Conti’s Tyre Plant the Key to Brazilian Market
The Brazilian tyre market is one of the world’s largest and due to its growth has been counted amongst the most important emerging markets, the so-called BRIC countries (Brazil, Russia, India and China), for a number of years now. For the last five years German manufacturer Continental has produced tyres in Brazil and during this time – despite long-established and powerful competition – has built up a solid business there. While Continental sees itself as well positioned in Brazil’s replacement tyre market and already holds a four to eight per cent market share, when Tyres & Accessories visited Continental’s tyre factory in Camaçari, Brazil, we learned that the company now intends to further establish its deliveries to OEM customers.
Although Continental is not unknown in Latin America and the company has owned a share in Ecuador based Compania Ecuatoriana del Caucho SA (ERCO) since 1987, the automotive supplier is the new kid on the block amongst Brazil’s tyre manufacturers. While the market leader Pirelli has produced and sold tyres there for more than 80 years, Continental AG only set up its South American manufacturing facility in 2004.
Since the start of passenger car tyre production in 2005 and truck tyre production in 2006, the further development of the Camaçari site has been ongoing. As Pedro Matos explains, in 2009 this newest Continental factory reached the ten millionth tyre milestone. Last year alone, reports the Portuguese factory manager, the Camaçari plant (near the city of Salvador de Bahia) produced around 4.3 million passenger car tyres and 240,000 truck tyres. And over the years the proportion of tyres sold directly in Brazil as opposed to other Latin American markets has also steadily increased. Exports from the Brazilian plant thus hold increasingly less significance for Conti. Of export markets the most important remains Argentina, as would be expected, where the Continental brand was previously present for some time through its offtake agreement with Fate. Yet while the domestic market is currently a priority, the Camaçari plant is flexible enough to cover any possible increase in demand, for example from the NAFTA region, should the need arise. Winter tyres, for North American or European markets, are not produced at the plant.
The state-of-the-art production site on Brazil’s economically developed Atlantic coast’s crowning glory is, however, its OEM homologations. The car and truck manufacturers in Brazil and Argentina that consider Conti’s Brazilian made tyres the qualitative equal of those produced at the company’s other factories include Nissan, Mercedes-Benz, Volkswagen, Peugeot, GM (in the US), Scania, Fiat, Iveco, Renault, and – a recent addition – Ford. Deliveries to such renown OEM customers within South America is of core significance for the manufacturer’s market presence – in spite of the notoriously lower margins OE sales generate. It is considered important to support these global customers in the booming Brazilian market and, at any rate, total turnover there may be boosted by the so-called ‘pull effect’. Original equipment fitments also do the company’s image no harm. Efforts are thus being made to further establish deliveries to OEM customers in Brazil. Last year sales to OEM customers accounted for no more than three per cent of Conti’s total passenger car tyre sales in Brazil; for truck tyres this figure has already reached some seven per cent.
Even following existing capacity increases Continental do Brasil still has additional breathing space at its Camaçari factory. While passenger car tyre production will from now until 2013 slightly increase to an annual output of 4.5 million tyres, a much higher increase is possible for truck tyres, the factory manager comments. Depending on how the market and sales develop, the production of more than 400,000 truck tyres per annum in 2013 is possible. Such an increase is currently feasible without the installation of further manufacturing equipment – when the automotive supplier and tyre manufacturer announced its US$260 million investment in Brazil at the start of 2004, it was said the sum would cover a final capacity of six million passenger car tyres and 700,000 truck tyres. Of course, at its Camaçari location – where, incidentally, Bridgestone operates a passenger car and light commercial vehicle tyre factory – Continental has planned ahead and can invest in the erection of an additional facility alongside its existing plant. “We would be ready to do this, if the need arises,” adds Pedro Matos. There are, however, no current plans to invest in additional equipment to further increase the site’s capacity.
If a manufacturer wants to sell more tyres, logic dictates that the sales and distribution network must also be able to handle this. As the Continental manager explained, currently the marketing team in Brazil contains around 90 people; the operation’s administration in Brazil is located in Jundiaí, near São Paulo. While long established market players such as Goodyear distribute their products through exclusive partnerships with well-known Brazilian tyre dealers (in the case of Goodyear this is Dpaschoal, with some 200 outlets), Continental is not at present pursuing a strategy of establishing its own tyre dealer network in Brazil, says Cesar Maldonaldo. In fact, it has been the unrestricted access to market players that followed Continental’s start of local production that has enabled the newcomer amongst Brazil’s tyre manufacturers to grow as fast as it currently is, adds the Continental do Brasil customer service manager. At present deliveries are made to a mixture of small and large dealers and Conti is always ready to cater to further tyre trade customers.
One of these new customers is Vocal. After selling Michelin tyres since 1990, the São Paulo based Volvo truck dealership entered into an exclusive contract with Conti in 2007. The company, which gains some ten per cent of its annual turnover of approximately US$270 million from tyres, puts its trust in “a single strong partnership”, expounds Vocal CEO Cláudio Zattar during an interview with Tyres & Accessories. He says that, according to “our business culture”, the company markets neither the German manufacturer’s second brand or competitors’ brands. It solely offers customers premium Continental brand truck tyres. This type of ‘monogamy’, a fidelity in both good and bad times is often witnessed in Brazil, and this is particularly encountered with the larger tyre dealers.
Such a corporate culture of exclusive relationships with a particular manufacturer, ponders Zattar, must be difficult to comprehend in Europe, where every (tyre manufacturer owned or affiliated) tyre dealer can draw upon and make use of a spectacular assortment of various brands. Even Continental, after only a few years of production in Brazil, is able to place its trust in such tie-ups. Indeed, it is the Continental brand’s freshness in Brazil that makes it interesting for Vocal, as it had become difficult for the dealer to sell established brands at a sustainable profit, the CEO adds. Following the new brand’s introduction to Vocal customers, monthly sales figures are again touching those the company was able to previously attain. Last year it sold around 1,600 Continental truck tyres per month. For this year Cláudio Zattar anticipates a further increase of more than 30 per cent.
A further characteristic of the Brazilian market along with the tyre dealers’ one brand structure is the frequently strict separation of tyre dealers and tyre service. At Vocal, for example, the mounting and balancing of the tyres bought by customers is not an inclusive part of any purchase. This procedure is either carried out by the customer personally or a third party is contracted to do it. Thus Vocal owns no mounting or balancing equipment. “We are of the opinion that the service and maintenance of our customers’ tyres would be an unprofitable service,” says Zattar. In spite of this, he added: “I believe that service is the future.” However a change of business model would, for him, be only thinkable in the long-term.