Continental Americas in the Black

After more than 10 years of losses, it seems Continental AG’s eternal optimism about the success of its Americas business is beginning to pay-off. At the beginning of February Continental announced it had managed to get into the black in 2007. According to one Welt am Sonntag report, this means “single digit millions” of operating profit. The business had been loss-making for 10 years, costing the company roughly 1 billion euros, the paper said. Earlier Continental chairman, Manfred Wennemer told journalists that he expects at least 50 new dealers to join the company’s US network this year, bringing the total to more than 600.

“We have rigorously implemented our turnaround plan strategy and are happy to reach an operational break even,” said Dr. Alan Hippe, Continental Executive Board member and CFO and – in his capacity as president of Continental Tire North America, Inc. (CTNA). “In the current year we foresee further growth in profits.” Dr Hippe continued: “With a volume increase of 12 per cent in 2007, our replacement business expanded at a much faster rate than the market as a whole, finishing well in the black. In 2004 we were still deep in the red in this area. Since then we have managed to up the price obtained per-tyre by more than 20 per cent.”

However, breakeven has not yet been achieved in the region’s OE business. According to Hippe, this is because the company has been unable to “sufficiently pass on to the customers the raw material price hikes of the past two years.” Continental’s original equipment deliveries in North America have been reduced by roughly 25 per cent since 2005. According to the company, this was achieved by not renewing unprofitable delivery agreements, but was also partly a result of the decline in US car production.

Dr. Hippe underscored the fact that in addition to rigorous cost optimization in production, logistics and administration, the turnaround was also helped along by a complete overhaul of the product range, target groups and market strategy. “Around fifty per cent of the passenger tyres we’ll sell in North America this year weren’t even thought of at the beginning of 2005. These new products, both in the premium Continental brand and our newly positioned US brand, General Tire, resulted from in-house market analysis as well as from an intensive dialog with our customers,” said Dr. Hippe. “Setting up a sort of advisory forum, we made a point of capitalizing on the experience and counsel of our dealers, who we regard as partners, and actively integrated what we learned into our planning. We didn’t want to repeat past mistakes, but, where possible, we wanted to avoid making new ones, too.”

Continental has set clear geographically target areas. In North America the company initially zeroed in on California and Florida in the US as well as Quebec and Ontario in Canada. Texas and the surrounding states will now follow.

Matthias Schönberg, head of Passenger Tire Replacement the Americas, explained: “In parts of these target regions we control eight per cent of the market. We proceeded similarly in Mexico and Brazil, where we were also able to post two-digit growth in 2007. What is more, our product selection allowed us to come close to achieving the targeted market coverage of eighty percent in North America – from approx. fifty percent at the start. Also contributing to our success is the winter tyre business, where we have been recording above-average growth since 2005 and have experienced an approximately fifty-per cent surge in volume.”