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President’s Perspective: Yokohama Tire Corporation’s Takao Oishi Discusses the Turbulent Tire Market

Yokohama’s president and CEO looks at key industry issues and trends

March 01, 2011

FULLERTON, CA (March 1, 2011) – The economic downturn in 2008-2009 caused severe repercussions within the tire industry, including a major slowdown in production. That, in turn, led to a problematic fill rate situation in the year that followed.

Fast forward to 2010 when the industry actually did see signs of improvement – most critically, an increase in customer demand. Companies experienced a better, stronger year. However, with the relief from one pressure came new challenges from several others that replaced it. There was now of course, and continues to be, the pressure to get supply to adequate levels. Then, there are the skyrocketing costs of raw materials, labor issues, legislative and regulatory battles, as well as fierce competition. Things may look clouded still, but not to Takao Oishi, president and CEO of Yokohama Tire Corporation (YTC). Under Oishi’s guidance, Yokohama has successfully navigated through the tough times and is poised for a promising future. In this Q&A, Oishi offers an industry overview, from a president’s perspective.

Question: Yokohama has turned the corner in the economic downturn. How are things going?

Takao Oishi: Thanks to everyone’s hard work and effort at YTC, we’ve been doing very well and are still continuing to grow. Like all companies in our industry, 2009 was a rough year, but 2010 was a big improvement for us overall. We’re still struggling, though, with issues that are affecting everyone in the industry, such as the escalating costs of raw materials and fill rate problems.

Question: What would you say were the key drivers for Yokohama in getting through 2009 and 2010?

Oishi: We’ve always run lean and efficiently, so that helped when the economy slowed down. Our employees tightened up on budgets and worked extra hard to get through the tough times. We also have great communications internally and across the globe with our parent company in Japan, The Yokohama Rubber Co., Ltd. (YRC). Strong communication is extremely important in making the company operate effectively.

Our product offerings were another factor. We launched new products like the AVID® ENVigor™ consumer tire and the101ZL™ commercial truck tire, which were received highly by our dealer base. In some ways we did much better than expected, so, unfortunately, we now have a fill rate issue as I mentioned earlier. That’s a pressing priority for us, and the industry as a whole. We want to continue the growth we’ve experienced, so we are pushing our parent company and our Salem plant to increase production as much as possible and as quickly as possible. To help, we’ve invested $13 million to expand production at our Salem plant.

Question: Will supply for the American market come from more than one source?

Oishi: Yes. I’m proud to say that we have a strong relationship with our parent company, YRC; they fully support us. In addition to the Salem expansion, Yokohama is investing in plants in Thailand and the Philippines to increase production and help bolster our supply in the United States.

Question: Are you optimistic about Yokohama overall in 2011?

Oishi: Definitely. We have a lot of current customers who are doing much better economically and growing. Additionally, we have an increasing number of new customers, and that’s always a very good sign.

I do have to guard this optimism, however, with a couple of factors that are outside of Yokohama’s influence, or of any company’s for that matter. The currency exchange rate is one, for example. As you know, this fluctuates constantly, and with the continued weakening of the U.S. dollar, the conversion against the Japanese yen has been on a downward trend in general. This offsets profitability that we post. It also makes it difficult for us to calculate on a consolidated basis our performance with that of our parent company.

Another external factor is the forecasted decrease in the U.S. GDP. For some of our larger competitors, this will make it tough to increase their market share further. If you already have about 20 percent market share, for instance, it will not be easy to grow it to say, 30 percent, in an economy that’s still recovering.

Yokohama, on the other hand, sees this as an opportunity. We aim to expand our market share. Even though we’ll need more products to achieve our goal, I’m very, very optimistic we’ll increase the revenue and scale of our company.

Question: What kind of trends do you see in the marketplace? Do you see an increase in the OTR market? Commercial? Consumer?

Oishi: Our research indicates the commercial segment is growing a little faster than the consumer segment at this time. There are more commercial trucks on the road carrying more goods – a very good sign for the economy indeed and the commercial tire market.

Additionally, the commercial segment is becoming more environmentally-aware with initiatives such as the EPA’s SmartWay program. This opens new opportunities as an ever increasing number of fleets require SmartWay-verified tires that are fuel efficient and last longer, which Yokohama already has. We not only save fleets money, but protect the environment as well. We believe being green is an important part of our business.

Question: Yokohama was a staunch proponent of environmentalism long before it was popular. From zero waste emission factories in Japan to planting trees at your facilities around the globe with the Forever Forest project to eco-friendly products such as orange oil-infused tires, Yokohama’s been on the forefront of environmentalism and technology. Why?

Oishi: We are very conscious and respectful about the environment. That’s why it’s a priority in everything we do, from our products to our corporate activities. It’s our corporate policy and it starts at the top with Mr. Tadanobu Nagumo, the president of YRC. He believes that as a company and manufacturer, we have a responsibility – an obligation, in fact – to help the environment. Producing the best product is not enough. You have to be a good corporate citizen as well.

Question: Are you surprised when you see some of your competitors suddenly producing “green” products?

Oishi: Obviously, that’s a natural trend. We try to provide our own, unique products, such as the ADVAN® ENV-R2 race tire, which is the only race tire with orange oil in it. No other company is using orange oil technology – it’s unique to Yokohama. We believe these kinds of innovations will be key to Yokohama’s growth. We don’t want to just follow what other companies are doing. We want to lead, using our own, proprietary technology and environmental convictions to produce original, signature products.

Question: Speaking of technology, Yokohama is known for its technological advancements. How large of a role does the focus on technology occupy in Yokohama’s corporate mandate?

Oishi: Technology is what separates us from other companies, so it forms the very core of our corporate mandate, along with environmentalism. When we produce innovations such as the AIRTEX® Advanced Liner, which performs better than the traditional butyl liner – lighter and saves fuel by retaining air better – we differentiate ourselves by providing consumer noticeable benefits they can appreciate. Technology has been Yokohama’s heritage and it will continue to be a cornerstone of our product development in the future.

Question: Do you think we can expect improvements for the tire industry overall in 2011?

Oishi: Yes, 2011 will be slightly stronger than 2010, but all tire manufacturers – including Yokohama and its competitors will face the same problem on supply, as well as the rising costs of raw materials. Remember, the industry really suffered economically in 2008 and 2009. Most companies didn’t invest largely in their factories. Production was cut dramatically. Now that the economy is turning around, all of us are doing our best to catch up quickly. How fast anyone does this will be key to their success.

Question: What are the biggest challenges facing the industry?

Oishi: The rising cost of materials is a major challenge because you can’t prevent it. This makes it tough on everyone, especially the tire makers. As a manufacturer, you have to be very sensitive to the raw material price fluctuations. When raw material prices go down, we can earn money. When they go up, we can’t. We are forced to adopt price increases but the rates they take on never fully offset the increase in raw materials. That’s why we have to be an efficiently-run company. We’re looking at every angle on how to optimize operations. This will continue to be a primary focus for us now and as we approach our 100th anniversary in 2017.

Question: Is a key strategy in 2011 and beyond to keep reinvesting in the company for future growth?

Oishi: Yes, of course. Continued reinvestment in technology and new products means we are obsoleting ourselves before our competitors do. This assures us that we are meeting the needs of our customers better. This, in turn, means future growth as customer confidence is made ever stronger.

Question: What are your thoughts about Chinese companies producing knock-offs of Yokohama products – with very similar tread patterns – and charging half the price?

Oishi: I have mixed feelings. Some Chinese tire manufacturers are building imitation tires with treads almost like ours. That’s not good for anyone. On the other hand, it proves customers prefer our tread patterns. But what’s overlooked here is that the Chinese tire makers can’t service the customer. Yokohama has a well established distribution channel that can provide service after the sale. That’s one of our strong points. Plus, they can’t come close to us in quality.

Question: Does quality beat price?

Oishi: We know that some people will only buy on price, but overall, we believe quality does beat price. Not only do we beat them on the quality, we also beat them on servicing after the sale. Those things are important to consumers. Let’s not forget to add performance, ride comfort, handling and tread life. It all adds up. In the end, our tires prove their value every day. That’s why these copycat companies don’t threaten us. They may be a little headache, but nothing more. I’m not worried about them.

Question: What does concern you?

Oishi: I don’t worry too much, especially about the competition because we make a great product under the name of Yokohama and it’s supported by a dealer base that believes in the product and customers that are loyal to the brand. I’m not too concerned about the next five years because if we can get the supply, we’ll grow quite a bit. Obviously, you have to keep your eyes open to all possibilities and challenges, but I believe in staying focused and doing our best in everything we do. That includes technology, quality control and environmental initiatives...everything. If we do that, growth will take care of itself.

Question: You’ve been quoted as saying the reasons for Yokohama’s success are good customers and employees.

Oishi: We are grateful to our customers and want to help them any way we can. As president of Yokohama Tire Corporation, I also appreciate everyone who works for YTC. They are our best asset. I always strive to make employees happy by providing a work environment that’s conducive to productivity and personal accomplishment. Happy employees make successful companies. Our company philosophy is ‘brightly, nicely and actively.’

A couple of years ago, when times were tough, I spoke to our employees about ‘Katsu,’ which means to overcome challenges. I was very pleased because the employees internalized it and we did overcome the challenges to not only meet but surpass our goals. The following year I introduced ‘Tan,’ which is about conditioning one’s strengths. This meant to us becoming a lean company and “trimming the fat” – whether this be in unnecessary expenses or wasteful steps in doing one’s job. This year, I introduced “Zen”, which means to make better. Continuous improvement is a hallmark way of life for Yokohama. Being good enough is not good for us.

Question: It sounds like you have an effective way to communicate with employees.

Oishi: Internal communications is critically important to a company. Employees should know how the company is doing and what they can do to contribute. It’s important they know and understand what discipline is called for to succeed. Every month, I relay to all employees what Yokohama is doing as a company.

I want all people to work together and make a commitment. The more involved they are, the more personal it becomes. They become stakeholders. They feel part of it and the company benefits.

Yokohama Tire Corporation is the North American manufacturing and marketing arm of Tokyo, Japan-based The Yokohama Rubber Co., Ltd., a global manufacturing and sales company of premium tires since 1917. Servicing a network of more than 4,500 points of sale in the U.S., Yokohama Tire Corporation is a leader in technology and innovation. The company’s complete product line includes the dB Super E-spec™ - the world’s first tire to use orange oil to reduce petroleum – as well as tires for high-performance, light truck, passenger car, commercial truck and bus, and off-the-road mining and construction applications. For more information on Yokohama’s extensive product line, visit www.yokohamatire.com.

Yokohama is a strong supporter of the tire care and safety guidelines established by the Rubber Manufacturers Association and the National Highway Transportation and Safety Administration. Details can be found at the “Tire Safety” section at www.yokohamatire.com.