Dr. Ulrich Wellen, 43, was named president and CEO of Continental Tire North America (CTNA) just days before the company hosted its dealer meeting in Maui, Jan. 9-12. Wellen, who holds a doctorate degree in chemistry, has held a number of research and development positions with Continental AG, and was head of the tiremaker’s global OE business unit. In mid-2001, Dr. Wellen was named COO of CTNA. In his first U.S. tire industry interview as CTNA president, held at the dealer meeting, the affable Dr. Wellen discusses where CTNA is headed.
You said in this morning’s dealer meeting session that CTNA has been "a big loss-maker for the last three years." How did it get in this position?
"It’s rather difficult to say because I’ve only been here since the middle of last year. Some things went wrong externally and internally. Externally, I think, we cashed out the company a little by not bringing in new products, not positioning our brands in the right way, not doing enough for advertising and image and awareness. Internally, I think, we lost track of our manufacturing, perhaps because of personnel changes there. And, on top of that, the economy went down. You have to differentiate a little bit because you have two loss makers in the North American region. One is passenger/light truck business in the U.S. and the other one is Mexico. P/LT has been an issue for the last three years, but Mexico only for the last year. (CTNA is closing one of its two plants in Mexico.) From my point of view, for the U.S. P/LT side of our business, there is no reason not to make a profit here."
Continental has run a split operation – with P/LT reporting to CTNA and the commercial tire business reporting to Hanover – for quite awhile. When you have ultimate profit/loss responsibility, how well does this structure work from a management standpoint? And how does that impact efforts to create one harmonious company here?
"Yes, that really is a challenge. But that is a challenge for all global-acting companies. You have two things to consider. The first is getting synergies within the product groups on a worldwide basis. The second is that the U.S. is the most important region in tires and cars, the biggest market in the world. So you have to keep focus on the individual market, but you have to be able to act globally. In the end, the customers are leading us into this kind of organization. GM, Ford and other OEs are acting absolutely globally. But you also have to work with them on a regional basis. It’s not easy, but if you have the right understanding and the right rules it will work. I now have kind of a matrix job. On one hand I am responsible for the region and the overall profit and loss. On the other hand, internally this P&L is reported within the two divisions. It should not be a big issue. It will work, I am quite sure."
There has been a lot of speculation that with the reorganization of Continental AG, a plant in North America would be closed, besides the plant in Mexico that you are closing.
"No. The very simple answer is no. At least not as long as economic circumstances are normal."
Throughout this meeting, there has been a lot of talk about building up the Continental brand. Continental, as a brand in P/LT market, has about a 1% share in the U.S., a level it has held for most of the last decade. The General brand’s share is about 5%. You’ve stated your goal is to increase CTNA’s combined share to 6.5% near-term. What are you planning to do to build the Continental brand up?
"The first thing is that our OE business is shifting more to the Continental brand. The Ford Taurus is now Continental, and the Ranger will have Continentals. We’re transitioning them from Generals, and we will do that in some other OE cases, but not all. This represents a huge amount of tires. And over the last two years we have been able to take over some OE business from one of our competitors. So over the next two years, I think the changes are mainly coming out of OE. That’s the one part. The other part is, of course, the growing popularity of some of our Continental replacement tires, like the ContiTouringContact CH95. The CH95 is really working for us, and the volume growth has been remarkable. You see kind of a push-pull effect between OE and replacement. The third thing really is the development in our brands. We feel that for the first time we’re getting some return. I’m not satisfied with the speed of the growth. We should have done it earlier. In this morning’s meeting we discussed our planned growth. It’s remarkable that in three or four years, we plan to have the same amount of Continental tires in the field as we have General tires."
Despite a lot of speculation in the industry, you said this morning that CTNA had no intention of doing away with the General brand. But there hasn’t been a lot of effort put into the brand or the products.
"You’re right. We cashed it out a little bit. But we know that we need to have a multi-brand strategy, and we have two leading brands – Continental as a premium brand, and General positioned a little bit below that. We started last year to reposition Continental, and we’ll start this year to refresh the General brand. We are in the strategizing process on the General brand, and I’m expecting a plan by the middle of the year. This will give us a clear strategy of what to do, how to do it and when to do it. There is a clear initiative to really invest in the General brand. We have the money in the budget, we just have to figure out how to do it right with the available budget. I cannot accept that we just shift share from General to Continental. That doesn’t help the company. We have to grow profitably, and growing profitably doesn’t mean just changing brands. The General brand is a well-established American brand, and something we have equity in. We never considered at any point that the General brand would go away. It’s absolutely essential to have a multi-brand strategy in America. If you have only one brand you are not flexible enough to meet all the requirements of the market."
Let’s talk a little bit more about the OE aspect of CTNA. You mentioned earlier that OE is very important. But OE is not a money making proposition®€ƒ
"Well, that depends. We would not be in OE if on a permanent basis we would lose money. It’s not a disastrous loss-making business. No, we’re not satisfied with the margins in the OE business. On the other hand, based on what’s happened the last two years in OE and consumer perception, I think our customers are a reconsidering the position of tires. So their automatic asking of a reduction each year is going away a little bit."
Can you build enough equity in a brand from an OE standpoint to generate the kind of replacement numbers you’re going to need to make your marketshare and sales goals?
"That’s a wonderful question. Is there a push-pull effect out of OE? Our experience shows that, yes, there is a push-pull effect. It’s won’t happen in two years, but look at our position in Europe. We have a real strong position in OE in Europe and this heavily influences our share in the replacement market. Let’s look at it another way. If you are not in the OE business, you slowly but surely lose contact with the top technologies. OE is driving you to do the very best and deliver world-class products. And OE is driving vehicle technology, and that’s good for tire technology."
Is Continental AG, as a whole, still a "tire company"?
"As a whole, no. We were the first company that started with the systems approach three years ago. Now some of our competitors are following us. We are all in a change process, thinking and looking for synergies between tires, brakes and chassis. From this point of view, we are not a tire company anymore. On the other hand, tires represent a huge part of our business, and it is a core business for us. There is a huge focus on tires, and this will remain."
Do you think CTNA has been too General and not enough Conti?
"No, I don’t think so. I think we missed by not having a clear strategy and sticking to it. It has not been a question of General or Conti or Americans or Europeans. I think we changed too often based on short-term economic influences. There was no consistency. How do we combat this? We need to define a clear vision, where do we want to be long-term. We need to define a clear business mission for the next two years, and break it down to actions, projects and follow-up. And as we’re doing this, we won’t ignore short-term economic issues, but we will not be lead by them. I want to have a very clear, consistent business mission and strategy. If we do that we will have success."
When will you be satisfied?
"Never. I will never be satisfied. That’s one of my pet peeves. I will never be satisfied with the results we have. For me, tomorrow is yesterday, I am thinking far beyond that. I wasn’t satisfied when I took over the worldwide OE business, and nobody believed we could significantly improve our business. We did, and we will do the same thing here. If you ask me what are my targets are for this year they are black figures in all areas."