‘Strategic Alliance’

While news about the Bridgestone Bandag deal dominated the headlines in the closing months of 2006, these businesses were not the only new tyre manufacturers and retreaders to be engaged in business negotiations. In the UK, during the opening months of 2007, Pirelli and Britain’s largest retread manufacturers sealed a deal that will see the Italian company’s UK and Ireland Novateck retread production and distribution outsourced to Grantham-based Vacu-Lug. Novateck tyres had previously been produced at Pirelli’s retreading facility in Burton-on-Trent.

The deal came about following an internal strategy review at Pirelli. After analysing the effectiveness of its retread business, on 11 January, Pirelli Tyres Ltd announced that the company had come to the decision that Vacu-Lug would be the best retread production partner. However, the agreement is about much more than just retread production. According to managing director, Tim Hercock, Vacu-Lug will also take on distribution responsibilities. All the products will be made with Pirelli materials, processes and moulds to Pirelli standards, Hercock added.

As a result of the new agreement, Vacu-Lug expects its retread production volume to grow by around 20 per cent (approximately 30,000 units) this year as it takes on the demands of taking over the responsibility for Novateck retreads in the UK and Ireland. The arrangement covers the entire range of Pirelli products.

At the time of the “strategic alliance” Tim Hercock said he was delighted with the opportunity to work with Pirelli as a partner: “Pirelli has a fantastic name and this provides a real opportunity for us to work together to grow our fleet business. We will ensure customers continue to receive the excellent Novateck product whilst seeking new customers where our joint offering will be a match for any in the industry”.
For his part, Pirelli UK managing director, Dominic Sandivasci, stated: “This is a great deal for both companies combining the international strength of Pirelli with Vacu-Lug’s expertise in the UK Retread market. Pirelli has already taken a number of steps to grow its Truck and Fleet Business and this exciting partnership will both complement and reinforce our ability to provide first class products and services to the UK Fleets with Pirelli new truck tyres and Pirelli Novateck retreaded products.

“The Strategic Alliance with Vacu-Lug encompasses more than just the outsourcing of production. Both companies are able to draw on their combined resource and experience of production and marketing in order to offer the best range of products and services to the markets.”

Graham Hutchison, Pirelli’s Director of Truck Business UK, added: “Following on from the successful ‘Truck Technology In Revolution Day’ we remain committed to offering our fleet customers a complete package of quality new and retreaded tyres and this partnership with Vacu-Lug can only strengthen our continued growth in the marketplace.”

Bridgestone/Bandag fallout?

Vacu-Lug had been a Bandag partner up until the end of February 2007, the date of the franchise renewal, when the company decided to end the arrangement. According to Tim Hercock, the short period of time between this decision and the negotiations between Vacu-Lug and Pirelli Tyres are purely coincidental. “The recent developments underline the importance of retreading to new tyre manufacturers,” Hercock commented, recognising the Bridgestone/Bandag deal as both a compliment and a threat at the same time. A compliment because the world’s largest manufacturer choose to invest a large amount of money in retreading, a threat because they obviously took that step in order to make money from the business. From his British point of view, Hercock sees the deal as a US-driven arrangement that has a knock-on effect on the UK market rather than the other way round.

Hercock won’t be drawn on the financial arrangements relating to the cooperation, but referring to Vacu-Lug’s relationship with Pirelli as a great opportunity, he did say that the aim is for both parties to gain out of it. Pirelli’s prominent brand positioning and Vacu-Lug’s size and UK fleet contracts provide strong synergy opportunities, according to Hercock.

Vacu-Lug places a strong emphasis on Fleet Management via its new VFM System and will be working with Pirelli to provide the full range of fleet management services. “We have plans for Pirelli tyres to be a key element in our managed product offering,” said fleet operations director, Neil Marston.