Germany's Continental seeks Russia plant

Issue Number: 
Kristine Petrosian

Germany-based Continental AG, the world's fourth-largest tire company, has opened a representative office in Russia and is searching for a partner to begin production in the country, officials announced last week.

Paul Hendry, general manager of the Eastern Europe division, said the company is in the advanced stages of negotiations with several domestic producers, including the Moscow Tire Plant. "We hope to close one of these deals by the end of the year," he said.

The Moscow Tire Plant, a joint-stock company, would be one of Continental's top choices, according to Hendry, who added that financial details and the size of the stake Continental would have in the plant are being discussed with plant officials.

"In order to produce our brand name, we need to have the controlling interest," Hendry said. If the deal is closed, some $30 million to $50 million would be invested into the plant's new facilities, with further commitments to come, he said.

Continental has been active in the Russian market since Soviet times, first purchasing synthetic rubber and technical carbon and, since 1992, exporting its products to Russia. For its most recent peak year, 1997, Continental exported roughly half a million tires to Russia, although sales fell after the 1998 crisis, hitting just 100,000 tires in 1999. Continental's global sales for 1999 were 80 million tires, according to the company's report.

Manfred Dunker, regional sales director, estimates Russia's car-tire market capacity to be 15 million to 18 million tires a year.

"We want to be a major player in the Russian market; this means 5 million tire sales annually," said Hendry. Continental occupies the top end of the Russian market with its ContiEcoContact tires. Customs duties make the average retail price for Continental's tires amount to $100, which is three to four times higher than that of domestic producers.

With its yet to be acquired production facilities in Russia, Continental will be able to target the middle market, reducing prices to the level of domestic producers, officials said.

Moscow Tire Plant's production capacity is 1.8 million tires per year, short of Continental's goal of 5 million. Managers said it is too early to talk of exporting from Russia, when sales are limited to Moscow, St. Petersburg, the Urals and Southern Russia. But exports to other CIS countries are likely in the future, Dunker said, adding that Continental is the main supplier for Daewoo's Uzbekistan plant.

A contract was recently signed with Avtovaz Lada, in which Continental will supply tires to auto manufacturers on a wholesale basis. Hendry said the company is aiming to eventually sell 20 percent of its products in Russia to auto manufacturers and 80 percent to distributors in the so-called "replacement" market. "That would be the same as in Europe and the U.S.," Hendry said.