Continental General Tire Corp.

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Continental General Tire Corp.

1800 Continental Boulevard
Charlotte, North Carolina 28273-6311
U.S.A.
(704) 588-5895
Fax: (704) 583-8540
Web sites http://www.contigentire.com

Wholly Owned Subsidiary of Continental
Aktiengesellschaft
Incorporated: 1915 as The General Tire & Rubber Company
Employees: 8,500
Sales: $1.4 billion (1996)
SICs: 3011 Tires & Inner Tubes

Continental General Tire Corp. is a leader in the manufacture, marketing, and export of tires. The company manufactures tires used as original equipment on vehicles from Ford, Chevrolet, General Motors, Mercedes-Benz, Nissan, and Toyota. Replacement tires are sold under the Continental, General, and Hoosier brand names. The company also manufactures privatelabel tires for mass marketers and independent dealers across the United States. A subsidiary of Continental Aktiengesellschaft A.G. (the world’s fourth-largest tire maker) since 1987, the manufacturer struggled to maintain profitability in the late 1980s and early 1990s. Under the leadership of Bernd Frangenberg from 1994 through 1997, the company regained its focus and improved its bottom line, netting two percent on sales in 1996, its first year in the black since 1992. That same year General Tire added “Continental” to its name and moved its headquarters from Akron, Ohio, to Charlotte, North Carolina, near an existing tire plant.

Early 19th-Century Foundation

On the eve of the 21st century, the worldwide tire and rubber industry was in the hands of three major producers: Goodyear Tire and Rubber Co., Bridgestone/Firestone Inc., and Michelin Tire Corp. Continental General ranked among what Modern Tire Dealer called “The ‘Other’ Guys.” But in the 19th century, long before the invention of synthetic rubber and only a few decades after the discovery of vulcanization, hundreds of rubber and tire companies vied with one another. A very unlikely city, Akron, Ohio, was dubbed the “rubber capital of the world,” and it was in Akron that the General Tire and Rubber Company was established in 1915. It is one of the few original American tire companies to have survived to the present day.

The founder of the company, William F. O’Neil, was a native of the city, although he and his partner, Winfred E. Fouse, had first entered the rubber tire business in Kansas City, Missouri. In early 1909 O’Neil and Fouse pooled their capital and established the Western Rubber & Supply Company (renamed the Western Tire & Rubber Company in 1911), which sold tires. Both partners, however, had bigger dreams: where O’Neil’s father, a wealthy merchant, agreed to give the two young entrepreneurs a loan to open a manufacturing business in their native Akron. In 1915 the General Tire & Rubber Company was launched. While O’Neil’s father was president of the new company, William O’Neil, in the role of general manager, wielded most of the authority, and delegated little of it until his death in 1960.

Although there were hundreds of tire companies in the United States at the time, it was a propitious era for tires: in 1915 the number of passenger cars in the United States had surpassed two million, with one million produced in 1915 alone. In addition, World War I boosted the U.S. economy in almost all respects. Even the lower middle class by then could afford Model Ts. Because of more frequent blowouts, the vast majority of cars in those days came equipped with two spare tires, and the more expensive models even came with four spares. Hence business was ample for tire companies, and the General Tire & Rubber Company even turned a profit in its first year of operation.

One year later, the company manufactured its first tire bearing the General name. It was the first oversized tire on the market, especially fitted for passenger cars. No stranger to advertising, O’Neil paid $5,000 in 1917 to the prestigious Saturday Evening Post for a full-page ad introducing his new tire. While large-scale national advertising was common, it was highly uncommon—for a tire company at least—to appeal to individual car owners rather than to the car manufacturers in Detroit. O’Neil’s was an innovative marketing approach, and it worked. Franchised tire dealerships became crucial to the success of the General Tire & Rubber Company. The company also initiated the concept of trading in used tires for a complete set of “Generals,” as the tires were dubbed.

Emphasis on R&D: 1920–40

The growing importance of trucks and their particular tire needs did not escape the company’s notice. Almost from the outset of its existence, truck tires became a specialty. The General Tire & Rubber Company pioneered the recapping of truck tires and in the 1930s came out with a series of low-pressure truck tires. By 1934 the company’s research and development specialists had experimented with a revolutionary new “drum method” for producing truck tires that dramatically slashed the cost of manufacturing them and at the same time accelerated the speed at which they were manufactured by 50 percent. Without the “drum method” of truck tire production, the tremendous wartime demand for tires would not have been met. In 1940 the General Tire & Rubber Company produced the largest truck tire in the world.

In 1923, only eight years after the establishment of General Tire, the company had earned its first $1 million in sales after taxes (forty years later, the company would achieve its first $1 billion in sales). Its product innovations continued apace. The company had already come out in 1920 with its “General Jumbo” low pressure tire, which became a great success with car owners because of its superior mileage and maneuverability. In the late 1920s and throughout the financially difficult years of the Great Depression, General Tire not only pioneered in the development of truck tires, but entered the airplane tire business and continued to churn out new automobile tires, such as the Dual 8, the Dual 10, and the Squeegee. The company had acquired its first subsidiary in Mexico, and was exporting its tires throughout the world. Despite these signs of vigor and the fact that the 1930s witnessed the biggest vehicle registration in history—surpassing the 100 million mark by the mid-1930s—the company made no profit throughout most of the decade. Its survival alone had to stand as testimony to its vitality.

The survival years of the Depression gave way to prosperity during World War II. The dearth of natural rubber and the initial poor quality of synthetic rubber, however, hindered General Tire’s profit potential. There was virtually a halt to all civilian automobile tire production, and many smaller tire companies were closed by the government or turned into munitions plants. While the General Tire & Rubber Company continued to operate, the company built a munitions plant in Mississippi and operated it for the duration of the war. It also fulfilled other wartime requests, including building intricate pontoon bridges and improved gas masks.

Post-World War II Diversification

At the beginning of the war, with founder O’Neil still at the helm, the company had ventured outside the tire business by purchasing a 50 percent interest in the Pasadena, California-based Aerojet Engineering Corporation, which would become Aerojet General in the near future. This purchase marked the onset of an explosion of growth and diversification at the end of the war, which, among other distinctions, would make General Tire the country’s biggest private radio and television owner by 1960.

The postwar years heralded great prosperity for General Tire. As for the tire business, the company began to supply General Motors, hence entering the new car or “original equipment” market in a significant way (it had already entered the original equipment market for trucks in the 1930s, as a supplier for International Harvester). Plant expansion was initiated: in 1959 the world’s largest tire test track was completed in Uvalde, Texas; in 1967 the company’s fourth tire plant was completed, in Bryan, Ohio; and in 1973 a radial tire manufacturing facility was constructed in Mt. Vernon, Illinois. William O’Neil did not live to see the company reap its first $1 billion in annual revenues in 1963. By then, however, he had witnessed radical changes in his company.

In the postwar years, the General Tire & Rubber Company gradually ceased to be exclusively a tire manufacturer and marketer. It entered the entertainment business, followed by tennis ball, wrought iron, and soft drink production, as well as chemicals and plastics manufacturing. In the early 1980s General Tire even began motion picture and video production. The identity of the company had altered so drastically that by 1984, the shareholders agreed to change the name and transform the company into a holding company consisting of four major subsidiaries. GenCorp, Inc., would be the name of the new parent company. General Tire, Inc., emerged as the tire manufacturing entity, a separate corporation operated independently.

The formation of General Tire, Inc., signaled a return to the original identity and purpose of the General Tire and Rubber Company. With subsidiaries in Canada (closed in 1991) and Mexico (sold in 1993), it was the fifth major tire company in North America, consisting of six manufacturing facilities, a tire fabric processing plant, and the giant Uvalde, Texas, tire test center, which was the largest in the world.

Continental A.G.’s Acquires General Tire 1987

In 1987 GenCorp underwent large-scale restructuring, in part to ward off a hostile takeover attempt by General Acquisition, Inc. When one of Europe’s largest tire manufacturers, Continental Aktiengesellschaft of Hanover, Germany, became interested in the possibility of purchasing General Tire, the shareholders of GenCorp were more than willing to sell.

Company Perspectives:

I envision Continental General Tire entering the next century as the industry leader in providing unprecedented levels of service to customers along with a knowledge-based partnership designed to help the customer’s business and our business grow together in profitability.—Bernd Frangenberg, President and CEO, Continental General Tire Corp.

Continental was one of Europe’s oldest tire manufacturing companies, and the first tire company in the world to develop—in 1904—tires with treads. Flush with capital from one of its most successful years, Continental was determined to broaden its market base, which was largely domestic. Taking the U.S. tiremaker’s “Sooner or later you’ll own General” slogan to heart, Continental acquired the Akron-based company for $628 million in June 1987. General became Continental’s largest subsidiary and transformed its parent into the fourth-largest tire company in the world. Gone, possibly forever, were the days when hundreds of tire companies could profit by serving the same domestic market. In the 1990s more than 80 percent of the tires sold worldwide were produced by five major tire companies, only one of which, Goodyear, was American-owned.

The parent company applied a “clean sweep” strategy to its newest and largest subsidiary. Gil Neal, General’s well-liked president and CEO, left the company in 1989 and was succeeded by German Wilhelm Borgmann for the next 15 months. In 1991 Continental recruited Alan L. Ockene from Goodyear to serve as president and CEO. Ockene guided General Tire through its most difficult period since the Great Depression, a painful era of retrenchment experienced by all of the world’s major tire companies. General was downsized—its Canadian plant was closed, a retail chain was sold, and the number of employees was reduced by 20 percent—and restructured into three major business units. Unfortunately, the huge cost of restructuring was barely recouped when the recession of the early 1990s took a severe toll on the company. Deepening losses and ongoing layoffs eroded employee morale.

The competitive environment remained intense, marked by escalating labor costs and tougher environmental demands. Recycling of the mountains of used tires generated by tire manufacturers in an environmentally acceptable manner, installing expensive emission controls in factories, and developing “energy saving” tires were some of the concerns of General Tire in the early 1990s.

Despite its problems the company continued to introduce innovative new tire products, including the Hydro 2000, a premium, all-weather tire designed to provide optimum performance on wet roads, and the Genseal tire, which self-sealed minor punctures. Both new products were ultra-premium tires for affluent customers, to whom General Tire’s new products were increasingly marketed. In 1991 Ford Motor Company distinguished General Tire with its TQE (or top quality) Award, which only twelve of Ford’s 4,000 tire suppliers received that year.

Since acquiring General in 1987, Continental had invested more than $300 million in the subsidiary and had little more than red ink to show for it. The parent company drew the line when 1993 ended with a nearly $23 million loss. Alan Ockene retired late in 1994, just after making two sad announcements: General had just registered another losing year, and the company’s headquarters would be moved from its Akron home to Charlotte, North Carolina, near an existing tire manufacturing plant. Ockene was replaced as president by Bernd Frangenberg, former head of Continental’s European Uniroyal tire operations.

Frangenberg’s arrival confirmed Akron employees’ fears that nothing less than a complete transformation of General Tire’s corporate culture would satisfy its overseas parent. In fact, Frangenberg told Modem Tire Dealer that the transfer of General Tire’s headquarters from Akron to Charlotte was more for cultural than logistical reasons, noting a need to do away with “old boy networks and politics.” Though General—which tacked the Continental designation onto its name in 1996—struggled with difficult labor negotiations, lost a significant amount of business with Sam’s Club, and relocated to a new headquarters, Frangenberg managed to eke out a breakeven bottom line in 1995. Better yet, the company achieved a two percent profit on sales of $1.4 billion in 1996. Perhaps more importantly, Continental General (CGT) boosted its share of the original equipment (OEM) market from 11 percent to 15 percent and hiked its stake in commercial tire sales from 6.5 to 7.5 percent. Frangenberg was rewarded for his turnaround skills with the title of CEO (a position that had remained unfilled since Ockene’s departure) and a clear leadership role.

“Take Charge” Attitude for the Late 1990s and Beyond

Under the slogan “Take Charge of the Road,” Continental General faced the turn of the 21st century with a three-pronged strategy for profitable growth. CEO Frangenberg noted these “three pillars” in a special section of Modern Tire Dealer published in June 1997. “Transatlantic Synergy” coordinated the design, manufacturing, and technological strengths of both the parent and its subsidiary. The second pillar shifted Continental General’s corporate emphasis from manufacturing to marketing and distribution, while pillar three stressed competitiveness. The company expected to adopt an innovative new manufacturing system in 1998. At a cost of $100 million, this process promised to “deliver remarkable improvements in quality, productivity, and flexibility.”