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Tire makers: Planning's difficult

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AKRON—With the year 2012 all wrapped up like discarded Christmas decorations, tire makers are looking ahead to what is trending while keeping a wary eye on staying competitive in the market place.

“The North American replacement industry remains at historic low levels, most likely due to the challenging economic conditions,” said Steve McClellan, president, Goodyear North America.

“We know that miles driven by consumers is up, and we know that the number of cars on the road is increasing,” he told Tire Business, “and we also know that, according to a recent RMA (Rubber Manufacturers Association) survey, at least one in eight vehicles in the U.S. has at least one bald tire, so our view continues to be that it is not a question of 'if' but 'when' industry volumes return to more normal levels.”

Other industry experts share similar sentiments for the year.

“Heading into 2013, the tire industry as a whole appears (to) be doing worse,” said Robert Chew, Falken Tire Corp. brand manager.

“Initial RMA forecasts project a downward trend in overall growth, and optimistic projections are flat at best.”

Jochen Etzel, CEO of Continental Tire the Americas L.L.C., referenced the economy's uncertainty as a factor that makes 2013 a hard year for which to plan.

“Driven by the overall economic uncertainty, we see a continuation of the uncertainty in buying behavior. The rebound in new car sales may be one contributor to the current lack of growth we see in the replacement business, but hope-fully will see growth in the coming years.”

Mr. McClellan said Goodyear's strategy—what the company calls the seven “MegaTrends”—still remains relevant even in the lackluster environment, and the tire maker still sees the trends play out.

“The technological advancements of the tire industry remain strong and play to our strengths,” he said, noting that “...industry volumes clearly have slowed versus the projections of many experts.

“We are reacting to that, but remain steadfast in our belief that the growth trends will occur over the mid- to long-term. However, for now, we remain focused on our near-term performance.

“Clearly, with volumes as low as they are,” he said, “this requires a different approach than we originally envisioned when these goals were established at the beginning of 2011. We will have to rely less on volume and more on the value proposition of our products and on improved cost efficiency.”

Other tire makers also are finding ways to stay competitive in the market.

“At Continental we are continuing to focus on providing a high level of performance in our products with a strong value proposition to our customers, which we believe will continue to drive our growth in the future,” Mr. Etzel said.

According to Mr. Chew, even with the market's downward trend, Falken's business strategy will stay the same.

“We will aggressively attain market share by providing the best quality products, combined with best-in-class customer service, and by continually building long lasting business partnerships with our customers,” he added.

John Baratta, president of consumer replacement tire sales for the U.S. and Canada for Bridgestone Americas Tire Operations, said the company expects the consumer replacement industry to go up slightly in the new year—about 2 percent—with OE demand expected to increase about 3 percent.

Mr. Etzel said the commercial side of the business seems to have a more positive outlook for the upcoming year.

“From a commercial truck tire perspective, the Continental outlook for 2013 is positive. Freight is moving and most carriers are experiencing positive results, he said. “Add to the increased freight volumes the changing regulations such as Hours of Service, CARB Requirements, etc., and we see more trucks on the road driving more miles.”

Yet, there are a variety of factors that are contributing to growth demand or hindering performance in 2013.

“Vehicle miles driven is not expected to show a great recovery, having posted only a 0.7-percent gain over a very poor 2011 and remaining far below the peaks in the middle of the last decade,” Mr. Baratta said.

“The largest determinant of demand is population growth, which is expected to be only a fraction of 1 percent. So we anticipate only a slight increase in demand.”

Mr. McClellan said the RMA reported OE passenger tire shipments are expected to increase by more than 1.7 million units (or 4 percent); OE light truck tires by 2.8 percent to nearly 4.4 million units; OE medium/wide base/heavytruck tires are expected to grow approximately 2 percent to approximately 5.3 million units; replacement passenger tires units are projected to increase by 3 million units; replacement light truck tires are expecting little or no growth; and replacement medium/wide-base/heavy on-highway tire shipments are expected to increase by 4 percent or about 600,000 units.

“On the consumer side, the market is showing strong growth in the UHP and CUV categories,” Mr. Baratta said. “The ongoing shift to UHP and CUV occurring at OE will continue to drive good demand for these segments in the replacement market. We are also seeing good growth in the fuel-efficient (tire) segment with our Ecopia product.”

Mr. Etzel said Conti expects the strongest tire segments in the market to be truck and specialty (industrial) tires in 2013, and the company believes it will see growth in both areas.

There are several factors that drive growth, Mr. McClellan said, the first being simply to understand what the consumers want.

“With our market back innovation strategy, we are well positioned to determine the wants and needs of consumers,” he said. “...Understanding what the megatrends are that are driving our industry, i.e., Internet and information technology, are altering end user buying behaviors.

“Finally, understanding that OE helps drive demand—i.e., as OE decides they want performance tires on vehicles that traditionally have not been considered to be in the performance category—this will drive growth in that particular category.”

Mr. Chew said that for Falken, the PCR and SUV/LT segments of the industry will continue to be the strongest categories.

“We will be launching multiple product lines and size expansions in 2013 further increasing our market coverage and line penetrations,” he added. “Currently, it appears the TBR/MTR segment will offer the most amount of challenges due to rising Chinese product imports.”

Mr. Chew said there are various factors that could lead to either a positive or negative impact on demand growth.

“An improvement in the economy would increase consumer confidence, which therefore would translate into more tire purchases. The PCR and SUV/LT segments have the best growth prospects simply because of the sheer number of end consumers.”

Overall, tire makers seem to agree consumers are delaying tire purchases and companies will continue to use rebates and other promotional deals.

“We will continue to see rebates and promotional offers on our key product lines in 2013, but our offers provide consumers with options and are relevant to our overall marketing campaigns,” Mr. Baratta said.

“In these challenging economic times, consumers always look for deals, but tires continue to remain a 'when absolutely needed' purchase, and it is very difficult for consumers to delay the purchase any longer for the right deal.”

Mr. McClellan agreed, noting consumers are likely delaying purchases due to the weak economy.

“While rebates may play a role with some consumers, we believe that when presented with the proper value proposition, consumers are willing to pay for the value of the brand, the innovation that goes into the tire and performance of the tire.”

Mr. Etzel said that although Conti does not believe that consumers delay purchases in hopes of a rebate, the company does believe consumers are running their tires longer than in the past. “We will continue to utilize rebates with purchases as we have in the past to motivate sales in key times of the year. We do not see our efforts in this area increasing in 2013.”

Falken has seen trends move from purchases of complete sets of four, down to two and now even to one at a time, Mr. Chew said.

“This proves consumers are really only purchasing tires when they have no other choice,” he said. “However, I do believe rebates have a great impact for people who are on the fence and considering a tire purchase.

“Falken Tire will be increasing our 2013 rebate activity, with strategic tire lines being promoted based on seasonality. This is a great way for us to support our dealers and end consumers alike.”

One major change for 2013 is the end of the tariffs on Chinese-made tires, and tire makers said they are still unclear on the impact the lifting of the tariffs will have on the industry.

“It is yet to be seen whether the expiration of the tariffs will have a significant impact on the overall market,” Mr. Etzel said.

Mr. Chew shared a similar sentiment, stating there are simply too many variables that could come into play to make a prediction on either pricing or demand.

“Pricing has come down on some level for Chinese product but not to the same degree as the amount of the tariff reduction,” Mr. Baratta said.

“Since the additional Chinese tariff was implemented three years ago, other off-shore producers were able to fill much of the need for products in those lower tiers of the market,” he said, “so the impact of the tariff reduction is relatively moderate.

“We see the overall weakness and uncertainty in the economy to be more of a challenge on pricing in the near term.”

Mr. McClellan said Goodyear does not anticipate a substantial change in total imports with the expiration of the tariffs.
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