FRANKFURT, Germany-The balancing act between oversupply and shortage in the European marketplace is becoming increasingly sensitive, and therefore more ``entertaining'' to watch. The recent flurry of activity among tire manufacturers to obtain approval for Sunday shift work reflects their need to improve capacity utilization and flexibility.
Groupe Michelin has been the most active in this respect, and it prefaced changes to work schedules with references to long-term recoveries in demand. Other manufacturers are less bullish on the market prospects and are seeking more temporary solutions to specific product shortages.
Michelin's proposed joint venture with Continental A.G. to manufacture ``budget'' tires is another example of the search for alternatives to building new capacity or reconfiguring existing plants. This project-which will be based at an existing Conti group factory either in the Czech Republic, Portugal or Slovenia-still is under review by European Community monopolies authorities.
Tire supply and demand have been out of balance in Europe for much of 1995, although most tire makers now feel they've just about caught up with demand.
It's been reported, for instance, that certain truck and farm equipment manufacturers are being forced to delay deliveries of vehicles because of shortages of specific tire types and sizes. Also, some car makers are shipping models to dealers without spare tires.
How did such a shortage occur? It's a multifaceted situation.
In the commercial arena, trucking activity during 1993-94 failed to live up to the levels anticipated following the collapse of communism in eastern Europe and the opening of east-west borders for the first time in 50 years.
As a result, trucking companies reduced the number of vehicles on the road and ``cannibalized'' tires from idled equipment, tire company representatives said. This created a dip in replacement demand.
Coinciding with this situation, Michelin, Conti and Pirelli S.p.A. consolidated truck tire manufacturing capacity at fewer sites, resulting in a temporary drop in production capacity as equipment was taken out of service and/or moved to other locations.
Starting in late 1994, however, the replacement market for truck tires started to liven up again as fleets ran out of tires to cannibalize; freight orders started to pick up; and orders for new trucks revived as well.
In the space of a few months, the market went from oversupply to shortage, and manufacturers and importers/distributors have been scrambling since early this year to catch up.
Bridgestone/Firestone, Goodyear and Pirelli all took advantage of their production sites in Turkey-where the domestic market had collapsed amid runaway inflation-to complement European capacities, and Pirelli contracted with Conti for some off-take production.
Tire production and/or sales statistics reflecting this trend are not yet available, as accepted industry data almost always lag by nine months to a year.
However, an industry analysis by J.P. Morgan Securities Ltd. estimates truck tire shipments rose 12 percent in Europe last year, and could increase as much as 7 percent this year to match the 1989 European peak of 12.2 million units by 1996.
This recovery follows a three-year slump that saw annual truck tire demand drop more than 20 percent from 1990 to 1993-to below 10 million units.
Reflecting the diversity of opinion about tire shipments in Europe, another recent independent survey/forecast-from Economist Intelligence Unit in late 1994-shows less than 1 percent annual growth in heavy truck tire sales through the end of the decade.
Retreads account for another 6 million to 7 million units of replacement demand, according to various sources, or about 40 to 45 percent of the European replacement market. The acceptance of truck retreads has been rising steadily the past few years, although casing availability causes spot shortages from time to time.
Sales of heavy trucks in Europe are expected to grow about 5 percent a year through 2000, according to vehicle industry data.
Sales of truck tires in eastern Europe (excluding Russia), on the other hand, were forecast to grow more than 5 percent a year.
A shortage of car tires is somewhat puzzling, since auto sales across Europe grew only 1.4 percent from the 1994 pace at mid-year. Nonetheless, some car makers have reported delays in getting shipments and have had to seek alternative supplies from smaller companies not normally in the original equipment business.
The right product mix is thought to be playing a role in the shortages, as European automakers turn increasingly to lower-rolling-resistance ``green'' tires.
Viewed from a different perspective, one tire company sales director pointed out that an increase in car production of ``only'' 1.5 percent represents nearly 200,000 more vehicles and 1 million more tires for the OE channel.
Most European car makers still fit full-size spare tires in their models, while in North America the space-saver spare dominates.
The OE/replacement market ratio in Europe also is higher than in North America because the European car makers are net exporters. OE shipments represent about one-third of car tire shipments vs. 27-28 percent in North America.
In the midst of tight deliveries earlier this year, some automakers were shipping cars to dealers without spares, forcing dealers to acquire the appropriate matching tires locally.
In spite of the tight supplies, tire makers haven't recouped the increased costs of production, particularly for raw materials, company representatives said.
Car production in Western Europe may peak by 1996 at 13.4 million units, according to EIU data, and even decline slightly in the following years to a level of 12.8 million units annually by the turn of the century.
Some of this production will shift to plants in Eastern and Central Europe, but combined output for all of Europe will still be down slightly by 2000, EIU forecasts.
In the replacement market, dealers and consumers across Europe are faced with a continually increasing array of brands and price categories.
The proliferation of private brands, manufacturer affiliate brands and off-shore brands has been well documented. Now a second wave of lower-cost alternatives, albeit main-branded, has appeared in selected markets.
Michelin's Classic initiated this market segment, and now has been joined in certain sectors by the Dunlop SP70.