Restructuring picks up pace at Rigdon

A number of changes and new developments have taken place since Reifen Ihle’s retreading operation began afresh as Rigdon GmbH at the end of 2014. The company, which is based in Günzburg, near the River Danube, remains the largest independent manufacturer of retreaded tyres in Germany, however Rigdon’s restructuring is by no means complete. While the new owner has made good progress implementing its “Rigdon 2020” growth strategy and corporate transformation programme so far, Rigdon GmbH managing director Ralf Schnelle shares with Tyres & Accessories that further significant changes are coming within the framework of the five-year programme, changes that – in spite of the many problems within the market – will help the company and its employees look forward to the future with confidence.

We first heard about the Rigdon 2020 growth and corporate transformation strategy shortly after the company arose from the insolvent Reifen Ihle GmbH. The aim of the programme is to establish a sustainable and successful mid-size retreading business. Growth doesn’t occur overnight, particularly when the market last year could at best be described as disastrous, and those following the new company’s development must bear this fact in mind. The market was extremely weak in 2015, and Rigdon had to reckon with a 15 to 20 per cent decline in the market within its core segment.

Nevertheless, Ralf Schnelle says the company’s sales grew five per cent in 2015 thanks to growth within the sales force since the middle of the year. Such figures are admittedly only meaningful to a certain extent, as in late 2014 the soon to be insolvent predecessor company sold off a large portion of its inventory at highly competitive prices. Against such a background – a weak market, former price-aggressive marketing and the company’s restructuring and new start – even zero growth would seem a major success. And the fact that Rigdon appears to be successfully navigating a course through the current market situation suggests the lamentations heard from otherwise well-informed ‘circles’ are somewhat overdone.

Ralf Schnelle concedes that the challenges facing the company on the path to 2020 will keep it busy for a while yet, however he also stresses that Rigdon has moved step-by-step beyond the exceptional circumstances that existed directly before and after Reifen Ihle’s entry into insolvency. The managing director even goes as far as describing Rigdon as “fundamentally” a “start-up company” that is being built up from scratch.

Mould cure retreading accounts for some 60 per cent of Rigdon’s total truck tyre production, and this ratio continues to grow

Restructuring always begins with the existing structure and processes, and this of course is a logical place to start. Back when Christoph Fluhr purchased insolvent retreader Ihle at the end of 2014 together with business partner Dr Peter Mauritz and their joint company, turnaround specialist advisor Prolimity Capital Partners, he explained that the first priority was to scrutinise all existing processes, goals and the company’s business model. The central tenet of this evaluation was to increase turnover and minimise costs.

Ralf Schnelle explains that teams and departments have been oriented towards sales and production as far as possible; tasks not serving the immediate goal of making and selling retreaded tyres found no place under Rigdon GmbH’s roof, and thus the former company’s own locksmith and retreading mould production operation were outsourced. The decision was also taken to cease the burning of end of life tyres and rubber waste to generate the energy used in production, the incinerator plant is now mothballed as oil is far cheaper and can be better adapted to meet fluctuations in demand than the incinerator oven. In addition to changes at the production level, the company’s administrative departments were given new duties that placed a heavier focus upon sales and production.

One of the goals Rigdon has aimed towards since the new start is an extension of its distribution throughout the whole of Germany. Although progress here still isn’t as extensive as the company would like, the Rigdon sales force has grown significantly over the past 18 months. Two years ago, Reifen Ihle employed one and a half field employees and a head of sales. Now four field employees are engaged full time in looking after customers in Germany, Austria, Switzerland and France. Adolf Mayer remains head of sales on a fulltime basis, Ralf Schnelle is responsible for sales and marketing, and Günter Ihle has been in charge of technology and production at management level since last year. The two remaining vacancies within the sales department are expected to be filled in the near future, giving Rigdon an eight-person sales team responsible for tyre trade and fleet customers.

Investing in the field workforce has substantially boosted customer contact levels. “We sell a product that requires explaining to more than 3,800 Rigdon customers,” comments Schnelle. The new employees in the field are tasked with informing potential customers about the products and their benefits, and this is an area where they’ve met with great success. Sales have not only risen within Germany, a noticeable increase has also been observed in Switzerland, a country with no mould cure retreaders of its own. Rigdon is now in a position where it can also hone its focus upon export markets, including Eastern Europe, a region where Schnelle has already established new contacts. Exports currently account for around 30 per cent of Rigdon’s turnover.

Alterations to casing management procedure have also been implemented over the past year and a half. This ‘retreading raw material’ is now the responsibility of two highly-trained employees. While one looks after purchases from tyre and casing dealers, the other – a vulcanisation master craftsman – is in charge of pre-production inspections. This professional approach towards casing management has led to an increase in production quality.

Any firm buying casings on a regular basis needs either a third party haulier or its own trucks. A recent and significant investment has given Rigdon its own fleet of four modern, 12-tonne Euro 6 trucks, including one equipped with a trailer. In addition to collecting acquired casings, this fleet also performs product deliveries within a 300 to 400 kilometre radius. The divestment of the 11 former Reifen Ihle retail outlets (they were sold to Reifen Müller) has intensified the company’s focus upon a traditional distribution model for its retreaded tyres, a model that utilises the fleet together with its drivers, who have all received product-related training. Schnelle refers to these drivers, who represent the company on the road, as “sales drivers.” The sale of the Ihle retail outlets was, in Schnelle’s opinion, advantageous in that Rigdon – in contrast to other retreaders –no longer competes as distributor directly against its own tyre dealer customers. The former outlets, incidentally, only represented around ten per cent of all business, an amount Schnelle says “can be compensated for.”

The portfolio of retreaded tyres offered has also changed since the new start: van tyres, for example, are not being produced at present. Rigdon also retreads significantly fewer truck, light commercial and car tyres than the previous nominal capacity of 150,000 truck/light commercial and 300,000 passenger car tyres. Although Ralf Schnelle requested we withhold Rigdon’s production figures from publication, he believes output most likely suffices to keep the company in top spot as Germany’s largest retreader. Rigdon can also retread around 1,000 earthmover tyres per annum.

Profitable niche products are a growing focus for Rigdon. The company has revived its storage technology business under the name Rigo Tec and once again sells tyre shelves and related products with great vigour. According to Ralf Schnelle, Rigo Tec products can now be found in the catalogues of a number of leading workshop suppliers; it is too early to comment on sales trends, however the company wishes to increase its activities in a “segment with great potential.” In addition, Rigdon now places a greater emphasis upon products such as spacers for excavators and rubber base plates. Schnelle concedes that these are niche products in terms of both sales volumes and earnings, however they represent a successful, gradual expansion of the company’s product portfolio.

Retreaded car tyres also continue to find a place within the portfolio. While these products were dismissed long ago by many, particularly retailers selling new tyres, they still have a place in the market, even if just a comparably small one. Therefore Rigdon decided “not to give up” on these products, and entered into an initiative together with German tyre and retreading association the BRV and the country’s other active car tyre retreader, Reifen Hinghaus. The tyres, Schnelle emphasises, are “safe, environmentally-friendly and affordable,” and are produced close to their customer base. The growth of online tyre retail offers new opportunities for retreaded car tyres.

Rigdon also performs pre-cure truck tyre retreading – this represents approximately 40 per cent of all production at the company’s facility in Günzburg, and covers some new and innovative trends. In addition to conventional pre-cure retreading, the retreader now offers its patented “RigSide” sidewall finish. This involves placing a thin layer of unvulcanised rubber over the shoulder region of the sidewall and around ten centimetres of the tyre’s tread. A template that is also covered by the rubber can then be used to fashion the rubber according to customer wishes. Along with offering safety and performance comparable to that of a new tyre, pre-cure tyres with this sidewall finish also look like new tyres. Tyres with a private label design can also be produced according to customer wishes.

These developments are the fruit of restructuring and growth plans, however the flipside of these changes is the fact that a place within the new Rigdon couldn’t be found for all of the insolvent company’s 110 employees; the current workforce of around 70 people represents a headcount reduction of around one third.

: By mid-2017 the Günzburg site will have been streamlined, and some half the current floorspace will no longer be in use

Streamlining and greater efficiency also lie at the centre of changes being made to production systems; work on this began recently and the changes are expected to be fully implemented by the middle of 2017. The buildings in use at the 88,000 square metre Günzburg site presently occupy around 40,000 square metres, however a reorganisation and consolidation of the production and the upstream and downstream processes involved will streamline operations, shorten distances within the plant and thus facilitate more efficient production. Going forwards, Rigdon intends to utilise two of the buildings at the site, a total area of some 20,000 square metres. One will house production and the other serve as a storage facility for casings and retreaded tyres.

Schnelle points out that this focus upon production should by no means be viewed as a sign of weakness. The buildings no longer required for production will be rented out, and the managing director opines that this decision reflects the corporate responsibility shown by the new management in light of strong competition. As is the case for so many companies in the retreading sector, the market weighs heavily upon Rigdon. When considering both this and the company’s emergence from the ashes of insolvency, it’s no great wonder that it wasn’t able to reach the break-even point last year. The managing director’s expectation is, however, that this will occur in 2016.

Rigdon’s predecessor worked over many years with one particular major customer: Continental. At peak times the company took up to 40,000 mould cure retreads from the plant in Günzburg. The management team in Günzburg also anticipate similar cooperative arrangements in future. Many tyre makers want to offer their truck tyres along with a whole-lifecycle concept, yet lack the appropriate retreaded products. “Rigdon is a specialist in this area and we have a great deal of experience,” comments Ralf Schnelle. He adds that initial talks the company has held with potential partners have been positive. Furthermore, Rigdon intends to play an active role in the consolidation of the retreaded truck tyre market, and to this end assist the tyre trade as potential cooperation partner for the production of retreads.