FONTANA, Calif.—”Cautious optimism.”
The phrase has been a common favorite of tire industry professionals everywhere as the go-to economic outlook response in an uncertain, post-recession marketplace.
The “cautious” portion of the phrase certainly rings true—evident by the Rubber Manufacturers Association's revising downward its already meager growth forecast for U.S. tire shipments this year to about 1 million units.
However, Andrew Hoit, vice president of marketing for Falken Tire Corp., said the grim reality is more likely “cautious pessimism.”
“I think so many people in the industry are going to give you the cautious optimism line because they have shareholders. The last thing they need to do is paint this picture that the sky is falling,” Mr. Hoit told Tire Business.
“But if we really sat around the table and were totally honest about the industry, I don't know how anyone could be optimistic right now,” he said.
“It's going to be challenging, with the miles driven and the compression in the marketplace, and the number of brands in North America and the Chinese invasion of products. How could anyone feel overly positive about it?”
Rick Brennan, who recently joined Falken as the company's executive director of product strategy, offered a similar outlook, noting that he doesn't expect the tire industry to return to a growth rate in 2013.
“There's still too much uncertainty, too much fluctuation,” he said.
“You've got the stock market growing, companies are doing better, but when you look at the consumer's plight, there's not a lot of changing of his status, his income or what he sees is going to happen in the future. How fast is he going to get better, and what can he do tomorrow that he can't do today because all of a sudden he has more money to spend? There's nothing on the horizon that says he's going to be doing a lot better.
“We're still going to see the fluctuations in the market place, (and) that is going to depend on what (the consumer) wants to spend, what he has available to spend,” he continued. “And so the dealer's going to see fluctuation—great this day, bad the next.”
The likely result, Mr. Brennan said, is that dealers won't be changing their purchasing habits anytime soon.
“He's still reducing inventories, he's still managing his price points to find every ounce of profit he can for the future and there's really nothing that says that's going to change,” he said. “As far as the cautious optimism, people are still driving—they're still wearing out tires. They may be driving a little bit less, but they're still going to be buying tires.
“To solidify your place (in the market) you have to be looking, you have to be active and you have to be going after it,” he continued. “That's the optimistic part. There're tires to be sold and we want it to be us.... A lot of it doesn't have anything to do with a tire. A lot of it has to do with helping create more profit within (the dealer's) business and making it easier for him to do business.”
For Falken, this means serving as a better business partner to its dealer base, Mr. Hoit said, and also continuing to improve communication with both dealers and distributors.
“We're trying—and we have not done a great job of that in the past—but we definitely need to be more effective in how we're communicating our product, our company direction, our strategic direction,” he said. “All those things need to be more clearly understood by the distributor and the dealer.”
On the sales side, that means focusing on what's important to the customer and not just what's important to Falken.
“We've really seen a paradigm shift internally with ourselves to not try to make our profitability challenges (the customers') problems,” Mr. Hoit said.
“In the past the yen-to-dollar exchange rate has not done us any favors,” he added. “Granted, it's seen a recent trend shift to the positive, but we're really focused on making sure we prioritize things like fill rate. We want our tires to be the most profitable products they sell. It sounds cliché, it sounds like the things that everybody says they want to do, but we're really trying to execute that.”
In 2012, Falken launched its Fanatic associate dealer program, which has since surpassed 1,000 members. This year the company has implemented what Mr. Hoit called “the industry's most comprehensive consumer rebate program,” unveiling full annual rebate plans to dealers at the start of the year and offering rebates of up to $100 in value.
“We tested it for the first time in the fourth quarter last year, and it was very successful,” Mr. Hoit said. “Our customers loved it, they asked for more, so we launched a full program for 2013. We're really trying to listen to our customer base and provide them what they need because their lives are difficult, too. The wholesale and retail tire business today is tough.”
In addition, the products that Falken offers during those rebate programs are appropriate, said Falken Brand Manager Robert Chew.
“It's easier for customers to sell the products because it's what they're looking for at that time (of the year),” he said. “It's not just what we're looking for. We have everyone's interests in mind.”
Mr. Hoit said the market has been challenging, but the company is positive about its position in the market and growth potential going forward.
“I would say, to keep it vanilla, (we're) above average,” he said. “We're flat to very slightly down (in sales), but we're taking market share, so we're feeling very positive about where we're at right now in the industry. We've got a lot of good momentum and we're being well-received by the dealers now that we're not just the niche manufacturer of HP and UHP products.”
A maker of high-performance and ultra-high-performance tires by tradition, the company has been breaking into new segments in recent years with broadline products, such as its Sincera SN211 high-mileage touring tire and the Wildpeak H/T all-season SUV/light truck tire.
“We still want to maintain a cool, hip, edgy brand, because that's who we are and what I believe separates us from some of the others,” Mr. Hoit said. “In order for us to continue to grow we have to reach more applications, more consumers, so we have to become more broadline. But we don't want to lose our image.”
Mr. Brennan noted that maintaining that balance is less about the types of tires it makes and more about branding.
“As you expand into the more common use tires, the way we talk about ourselves, the way we present ourselves, the things we do create more of a vision of who we are, not exactly all of the things we have,” he continued. “It's real difficult to make a tire for a Kia Rio that is wild and crazy and gives an edgy look, but the company itself can still be that. That's exactly what we have to offer.”
The company has expanded its online presence as well, enhancing its cutting-edge image.
In 2013 Falken took a special interest in establishing “brand voices,” looking at various avenues to connect with fans—whether it be Facebook, Pinterest, Instagram or Twitter—and making each one different.
“Each one actually has a completely different voice,” said James Yim, creative manager for Falken. “Instead of rehashing materials across five, six, seven platforms, we dedicated resources and we gave what we call a brand voice to each one, because someone might be a fan of us on Pinterest and doesn't even use Facebook. Somebody might be a fan of us on Twitter and they're not interested in Google+.... So we separated those identities and give people reasons to follow each different one.”
Falken's social media presence helps to make it especially attractive to a younger audience, Mr. Yim said.
“Connecting with your enthusiasts, making it possible for them to engage us and talk to real people that work at the company,” he said. “I think it's a huge value in today's market. It's also something we pride ourselves with—capturing a younger demographic. There are many marketing partners of ours that align themselves with the Falken brand because we have such a young demographic. Their demographic is just getting older and older, but the younger demographic is highly influential, they're not brand loyal yet, so being able to leverage that is key and social media is a way to do it well.”
Working in Falken's favor is the fact that the performance market itself is becoming more mainstream.
“UHP is going to continue to grow because you have everyday cars coming now with higher speed-rated tires, which are categorized as UHP,” Mr. Brennan said. “You see new vehicle sales going up, which is putting new types of vehicles in the marketplace. CUVs for example will change the face of light truck over the next five years.”
At the 2013 Specialty Equipment Market Association Show in Las Vegas, Falken will debut its Ziex ZE950 all-season HP/UHP tire, replacing the company's ZE912. The tire will be a “power line” for Falken, available in 95 sizes.
Mr. Brennan said one of the main reasons for the growing UHP segment is simply that modern vehicles are capable of reaching higher speeds.
“You've got smaller displacement engines able to put out more horsepower, so you see the absolute speed capability of the vehicle increasing, which means the carmaker needs to put on a tire that can match the speed of the vehicle and provide everything it needs from a liability point of view and a safety point of view,” he said.
“The tire you make now has to have the speed capability, but it still needs to give the mileage, the comfort, the noise (reduction), the all-season traction. From the tire maker's point of view...now we have to make tires that are more mainstream but have the same speed that the old UHP tires did. It's more pressure on us to be able to make that tire.”
For tire makers, this means it's necessary to have better knowledge about what the consumer really needs. And, Mr. Brennan said, with sky-high prices, what consumers need are longer-lasting tires.
“He's demanding mileage even if he still demands performance. He's demanding the tire give all-season traction, because, 'If I buy an all-season tire, damn it, I want to be able to get out of my driveway when it snows.' So you're gonna see growth in products that really offer a wide range of performance for the vehicle and the driver that's got it,” he said.
Mr. Brennan said mileage warranties on performance tires with higher speed ratings will continue to rise, while all-season tires will begin to come with more winter traction capability.
“Making sure you put in the right mix of performance, whether it's got a T-speed rating or a W-speed rating, is the key to the future—making sure that tire size that fits on that vehicle gives everything it needs to give,” he said.
The tire market is changing, but according to Mr. Brennan, it's going to be a slow evolution.
“You're going to see more breakout technology—people looking for ways to stand out and make that technology mean something,” he said. “A good example is orange oil. You're gonna see more of that type of thing, but in reality for the consumer the technology may be invisible because it gave you more mileage, or it gave you more wet traction, or it did this, or it did that....You're going to have to spend a lot more time refining your ideas and trying them.”
Mr. Brennan said he believes low rolling resistance will start to creep into every tire, but not because consumers are asking for eco-friendly products. Rather, he said, sooner or later there will be regulation.
“Eco-friendly probably means that we totally changed our factory to make tires for Europe because now all tires in Europe have to be HA (high aromatic) oil free,” he said. “So instead of making tires for Europe and tires for the U.S.—and making them with different processing oils—now we just use the same processing oil. So now it's HA oil free. So it's eco-friendly in the U.S., but it's mandated by Europe.
“CAFE regulations are getting stiffer, which means we've got to be working on it for OE, which means it's going to have to come into play when we sell replacement tires.... It's going to be driven by CAFE regulation and it's just going to be driven by the fact that tires, overall, have to fit into the environment better,” he continued. “The consumer's not asking for it right now, but he's going to need it.”
Put simply, Mr. Hoit added, the consumer won't have a choice.
“The OE regulations are going to demand it and as a tire manufacturer you're not going to build one spec for OE and another spec for replacement,” he said.
Ultimately, Mr. Brennan predicted, selling tires in the U.S. will become very difficult for Chinese manufacturers and other tire makers without people “on the ground” in North America.
“The last men standing 10 years from now are going to be the ones that get it right today and just keep moving in that direction,” he said. “There are a lot of brands out there that don't have anybody in this market, they don't know what to be working on and they're just making tires and saying, 'Okay, I need to make these, but I really make them for the Chinese domestic market....They're good enough, but good enough pretty soon won't be good enough.”
On top of that, the Chinese market itself is beginning to demand higher quality.
“You're already seeing things happen in China that are evolving their product—ISO standards, performance levels, government mandates for durability,” Mr. Brennan said. “All of those things are starting to come into play, but as those things happen it also raises the price....Eventually you have to compete on an even keel with everyone else because you don't have the cost advantage.”
But some of the most challenging trends ahead for the tire market don't have anything to do with the tire, Mr. Brennan said. Instead, it has to do with consolidation in distribution.
“You see the big getting bigger, and they're moving through the marketplace,” he said. “As that happens, there are a lot of brands that were built around those (smaller) guys. Each one of them sold a different mix of tire brands and tire sizes. If you're a supplier to one of them, how do you make sure that you survive and you're not replaced?
“As a tire maker, you have to look at the whole landscape,” he said. “You have to do a lot more business analysis up front.... As the channels of distribution change it can dramatically change who you are, because 80 percent of the people pick the place, not the tire.”