could emerge as the country’s biggest tiremaker.

Groupe Michelin said it expects to triple its business in China over the next 10 years. The company’s strategy from the start has been to manufacture the same quality tires in China as it does elsewhere. Michelin manufactured more than 4.2 million radial tires for passenger cars and trucks in China last year, up from 1 million in 2000.

The company has invested $320 million in its manufacturing bases in Shenyang and Shanghai, and established a tire research and development center in Shanghai.

Sumitomo Rubber Industries recently announced it would build a $70 million radial tire plant in Changhu, a two-million-unit per-year plant due to open in 2003.

TANA issues human resources manual

Working with SESCO Management Consultants, its retained management consultants, TANA has issued what it calls "a comprehensive human resources manual" for tire dealers. The manual, developed specifically for small- and medium-sized businesses, addresses "virtually every aspect of human relations management," according to TANA, and includes information on a variety of federal laws and tips on managing staff.

The manual is available to members ($50 a copy) and non-members ($75 per copy) alike. "Successful tire business owners and managers need current, consistent and clearly stated human resource policies and procedures," said Steve Disney, TANA president. "This cooperative effort will help our members avoid costly and time-consuming personnel problems such as high turnover and potential litigation."

$100 Million In Debt, Winston Files Chapter 11

Struggling Winston Tire Co., sold off by Heafner Group in mid-2001, voluntarily filed Chapter 11 bankruptcy Jan. 15. Though burdened by some $100 million in debt – reportedly twice its asset value ®“ Winston officials said the company expected to emerge from bankruptcy by autumn.

The Torrance, Calif.-based tire retailer has been a fixture in the southern California tire market for four decades. As part of its own restructuring, Heafner sold the retail operations to Performance Management Inc., headquartered in Lafayette, La., last May for a reported $11 million. PMI, which bills itself as a "turnaround artist," also owns 12 Allied Discount Tire stores in Louisiana. In the sale deal, Heafner retained ownership of the Winston tire brand, which it supplies to the retail chain.

Shortly after the filing, Winston officials said they would likely close as many as 20 stores, paring the operation down to 114 locations.

Big O Opens Its 500th location

With city dignitaries and company representatives in attendance, Big O Tires cut the ribbon opening its 500th store on Dec. 18 in Salt Lake City.

The Salt Lake City opening brought to close a tremendous year of growth for Big O. After meeting its goal of opening 40 stores within the first six months of 2001, the TBC Corp. subsidiary estimates it opened almost 100 locations last year.

"We would not be here today without the support and dedication of the owners of our other 499 Big O franchises," said John Adams, Big O president. Adams said Big O’s mission is to be the top tire retailer in North America.

Kenneth Jensen is the owner of the 7,000-square-foot franchised facility. The store carries Big O brand tires, as well as BFGoodrich, Dunlop, Fulda, Legacy, Michelin, Nankang, Pirelli and Pricemark products. QDS handles the point-of-sale system in the facility, as it does in over 200 Big O facilities. The location plans to have a 70/30 tires-to-service ratio, with oil changes, balancing and alignment as the primary services offered

This year, Big O celebrates its 40th anniversary. The company has franchised or company-owned stores in 18 states and two Canadian provinces, and is still looking for expansion opportunities. Noting the anniversary came on the heels of the 500th store opening, Adams remarked that he hopes it won’t take another 40 years to open another 500 stores.

Car Care council Adds web-based education

The Car Care Council launched a new Internet-based educational program aimed at improving the communications and customer relations skills of service advisors. The Service Advisor’s Notebook (SAN), now available at, includes monthly educational and motivational articles, tips and techniques, and ideas about building customer loyalty, handling complaints, store and personnel appearance, dealing with "price shoppers", and on educating consumers on vehicle service and maintenance.

SAN costs approximately $10 per month, according to the Council, but it eliminates costly travel and seminar expenses, is available at any time, and is delivered in a convenient format.

For more information or to register, visit the Web site, send an e-mail to [email protected] or call 800-466-5343.

World’s biggest tire

Bridgestone Corp. is touting its new 59/80R63 VES radial – 13’ 2.5" tall, 4′ 10" wide, and weighing 5.1 tons ®“ as the world’s largest tire. Designed for 380-400-ton haul trucks, the tire has a load rating of 101 tons.

Of Note ®ƒ

Automotive Warehouse Distributors Association has moved its annual conference to coincide with Automotive Aftermarket Industry Week, which includes the ITE/SEMA Show, Nov. 5-8 in Las Vegas. ®ƒ Bridgestone/Firestone is closing its Lachine, Quebec, warehouse as of Mar. 31, but plans to invest some $23 million to increase production at its Joliette, Quebec, passenger tire plant. ®ƒ ASA Tire Systems and Mighty Auto Parts have partnered to provide ASA customers with Mighty’s inventory price files, and to implement a means to help Mighty distributors automatically replenish ASA customer inventories. ®ƒ Reports say Goodyear will invest $250 million over the next five years to expand its Lawton, Okla., passenger tire plant, including installation of its IMPACT manufacturing system and hot-former calendar technology. The plant revamp would create about 100 new jobs at the non-union plant. ®ƒ Continuing its restructuring, Continental AG sold off its National Tire Service and Viking International tire distribution businesses in the United Kingdom to the Axle Group for a reported $36 million. ®ƒ Ford will end its recall of 13.5 million Firestone Wilderness tires as of Mar. 31. ®ƒ Most members of the Alliance of Automobile Manufacturers have agreed to provide diagnostic and repair tools and information to independent vehicle repair facilities by January 2003. ®ƒ Continental Tire North America is boosting light truck/SUV tire production by 2,000 tires/day at its Mayfield, Ky., plant, adding some 65 workers. ®ƒ Based on expected automaker demand, Bridgestone Corp. plans to boost production of its run-flat tires from the current 20,000 units/year to over 1.5 million units by 2005. ®ƒ Wholesaler and mail order dealer The Tire Rack moved into new headquarters and distribution center facilities in South Bend, Ind., in early January. The new facility includes a tire test track with wet and dry testing capabilities. ®ƒ Michelin and Yokohama topped the first Canadian J.D. Power & Associates replacement tire customer satisfaction study. ®ƒ Michelin Americas Truck Tires is raising prices on Michelin and BFGoodrich brand replacement market truck tires by up to 3%, effective Mar. 1. ®ƒ Somerset Tire Service continues its rapid growth, buying 18 retail stores in New York from Wholesale Tire Co., and six retail stores and one wholesale location from Rampo Discount Tire Centers in New Jersey, giving STS over 100 retail stores, eight wholesale centers and $100 million in annual sales. ®ƒ Target Tire and Automotive Inc., celebrating its 50th anniversary this year, is opening a new warehouse in Columbia, S.C., and plans to open another near Savannah, Ga. ®ƒ Pirelli’s Modular Integrated Robotized System (MIRS) won the 2001 Frost & Sullivan Marketing Engineering Technology Award. ®ƒ AAIA – Appointed Kathleen Schmatz to new position of executive vice president. ®ƒ Cooper ®“ D. Richard Stephens was named president of Cooper Tire, replacing John Fahl, who retired last year. ®ƒ Del-Nat ®“ Dan Hunter was named president ®ƒ Appointed Robert Humlicek to vice president of operations. ®ƒ Falken Tire ®“ Darren Thomas named new business development manager. ®ƒ Goodyear ®“ Named Mike Abney director of field sales for consumer tires, Charlie Gallagher and Enoch Turner to general business managers, Eric Brown to general manager of wholesale distribution, Nelson Waynesboro to general manager for consumer market development, Rich Slutter to manager of sales and operations, Tom Gravalos to director of corporate accounts, Rich Gibbons to general manager of wholesale distribution for custom brands, Steve True to general manager of consumer national accounts/export sales, Derek Jenner to director of Dunlop brand sales, and Brandon Stotsenberg to general marketing manager for niche sales. ®ƒ Heafner Tire Group ®“ Artie Shields, vice president of Heafner Worldwide, and Nelson Beam, director of tire sales, retired ®ƒ Lee Fishkin named to vice president of Heafner Worldwide. ®ƒ Hercules Tire & Rubber Co. ®“ Don Helker was named southeast region sales manager. ®ƒ Kumho Tire USA ®“ Appointed Rick Brennan to ultra-high performance brand manager ®ƒ Named Jerry Bumbaugh, Rodney Hughes and Dave Salvione as regional sales managers. ®ƒ Michelin’s new Tire Advisor Web service, which provides impartial recommendations and advice to consumers, and helps locate nearby dealers, has launched on AOL and on AOL interactive brands Netscape, CompuServe and ®ƒ Kumho Industrial Co. will supply some 200,000 tires for OE fitment on the new VW Polo, it’s first OE contract in Europe, and will supply 250,000 tires for 2002 VW Beetle produced in Mexico. ®ƒ Ken-Tool acquired the assets of Dowley Manufacturing Co./Oldforge Tools, a well-known manufacturer of specialty mechanic’s tools with plants in Spring Arbor, Mich., and New Wilmington, Pa. ®ƒ RMA publications can now be ordered online at ®ƒ Looney’s Tire Service in Little Rock, Ark., has signed on as a Marangoni Ringtread retreader, Marangoni’s 10th licensee in North America. ®ƒ Erie, Pa., residents voted Dunn Tire as the top tire store in the city for 2001 in an Erie Times-News reader’s poll. ®ƒ The annual Clemson University-sponsored Tire Industry Conference will be held Mar. 20-22 at the Crowne Plaza Resort at Hilton Head, N.C. Call 864-656-2200 for registration details. ®ƒ Goodyear has revised and renewed its national parts supply contract with Parts Plus and has added NAPA as a secondary parts source to support its 700 company-owned stores. ®ƒ Yokohama Rubber Co. has earned QS9000 at all of its tire plants in Japan.

Did You Know


Percent share of all passenger tire sales in Canada held by independent tire dealers, according to AIA-Canada.


Share of passenger tire sales held by Canadian Tire alone, according to AIA-Canada.


Share of U.S. passenger tire sales held by American independent dealers, according to RMA.


Percent of 2000 aftermarket product sales represented by service shops, according to Lang Marketing Resources.


Percent of tire industry businesses that are members of an industry trade association, according to Nick Hodel, past president of TANA.


Number of journalists from around the world attending the ITE/SEMA Show last November.


Estimated attendance at the combined ITE/SEMA and AAPEX shows in November, according to SEMA.


Millions of registered motor vehicles operating in the U.S. in 2001, 89% of all North American vehicles registered.

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