A car is only as reliable as its tires, and decades of booming auto sales in China have led to a proliferation of foreign and domestic tire manufacturers vying for their share of the market. US-based Cooper Tires, which is listed on the New York Stock Exchange, launched its China operations in 2006 on the back of this boom in private car ownership. Since then, the firm’s China workforce has grown to over 6,500. Sitting in the driver’s seat is Cooper’s general manager, Alex Koi. A Singapore native and former marketing executive in Beijing, Koi spoke to CHINA ECONOMIC REVIEW about building a brand in China and how Cooper will weather the current economic downturn.
Q: Where does China fit into Cooper’s global footprint?
A: China is one of our key markets. International sales account for 35% of Cooper’s total sales and of that 80% comes from Asia, which is mainly China. In Japan and Korea you have so many local competitors, so we’re generally targeting Southeast Asia, India and China. In China and Asia we are selling to the passenger car radial segment as well as the truck and bus segment.
Q: What growth levels have you achieved since your entrance?
A: In our passenger car radial segment, we target 5-8% above the average industry growth. Last year, the average growth was in the double digits, maybe 15-18%, and our growth rate was 25%. This year, we are targeting 30% growth year-on-year.
Q: How do you differentiate yourself from your larger competitors like Michelin or Goodyear?
A: For the passenger car segment, in the most basic form you have so-called "OE" tires, original equipment tires that come with the car when you buy it. Then there are the "RE" tires, replacement tires. In the most simplistic sense, we are an RE player. The downside is we don’t have an OE market to leverage, but the upside is we are very stable, we never go for big volumes. This means that in an economic downturn we don’t suffer as much as the OE players. In the US, a car is a necessity and Cooper’s brand stands for good value at a decent price. But in China a car is a semi-luxury. China’s RE segment is relatively strong and it’s actually a younger crowd than you find in the US. That’s why we entered China with high-end products, ultra-high performance and 4×4 tires. We’re a niche player – we focus on a very specific segment that is not as price sensitive.
Q: Wouldn’t a consumer prefer to replace their tires with the same brand that came with the car? How do you convince them to go with a relatively unknown brand like Cooper?
A: For consumers, we are targeting the upper-middle segment, people who say, "I want good tires and I know the OEs are cutting costs." In tires, there’s both legality and morality. OE tires represent legality, they meet the basic requirements of the law. RE tires are about morality, you have to be better than the law. For example, we use silicon in all our tires. Silicon is 10 times more expensive than natural rubber and not all OE tires have it. What does that mean for consumers? It means one-and-a-half car lengths when you brake on a wet road – that’s the difference between getting into an accident and avoiding an accident. However, we also need to target the retailers, as research shows that 60% of all tire purchases are influenced at that level. In China, you don’t see big tire changing or oil changing chains like Jiffy Lube in the US, it’s still not feasible. You have to convert at the retail level, so that’s what we are doing.
Q: How are you doing this?
A: Advertisements have been over-proliferated and people don’t believe in them much anyway. Instead, we have put more than 200 dealers through our "drifting experience," driving the kinds of cars you see in [the movie] The Fast and the Furious. We show them that this is a tire with the technology to take fast speeds without any problems. We also have seminars on sales and management techniques so our dealers can make their businesses better. This is a different twist from a lot of our competitors, who just talk about tire sales.
Q: How has the global financial crisis affected Cooper’s business? According to your fourth quarter report, expansion at your China facility has slowed due to declining global tire demand.
A: Everyone is suffering, but what this does is force us to think. Instead of going with a layoff – which doesn’t help much in China because labor costs aren’t that high – we slowed our expansion. We are also improving efficiency, making a lot of repairs to our facilities. For example, the steam pipes we were using to make the tires were leaking, but everyone was too busy to fix them. This led to a high scrap rate and lower efficiency. What we’re doing is consolidating internally and optimizing the workflow. It keeps everyone employed and it allows us to be ready once the economy comes back. And it will. We believe the Chinese stimulus package will start to take effect in the second quarter of this year.
Q: Last year’s auto sales growth fell to 6.7% and many analysts expect growth to fall further this year? Won’t this hurt Cooper’s sales?
A: Being in the RE market means we’re not as heavily impacted by falling auto sales. That’s why I projected a 20-30% growth for our passenger car radial segment, apart from the fact that we are starting from a smaller base.
Q: What about your truck business?
A: We are optimistic for the second quarter, but we don’t have a crystal ball. What we are doing is that we’re treading carefully every month because our domestic truck business, which accounts for more than 60% of our total business, is sensitive to changes in the economy. Once the market is back, we will be in good shape.
Q: How is your marketing different from your local competitors?
A: We use conventional tools like rebates that are very similar to our local competitors. One thing we try to avoid is price reductions. If you cut price, quality is going to suffer, that’s a fact. Beyond that, we are trying to enhance our brand’s personality with a surprise element: A bit of sexiness in a decent marketing campaign can help you differentiate yourself. We are launching a more contemporary version of Cooper’s knight icon in China, because Chinese people recognize icons better than brand names. We are also going to sponsor an online game and have some exhibition trips. That’s what I would call a surprise element to building our brand in China. But it’s not in Cooper’s blood to go for market share. I say that we’ll grow at 30% per year, but if we grew at that rate for 10 years, we would still not be a major player. If we can grow and be very profitable for our dealers and everyone else then we have a successful business model. It’s almost like David and Goliath, and we hope we are David.