Continental Tires plans major retail expansion in China

Continental Tires, the leading German tire manufacturer, is aiming to become one of China's top three tire makers and suppliers over the next five to six years through an aggressive expansion of its retail network.

Jay Dhillon, the general manager of Continental Tires China, said the company - the world's fourth-largest tire maker - saw rapid growth in its retail operation last year, its "most successful year", adding a further 1,000 authorized franchised stores giving it a total of 2,500.

It also expanded its production capacity during the year, investing $175 million in the second phase of its plant in Hefei, Anhui province.

"We will open another 1,000 authorized stores in 2013 - three a day - as well as deepen our footprint into more second- and third-tier cities, and maintain that speed over the next three years," said Dhillon.

"In 2012, Continental entered the second phase of our development in China, after establishing a stable foothold here. But we need to go much faster.

"We spent 80 percent of our marketing budget on opening shops and doubling our sales team in 2012," he added.

In February, Continental opened its 12th BestDrive flagship store in China, in Beijing.

These are larger auto stores, offering higher-end consumers with broader car services and maintenance.

It plans to double the number of BestDrive stores this year and add 10 to 15 a year for the next three to five years.

"Establishing BestDrive stores is a key initiative to propel our rapid growth in China, as well as a major step in building our presence in the local retail market, especially in the service sector," said Dhillon.

A recent report from consulting firm AlixPartners LLP showed that China's automobile service sector will grow at about 30 percent year-on-year on average between 2009 and 2014, driven by an increasing and aging vehicle population in the world's largest vehicle market.

"Expansion of this business is one of the top initiatives for further sustainable growth for auto industry suppliers," said Ivo Naumann, managing director of AlixPartners.

Although more than 90 percent of Continental's China business comes from tire replacement, the remainder is from the original equipment tire sector, or those which are selected by automakers to come with new vehicles.

Dhillon said he hoped for a more-balanced 65/35 percent split.

He said his confidence in increasing that original equipment, or OE, business comes from not only long-term partnerships with European car brands, but also from rising local Chinese brands.

"The future local production of Volvo and Jaguar Land Rover vehicles will definitely boost our OE business," Dhillon added.

To support its market presence, Continental also expanded its production capacity heavily in 2012, investing 134 million euros ($175 million) in the second phase of its plant in Hefei, which will soon have an annual production capacity of 8 million tires.

The plant is designed to reach a capacity of 16 million.

Italian tire maker Pirelli & C SpA said recently it is planning a $200 million investment to make China its largest global manufacturing base by 2014.

In January, French tire giant Michelin Group said it invested nearly $1.5 billion to open its biggest factory overseas in Shenyang, Liaoning province, to help accelerate its business by two to three times in coming years.

Statistics show that total tire production in China, the world's largest tire consumer, was expected to reach 483 million in 2012, a growth of between 5 and 7 percent on 2011, accounting for almost a third of global output.