Full Steam Ahead

(Tire Review – Akron, Ohio)

by Mary Aichlmayr

Robert H. Oudshoorn has been CEO of Vredestein Banden BV since 1994. Prior to that, he was director of commercial operations at a Michelin-Okamoto joint venture in Tokyo and also worked as representative director for Groupe Michelin in South Africa.

In April 2005, Russian tiremaker Amtel Holdings officially completed its $245 million cash purchase of Vredestein, and five months later, Oudshoorn became executive board member for the reborn entity, Amtel-Vredestein NV.

The landmark deal gave Amtel access to the European and North American markets, a premium brand for the Russian market and total global capacity of 22 million tires per year. For Vredestein, the relationship resulted in added production capacity to help meet burgeoning demand in Europe and North America.

As Oudshoorn points out in this exclusive interview with Tire Review, the future of the Vredestein brand depends on continuing to deliver a premium tire, tailored specifically to the niche it best serves. The best way to do this, Oudshoorn says, is through access to technology and deep market knowledge.

It has now been a full year since Vredestein was formally integrated into what is now Amtel-Vredestein. While most of the attention was paid to what the acquisition meant to Amtel, talk about what impact the deal has had on Vredestein. And, how has it impacted your management of Vredestein Banden?

“When Amtel acquired Vredestein, Amtel said, literally, ‘We are the students, and you are the teachers.’ And, that’s correct, because Amtel needed western technology to get a better mix of tires. Since then, I think there have been more than 50 people involved in transferring this technology. Obviously, it is not something you do in one year.

“Specifically, there are two plants that we are looking at right now. One is in Kirov, at which a lot of investment has taken place. The machines were there, but what (Amtel) needed was to upgrade the quality of the tires, plus introduce more sizes and types of tires. We wanted to produce Vredestein tires as soon as possible in that plant. And, we are already integrating the companies by producing Vredestein tires in Russia.

“The other plant is in Voronezh. There, we are planning on building a totally new plant, with an output of 2.5 million tires to begin with. It will be upgraded to 4 million tires. That will have all-new equipment, starting from the mixer to the vulcanizing presses and everything in between. We already have two people living there, and a lot of specialists are traveling from Holland to Russia. We will start producing tires there by the end of 2007.

“When it comes to management, I would say it – this whole integration – takes almost half of your time. We are traveling very often to Moscow. People from Russia are traveling to Holland. We are traveling more often to Russia because that’s where the action is – the transfer of technology.”

From a financial standpoint, how has Amtel-Vredestein performed?

“This is a building in process, a company under construction. Amtel used to be a conglomerate of plants, tires and raw materials. When we were acquired, we had a look at their plants, and basically, what we have to do is to close down one plant that was too old, and we have sold a carbon black factory.

“So, you can imagine, together with the big investments we are making in the new plants, that you cannot expect to be profitable in the first year.

“At the same time, we are investing heavily in retail. We are buying up all kinds of retail shops. It is very interesting because in Russia, there is basically no tire retail. There are certainly no big chains. After only one year, we are already the biggest chain in Russia.

“We do project profitability in 2007. We are already exporting quite a number of tires to Russia – the high-end, bigger tires that we are not manufacturing in Russia, and the market is great. In Moscow, it’s like a showroom of very expensive Western cars. Nobody manufactures those tires in Russia. Also, we are importing a number of winter tires from Russia into Europe. That will grow incredibly. It is this activity that will definitely bring us to profitability in 2007.”

How have sales of the Vredestein brand in Russia been? Have they met your expectations?

“First of all, it’s a big advantage to be from Western Europe when it comes to brands. The Russians are very sensitive to design. In Moscow, it’s design everywhere you look, and we are working with the best car designer in the world (Giugiaro Design). We advertised that, and especially in Moscow, that was a big hit. We have started off with a huge splash in Moscow. We have two of the biggest signboards in the world. One, at the entrance of Red Square, is now in the Guinness Book of World Records. So, every man and woman in Moscow has at least seen our brand. The opportunity is enormous. We are doing the same in St. Petersburg.

“With a heavyweight like Amtel in Russia, we are being helped in distribution, as well. I think it is going well. We are not cheap, and it was a bit of a worry that in Russia, people would not pay for the brand. But, we said this is the top of the market, and that is where the price is.”

How has production of Vredestein branded tires at Amtel plants progressed? What difficulties, if any, did you run into while adding Vredestein production?

“It’s difficult to transplant the production of tires if we want exactly the same kind of tire out of Holland, and that’s what we said up front. And, sometimes, that’s not feasible because you cannot get certain raw materials or construction methods are different on different machines. But, we have come very close.

“One of the problems that we met was, indeed, raw materials. But, we exported a lot from Holland to Russia, and we made no compromises. So, all the tires manufactured in Russia now are coming back to Europe – especially winter – under the condition that the tires were the same.

“So, it took us a bit longer, but just because of that reason. All of the raw materials for our plants and our research and development center are in Holland, We do not accept tires that are made with different raw materials. One of the things I have learned is that you have to have the same specs all over the world.”

Amtel-Vredestein has made a number of acquisitions – plants and retail stores, primarily – in the Russian market. What are A-V’s plans in Russia for 2007? What are the company’s plans in Europe?

“We have acquired a lot of companies in the last year, and now it’s time to look back and see if all of the companies are as good as we thought they were, especially in retail. We are going to make sure we have all of the right companies in retail and that we can make a chain of it. That is one thing we are going to do: make a chain.

“The other thing that we are going to do is make sure that the efficiency of the Kirov plant increases. The biggest thing we are going to do is build this new plant in 2007. We are very short of people. We have to make sure we use our time very efficiently. So, we are working on not only efficiency in the plants but also in management structure.

“In Europe, it is at least as exciting because we have tires designed by Giugiaro. We are going to high-inch sizes. We have been working on tire design with Giugiaro for 10 years. It is a very successful formula, especially when you are going to the high-end of the tire business.”

Long-term, what is A-V’s plan for retailing in Russia? The goal we’ve heard was 300 retail stores. Has that changed?

“The goal is still there. We are looking at 500 stores; that is the ideal size in Russia for retail. We do it step by step. We have now 104 and are still acquiring. But I cannot exclude that we are looking for a strategic partner. There is a lot of cash involved to expand this rapidly. We are looking for a financial partner in Russia and at a number of opportunities.

“This (retail expansion into Russia) is not only for Amtel-Vredestein products. We’ll sell maybe 10 brands. The big brands in Europe are interested in selling through our retail stores. But, it’s very difficult to sell in Russia if you don’t have the distribution.”

Sibur has become more active in the Russian market – perhaps awakening from a long sleep. What do you see happening with Sibur, and how is that influencing A-V’s progression in the market?

“Sibur is mainly strong in truck tires, not passenger tires. What I can say applies not only to Sibur but also to any Russian producer: You need western technology. It took us 10 years to become what we are now in Russia. If you have to do it alone, it is very difficult, and it might take 15 years. It will be very difficult for them.

“But, I know the emphasis for Sibur is in truck tires. We don’t see any competition from Sibur. We are going for the more expensive segments. That also goes for production of Amtel tires. The market is segmented in that A is Vredestein, B is Amtel and C is the rest of the Russian producers.”

Looking at the western European market, how has Amtel-Vredestein performed? Has the Amtel brand been launched in western Europe, and if not, what are the plans?

“We sold a number of tires, but we have a capacity problem. All the tires that are manufactured in Holland are sold immediately, especially this year. And, there is a new German rule that states that you have to fit winter tires in winter conditions. Insurance companies are threatening not to pay out for an accident if you don’t have winter tires in wintry conditions. This new rule has sparked an incredible amount of demand this year, not only in Germany but also in all the countries around it. So, the demand for winter tires is enormous, and we are producing all we can. We are happy to have those winter tires from the Vredestein brand coming out of Russia.

“In the future, if there is a demand for Amtel tires in Europe, we can certainly distribute them into Europe. But, it must make sense. First, there must be demand. And, second of all, there must be a profit. Quality wise, the tires are good, and we could definitely fit them in certain segments.

“But, I don’t see it for 2007; that is definitely later. In Russia, there is virtually no stock. So, whatever is produced is sold immediately. I think that Amtel is very well positioned for Russian production with western technology.”

In terms of eastern Europe – the CIS – what is A-V doing to build business there?

“Vredestein has been in those markets already. We have our sales office in Hungary, and in the Ukraine, we are looking for Amtel business. Ukraine is comparable to Russia. We are already selling Vredestein tires, but for Amtel, there is definitely a place there, especially now that the quality is upgraded the way it is. It will be an interesting proposition.”

Does Amtel-Vredestein have any plans to market Amtel branded tires in North America?

“Not yet. We have had a couple of demands for private brands, but we are not doing it because the prices are not ok. Producing in Russia is not necessarily very cheap. Yes, there are lower salaries, but there are many more workers in a plant. Something we are also looking at in the coming year is to make those plants in Russia leaner and meaner.”

Let’s talk a little about Vredestein’s plans in North America. Vredestein is often looked to as a winter tire company. How are you trying to change that perception?

“We do not want to change the perception that we are a winter tire company. We find the markets for winter tires are very interesting. A couple of brands (in this segment) are quite strong, and we are one of them. So, we definitely don’t want to change that.

“But, what is new is the summer tire market. We didn’t have the sizes that were popular here, but now, we are coming out with the 20- and 22-inch tires, including the concept Giugiaro tire.

“The way we sell those tires (in North America) is totally different from the way we sell winter tires (in Europe). There, winter tires typically go to the tire dealer. Here, our biggest customers are wheel importers that fit the tires on the wheels and then sell them as packages. It’s totally different from Europe: There, you leave the wheels on because they are original. Here, you take the wheels off because they are original.”

What new products are planned for the North American market this year?

“We have Sessanta now that we are 60 years old, and many more sizes will be introduced this year for the North American market.

“Next year (2007), we will introduce a four-season tire. Mind you, the European four-season tire is a real four-season tire. Here, the four-season tire is really a summer tire. This new tire will be made with the latest technology and compounds. In fact, it is more of a winter tire than a summer tire, but it is a perfect fit for the American market.”

Does Vredestein plan to market any other tire types in North America beyond passenger and light truck tires?

“A year ago, I would have said ‘no.’ But, today, I can say ‘yes, we are looking into it.’ Now, we have Russian plants, and we are looking into truck sizes in different markets, such as commercial and pickup trucks.”