Continental’s Passenger Tire Operations in the Americas Look to Profitable Growth in 2008

Hanover/Charlotte, NC, February 4, 2008 -- After more than ten years of losses Germany-based Continental AG managed to steer operations of its passenger tire business in the Americas into the black in fiscal 2007.

Highlights:
* New products contribute nearly 50 percent to passenger tire sales
* Winter tire business greatly expanded
* Market coverage close to target of 80 percent
* Sales revenue per tire up by more than 20 percent

“We have rigorously implemented our turnaround plan strategy and are happy to reach an operational break even,” said Dr. Alan Hippe, Continental Executive Board member and CFO and – in his capacity as president of Continental Tire North America , Inc. (CTNA) since May 2005 – in charge of the passenger tire business in the Americas. “Our operative results have improved considerably, both in the replacement business and in the original equipment business.”

The tire business for passenger cars and light trucks in “The Americas” region encompasses the original equipment business as well as the replacement business and takes in the subregions North, Central and South America.

“In the current year we foresee further growth in profits and assume that we shall continuously and consistently improve in this segment. The goal in the coming years must now be for the Americas to make a sustained contribution to earnings in the PLT Tires division,” underscored Dr. Alan Hippe. “With a volume increase of 12 percent in 2007, our replacement business expanded at a much faster rate than the market as a whole, finishing well in the black. In 2004 we were still deep in the red in this area. Since then we have managed to up the price obtained per-tire by more than 20 percent. Our success here stems from introduction of new products and, in equal measure, from improvements in our mix in the direction of the premium segments and winter tires,” explained Dr. Hippe.

“The breakeven point has not yet been reached in the original equipment segment, though. Here it was not possible for us to sufficiently pass on to the customers the raw material price hikes of the past two years. This harbors potential for the future. In the event that we should not manage to pass the cost increases on, we shall be forced to gradually withdraw from unprofitable lines of business,” said Dr. Hippe. He pointed out that the scope of Continental’s original equipment deliveries in North America has been reduced by roughly a fourth since 2005. This was achieved by not renewing unprofitable delivery agreements but was also due in part to a decline in US car production.

Dr. Hippe underscored the fact that in addition to rigorous cost optimization in production, logistics and administration, the turnaround was also helped along by a complete overhaul of the product range and a radical rethinking of target groups and market strategy. “Around fifty percent of the passenger tires we’ll sell in North America this year weren’t even thought of at the beginning of 2005. These new products, both in the premium Continental brand and our newly positioned US brand, General Tire, resulted from in-house market analysis as well as from an intensive dialog with our customers,” said Dr. Hippe. “Setting up a sort of advisory forum, we made a point of capitalizing on the experience and counsel of our dealers, who we regard as partners, and actively integrated what we learned into our planning. We didn’t want to repeat past mistakes, but, where possible, we wanted to avoid making new ones, too. We succeeded in doing so and are now reaping the rewards.”

“We have also set clear points of emphasis geographically in selecting our markets. In North America we initially zeroed in on California and Florida in the US as well as Quebec and Ontario in Canada. Texas and the surrounding states will now follow,” explained Matthias Schönberg, head of Passenger Tire Replacement The Americas. “In parts of these target regions we control eight percent of the market. We proceeded similarly in Mexico and Brazil, where we were also able to post two-digit growth in 2007. What is more, our product selection allowed us to come close to achieving the targeted market coverage of eighty percent in North America – from approx. fifty percent at the start. Also contributing to our success is the winter tire business, where we have been recording above-average growth since 2005 and have experienced an approximately fifty-percent surge in volume.”

With annual sales of more than €25 billion (based on 2006 figures), the Continental Corporation is one of the top five automotive suppliers worldwide. As a supplier of brake systems, powertrain and chassis systems and components, instrumentation, infotainment solutions, vehicle electronics, tires and technical elastomers, the corporation contributes to enhanced driving safety and global climate protection. Continental is also a competent partner in networked automobile communication. The corporation currently employs approximately 150,000 people at more than 200 locations in 36 countries.

Source: Continental AG

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