Executive Interview with Bill Caldwell, VP of Sales and Marketing for Continental Tire the Americas, Passenger and Light Truck Tire Unit - aftermarketNews

Executive Interview with Bill Caldwell, VP of Sales and Marketing for Continental Tire the Americas, Passenger and Light Truck Tire Unit

New VP sees numerous opportunities for Continental to score.

From Tire Review

Just over a year ago, Bill Caldwell was named vice president of sales and marketing for Continental Tire the Americas passenger and light truck tire unit. He was moving over from the tiremaker’s OE side of the business to replace Andreas Gerstenberger, who during his six-year tenure helped bring Conti’s U.S. consumer tire unit back from the brink.

Caldwell, who joined Continental in 2003 after stints with both Ford and Michelin, was certainly no stranger to the tire industry – just the replacement market side of the business. It is a fact that he embraces, even leverages as his team looks to take the now stable CTA to the next level in North America.

Caldwell sat down with Tire Review during the recent Continental Gold Dealer meeting, held during a Caribbean cruise, to talk about his plans, the impact of the downturn, CTA’s brands and products, tire dealers and consumers.

Coming from the OE side, what have you discovered about the replacement tire market that you didn’t anticipate?

On the OE side the business cycle is different. I wouldn’t call them ‘priorities,’ but the things you have to keep your eye on are different. The OE side is very, very much about the product and the performance of the product and meeting the requirements and managing projects on a timeline and making sure that the organization is prepared for the next round of performance requirements. On the replacement side, the cycle is much shorter. We’re working in months and quarters as opposed to five-year programs on the OE side. So the pace is very different; it’s much faster on the replacement side. What I’m enjoying the most is the diversity of the customers. It is far greater. You have the whole span from a Discount Tire, which is a huge organization with a personality all its own, and you have independent dealers, the guys we have on board here for the Gold Dealer cruise this week who are personally invested in the business, and every decision they make is a personal decision. And the approach you need and the interaction you have with them is very different – and very enjoyable. I would not say it’s a shocking surprise, it has been a pleasant surprise because I enjoy this diversity and being able to talk to someone one-on-one about their business and about what we can do to help support their business.

From your perspective, which do you feel is more attuned to Bill Caldwell?

I have been in the OE business a lot longer than the replacement side, so I have learned how to deal in that environment. What I am learning now is that individual owner, and that business is more social and more relationship-based. You couldn’t do something like this event on the OE side because the rules didn’t allow it. So, that aspect is different, and that is where I will invest more of my time right now. The mega-dealers and companies like Wal-Mart are a little closer to the OEMs. They are big organizations, they have structures and processes. When you talk to the independents they have their own menu, their own approach, so you need to adapt yourself and be creative to help solve their problems.

What can dealers expect from Bill Caldwell?

I think I have been lucky to come into this job at this time because compared to where this company was in this market five or six years ago we have a really nice space to work from. So I’m lucky to not be coming in with a ‘fix it’ task, which is what Andreas (Gerstenberger, the previous head of the passenger/light truck unit) had seven years ago. What they can expect from me is that I am going to do everything in my power is to maintain the momentum, and maintain…I’ll call it the ‘promise’ we made in the past. What everyone says to me is that when you guys say you’re going to do something or when you listen to our feedback you do something with it, you act on it, you react to it. That is something they appreciate and value in our relationship, and I want to make sure we continue to do just that. Listen to the customer, hear what he is saying, and react to what he is saying.

What can we expect of CTA’s passenger/light truck group under your guidance?

I think there are a couple of things that we’re focusing on. Clearly we want to continue to create awareness for the Conti brand that we still think is lacking in this market. That’s very important for us. From a corporate standpoint, we want the Conti brand recognized among the top brands. We think we have all of the ammunition we need to do that – other than I’d say the marketing punch our larger competition has to get out to the consumers. From a product performance standpoint, from a capabilities standpoint, from a pricing and business case for the dealers to carry our product standpoint, we have a really powerful message. I’m not sure that has transferred to the end-consumer yet. So clearly one of our primary missions is to take that step with the Continental brand. We’ve had nice progress with the General brand. And I think our other key priority in the coming years is that we have a lot of points of sale, and we’d like to be deeper in those points of sale. We’d like to continue to be a bigger part of each customer’s business, so we have to be sure that we have the products, programs and the total package they expecting in order to commit to us in a bigger way.

Do you think right now that the Conti brand is more of an accidental purchase for consumers than an intended purchase?

“I would say that it is a product that we are proving the value of selling to our dealers. We are relying on dealer acceptance and/or the ability of dealers to guide consumers to that product. We’re relying on that much more than on the customer coming in and saying ‘I want to buy a Continental tire.’ That’s just the nature of where we are in this market right now. We’d like to have a little better balance with that and that’s why we’re doing some of the marketing activities we are doing. We are working on raising brand and product awareness, making more of a connection to the end-consumer so that we can take advantage of their buying behavior and preferences. This market, I think, is more of an emotional purchase market than Europe. In Europe, consumers rely heavily on press tests. If you win the magazine tests you sell a lot of tires. And if you don’t, you don’t. So for a company like ours that is driven heavily by R&D and development, that situation really works. In this market, it is a little different. You only have a couple of opportunities like that, maybe with Tire Rack or Consumer Reports or some smaller things. So you need more in the toolbox in order to connect with the consumer. What we’re trying to do is tap into that. We’re trying to make more of an emotional connection with consumers than what we have ever invested in the past. Before we even talk about ‘purchase behavior,’ we have a big challenge just in terms of brand awareness.

Here in North America, our Continental logo includes the word ‘Tires.’ Continental doesn’t do that anywhere else in the world. But in this market need to make sure we are making that connection between the ‘Continental’ and ‘tires.’ I don’t think the Europeans are upset, I think they recognize the situation and allow us to do things for the greater good. They want to see the brand succeed as much as we do.

CTA has not been active in the ‘green’ segment in the past. With the ContiProContact Eco Plus, what is CTA’s approach with eco tires going to be in the future? Is it going to be all Continental brand or a Conti and General mix?

Our strategy for the last three to four years is that we have been developing, to some degree, an eco story for all new products that we launch – that we are capturing and communicating in the product story that we have a competitive or better than competitive performance level in this area. To your point, we haven’t been ‘in your face’ with that message, but we have to do something there with the Eco Plus. We see everyone else there and the huge marketing dollars that Goodyear and Michelin, in particular, are spending to communicate what in our opinion was maybe an over-inflated advantage vs. for our tires and maybe others. And we cannot afford to miss being part of that message and because of our OE participation we have the technology and capabilities. So the Eco Plus is the result of putting the best and latest capabilities we have into the tire. But it is also about the marketing story, to make sure we aren’t getting lost in everyone else’s stories, that somehow we’re not competitive there because we are. I think the market will continue in this direction, so I can envision that we will have this type of story – perhaps stated more strongly than we have in the past. We have the performance technologies, we use the materials, we use the constructions, and we will roll that out more and more into our product lines.

What about for the General brand?

I think there will be opportunities on the General side, as well. The story might be a little different. When you manage two brands, you have to always consider how you want those brands to complement each other, but I don’t think you can have premium brands like that and not have an eco story going forward.

In terms of the passenger/light truck replacement market in North America, where does Continental see the market going this year and next?

I think there are a couple of variables that we are all watching. I’m still learning what the cause and effect relationships are in this market. On the OE side, if you looked at the new car inventories were and you pretty much knew what was going to happen. As soon as they got to a certain level you knew everybody was going to toggle back. The replacement side is a pull environment but the first quarter has been strong. Everybody is begging for tires and I think a lot of the manufacturers are challenged to keep up. So the outlook is good. I think that we’re on a good progression and we’ll at least achieve the 2008 level. We could exceed the 2008 level, but I prefer to be conservative in this environment. I think we’ll need some kind of new news event or crisis or economic event to slow that down, but I also don’t think it’s going to be this crazy rapid growth. We all need to be conservative and go step-by-step this year.

Speaking of the economy, what do you think will be the profound long-term impact from this on tire companies, on dealers and on consumers?

On tire companies, it’s difficult for me to speak for the others. For us it reconfirmed our business approach. We run a pretty lean ship. We announced a lot of marketing activities to our dealers on this trip, but we aren’t spending crazy money on marketing. We’re very thoughtful and very targeted in terms of where we spend our money, and last year reaffirmed that in a dynamic market this is the right approach. It is very difficult to unwind something once you are wrapped up in it. Over the last six years or so, we went through huge restructuring within our U.S. operations. We had done the difficult work already, and the fact that we did that difficult work before the downturn set us up for what happened last year. There wasn’t any excess that we had to attack. We were already pretty lean, and our approach for the long term is to stay lean, be conservative and be sharp and smart in terms of our investments and our spend.

For dealers, I came in a little late last year but it was pretty clear to me by distributor and dealer behavior that everybody leaned up. Inventory levels were the biggest barometers there, and the message we got from our customers was that they were going to be a lot leaner on inventory, they were managing balance sheets and credit lines. I honestly can’t tell you how long that mentality will last, but I think we’re still at a point where caution is still the primary consideration for dealers. Now, they still have to balance that with making sure they have the right tires for their customers. I don’t propose to tell or recommend how an independent tire dealer runs his business, but I think this balance is what we saw differently, that there was much more management of the balance sheet than maybe in the past. Like I said, I don’t know how long this behavior will last but it’s probably a healthy one to maintain.

Do you think long-term that dealers and tire companies will have a more cautious mindset?

I think maybe the economy and the success or lack of success of their business will drive this more than anything else. If someone is being wildly successful in their market, it’s easier to not have to have this as a top priority. It’s probably a dealer-by-dealer decision. Again, everybody is an individual businessman picking what priorities are important to them and what their strategy will be for the coming years. Are they trying to protect what they already have or conquest something from someone else? I think these things, in reality, drive behavior more than some overall economic environment. Still, with the environment of the last year – and I hesitate to use the word ‘cautious’ too much – but I think it’s smart business to be cautious. Now, just because I need to be closer to the financial side of the business and be smarter about this part doesn’t mean I am being cautious so much as I’m being more aware about how I am operating in a smarter, more efficient way.

Last year, everybody cranked down inventory and build was reduced in order to burn inventories, and that has created fill rate issues. From CTA’s standpoint, when do you expect fill rates to get back to a more satisfying level for dealers?

It’s a little bit of a dual edge for us. It’s great to have all of the orders. Part of our challenge is that we came out of our restructuring efforts and started to show some financial success in the market, but we also had to build our confidence in terms of planning, to be more optimistic and even more aggressive in our planning than we were comfortable with before. This year in the second half is where you will see a step change for us in terms of fill rate because of our volume and business plan. We’ll start to get some traction on the investments we put on pause last year. This will start to come in July-August, and towards the end of the year there will be a more major step change in terms of increased capacity to support the market.

Where is that going to come from?

We are investing in all of our plants. We have three plants in the Americas that provide a majority of our supply in this market – Brazil, Mexico and our plant in Mt. Vernon, Ill., which has been a huge engine for us. Some of these investments were previously announced, but some were paused because of the economy and are turned back on now. At the same time, I can tell you there is activity in all of the plants to continually be more efficient and improve the capacity.

Given where the market is with dealers, consumers and CTA, do you see opportunities even this year to take some share from other companies?

Clearly as we have, in the last year, announced new products we’re expecting so. There is a reason we are announcing new products in certain segments: Either it’s because it represents a new segment for us that we previously didn’t participate in or it’s because we needed a new product to jump-start our performance there. For example, the Eco Plus not only addresses where we see the market going but it is also for a segment that hasn’t been so successful for us in the past. You look at all of those things when you consider your product plan so that you’re addressing weak points. We believe that with the Continental brand, we could and should improve share vs. last year. And because of how we have the brand positioned in today’s market, we can be really successful with that brand. We expect to grow share with the Conti brand. The General brand is a big engine for us. It’s been very successful and we want to maintain that momentum and at least grow some share there. There is still a lot of opportunity there. We have a nice one-two punch right now, and in the segments where we have been historically weak, not as strong as we’d like, we’re addressing that from a product standpoint. We want to make sure we have competitive products in all of the categories – in terms of product quality, pricing performance and product story. That is important in order to sell it into the dealers and then out to consumers.

Which do you see as being more important right now: stabilizing and servicing existing distribution or growing distribution? Can CTA do both successfully right now?
I think we can do both. There are two ways to grow: new customers or deeper with current customers. There has been a lot of work done in past years to create a stronger geographic footprint in terms of distribution and points of sale. We look at that much closer now as a tuning metric, to see where the holes are and what can we do. We won’t ignore signing a new customer if it fits a geographic hole we have, but clearly I see more opportunity to get deeper with our current customers. To me that’s directly related to servicing. If we service them, I expect that we will grow with them.

What were CTA’s 2009 financial results? We have not seen anything specific from Conti in terms of sales and profits.

We don’t report those. We won’t report those. We are very happy with the results. From a unit standpoint, we did outperform the market and grew share year over year. Raw materials were a headwind for us during the year, but that was the same for everyone. Our results right now are a function of the base that has been built over the last few years in products and programs, and everything is starting to pay dividends now. So 2009 was a strong year for us, our strongest in recent memory financially, and we look at 2010 to build on that.

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