Russian – Made Tyres For Conti?
Continental Continues To Go East – Cheaper labour costs in the Czech Republic, Slovakia, Romania, India, South Africa and Mexico [4/2000] Continental has been holding talks with Moskauer Reifenwerke for the past three years. During that period, the market has seen many highs and lows, although at the moment there are signs of improvement and growth. Last year Continental sold around 100,000 tyres in Russia and this situation can only be improved if the group has a factory in the country, due to the high level of taxation on imports.
There is nothing new about the current rumours, but Continental is unable to give more information as there are no concrete results of negotiations at the moment. The company would not confirm or deny the published figure of 30 million Euros, but pointed out that investments in an unstable Russia are very risky. It is well-known that Moskauer Reifenwerke is in discussions with other tyre companies, for example Michelin.
If an agreement is to be struck, then Continental would be the favourite due to an ongoing good relationship with the Russian management and the Barum management in Otrokovice. It appears that Continental is no longer focusing on Germany but is interested in shifting more and more production to countries where the cost of labour is lower. Below is a short overview of the current situation within the group.
Lousado/Portugal The Lousado factory is now producing more than ten million passenger car tyres a year, consisting of all group brands plus private and house brands. These tyres are made exclusively for the replacement market. Barum/Otrokovice Virtually all the production capacity from the closed Newbridge factory and that which was cut from Traiskirchen has been shifted to Otrokovice.
Currently, the factory is producing over ten million passenger car tyres and half a million commercial vehicle tyres. A comprehensive expansion programme is under way and next year the factory’s capacity for passenger car tyres will be close to 16 or 17 million units. Continental is also building a new production facility in Otrokovice for high-tech agricultural radials, hoping to compete successfully with Michelin’s Taurus tyres.
MMP Factory In Romania This factory is scheduled to come on stream in September this year and planned capacity is nine or ten million passenger car tyres within the next three years. Modules and mixing components were originally to be delivered through Traiskirchen, but it appears that the Korbach factory is determined to become the supplier of these items. This could spell trouble for Traiskirchen; if the group is unable to win more market share it might be forced to close another factory in Western Europe.
Car manufacturers do not accept MMP tyres for original equipment. Continental points out that these tyres could met OE requirements but admits that, at present, it has no OE MMP business. Joint Venture With Matador/Slovakia The 75/25 joint venture is on time in all respects and working without problems, says the company.
This could be another source of danger for Traiskirchen in the not-too-distant future. South Africa Freight is not a major consideration, and because of this, Continental is sending a lot of tyres from South Africa to Western Europe. This makes for good business, as the South African government is heavily subsidising exports.
While exports are vital for a country such as South Africa, and the only way that the country can improve living conditions, at the same time subsidised exports result in people losing their jobs. India Continental is in talks with JK Industries, Apollo Tyres and Modi Tyres, but nothing is concrete and such talks might eventually result in no firm results. It seems that Continental is not under any time pressure.
In the past, some Indian factories avoided bankruptcy only because of the low costs of raw materials, but this situation has changed and we will have to wait for developments. Indonesia It could not be verified whether or not Continental is having talks with Indonesian factories. It is common knowledge that many of these factories are undergoing a hard time and are burdened by huge debts.
Mexico Last but not least, it has to be pointed out that, in December 1998, Continental acquired (amongst other things) two tyre factories in Mexico from Grupo Carso (Euzkadi). This portion of the business is managed by Continental General Tire, in Charlotte, USA..
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