AKRON (Feb. 22, 2002) In what is considered good news for tire dealers, the major tire manufacturers are expecting replacement ag tire sales to outpace original equipment again this year. However the gains in both replacement and OE are expected to be minor.
As farmers face depressed commodity prices and uncertainty in the economy, many are putting off replacing their aging tractors and farm equipment. “The replacement business will be good in 2002 as farmers stretch their equipment an extra year,” predicted Bridgestone/Firestone's Ken Weaver, director of North American sales and marketing for the Firestone Agricultural Tire Co. “The peak of equipment sales was in 1995 and 1996. Those machines are ready for replacement tires.”
According to Goodyear's marketing director for farm tires, Mark Pillow, the agricultural economy hit an all-time peak in 1997 and has been free falling ever since. Only now has the tumble reversed and the numbers are inching back up slowly. The key to economic revival for farmers is commodity prices, which have been near a 20-year low for beans, corn and grains. “As long as prices are depressed, it has a huge negative impact on farmers. We don't see that improving,” Mr. Pillow noted.
The farm economy also will be affected this year by government reforms, growing competition from South America and the ripple effect from the Sept. 11 events, predicted Michelin North America Inc. “There is a good deal of uncertainty and reluctance toward long-term investing within the farming community,'' said Tony Koury, Michelin's vice president of marketing and sales for agricultural tires.
As for the depressed original equipment market, it has “nowhere to go but up,” according to Continental Tire North America Inc.'s Neil Rayson, product manager for farm tires.
In 2001, Continental's replacement tire sales increased at the expense of OE sales, Mr. Rayson said. Likewise, Goodyear said its replacement sales fared better than OE and Bridgestone/Firestone said it maintained strong market share even as OE sales fell 20 percent last year. Michelin reported increases in both replacement and OE sales last year as the marketplace posted overall declines in OE of 15 percent and replacement sales of 5 percent.
This year OE tractor sales are expected to increase 2 to 3 percent as replacement tires are forecast to have a stronger year—which is good news for tire dealers who offer tire sales and service to the ag market, according to Goodyear's Mr. Pillow.
Despite expectations of slightly better sales growth, the tire makers are continuing to invest in farm tire innovations—especially in radialization, despite a landscape where bias is still king.
Goodyear's Mr. Pillow said about 75 percent of the farm tire market is bias and while radials are making inroads, he doesn't foresee radials commanding more than a 40-percent share of the market in the next few years. However, with the profit potential of radials, Mr. Pillow said Goodyear is plowing capital into radials, as well as investing in rubber track production. “That's where we're putting our money,” he noted.
Likewise, Bridgestone/Firestone expects few innovations in bias tires. “The majority of our efforts are going into radial,” said Ralph Burchfield, president of Firestone Agricultural Tire Co.
“We're investing in the radial business. That is the future,” agreed Continental's Mr. Rayson, who predicted radial farm tires will eventually overtake bias tire proliferation in the market—but at a slow pace. “It depends on the health of the agricultural economy,” he added, noting that radial tire sales are tied to a healthier economy.
“Small farmers look at bias as cheap. We see it as a false economy,'' said Mr. Rayson. “We're trying to educate the dealers and, therefore, the farmers of the real benefits of radial tires.” He foresees a gradual shift in the farm market from bias to radial, as was the experience in the passenger and light truck tire market years ago.
But due to the variety of soils, farm sizes and conditions, radial tires are not suitable in some cases. Radials will find their growth with the large horsepower tractors that do major field work, he said.
“Farmers understand the benefits of radial tires, which include more productivity, reduced down time, more traction and less soil compaction in their fields. We expect 30 percent of the market to be radial by 2005,” Michelin's Mr. Koury said. He added that Michelin—with a ratio of radial to bias that is twice the industry average—intends to increase the radial side of its mix.
As tire makers infuse capital into new radial lines, they must deal with a complicated assortment of tire styles and sizes to address the country's vast array of soils, farming conditions and applications. “Radial tires have to be product and market specific,” said Mr. Burchfield. “It puts a strain on the financial return. It's very expensive to make radials.”
And companies are faced with continuing to produce old tire lines to outfit old tractors that are still working the fields. “Old tractors never die,” joked Mr. Weaver. “Every time we try to discontinue a line, I receive impassioned pleas from farmers (still using old tractors.)” Added Mr. Burchfield: “Some tire lines are so long out there, they are part of our vintage program!”
Along with the trend toward radialization, the tractor manufacturers are demanding that tires provide suspension for larger, faster tractors. As more and more tractors are driven between large farms, OE manufacturers are looking for tires to be a lot rounder to reduce bounce, according to Goodyear's Mr. Pillow. Since tractors don't have a suspension system, manufacturers look to the tires to provide shock absorption.
“One of the areas of the agricultural business that is really growing is rubber track,” Mr. Pillow added. He acknowledged that tracks would never totally replace tires because they are condition-dependent. But during the past three years the rubber tracks segment has continued to grow as manufacturers, including Case and John Deere, produce four-wheel tractors on rubber tracks.
He also sees tracks as a potential new market for tire dealers. Up until now manufacturers have handled replacement tracks due to the large investment in installation equipment. “But in the last six months our dealers have expressed an interest in selling tracks. We'll address this in the real near term,'' he said.
“(The farm tire market) is a very traditional business and on the other hand, it's a high-tech business,” commented Bridgestone/Firestone's Mr. Weaver. “The farm tire market is a series of niches—combine tractors, two-wheel, four-wheel, big tractors, small tractors, hard soil, soft soil.”
There also are differences in the farming regions of the country, noted Mr. Burchfield. “As we grew the business, we had to attack by market.”
“For product development, we start with the farmer, not the OE company,” said Mr. Burchfield. Noting that there are about 850,000 farmers in the U.S., Mr. Weaver added: “We get out amongst them at farm shows and exhibitions to get input to understand the issues of farmers—'What innovations can we bring to the business to make them more productive?' ”
As for tire dealers, the manufacturers urge their dealers to focus on providing service to farmers.
“We find we continually have to increase their professionalism,” Mr. Weaver said. “It's a very application-specific business. You need the right tire for the right application. (Dealers) can help farmers be more productive.”