AKRONGoodyear is in the enviable position of struggling to keep up with demand for its premium tires.
Demand for premium, or high-value-added (HVA), tires in the Americas is being driven by lower fuel prices, increased miles driven and growing consumer OE needs, particularly for SUVs and light trucks, according to Goodyear Chairman, CEO and President Richard Kramer, who provided a market outlook during the tire maker's recent first-quarter investor conference call.
Between 2014 and 2019, the Americas consumer tire industry is expected to grow about 2 percent annually to an additional 34 million tires. But demand for HVA tires is expected to surge 5 percent per year for a total increase of 76 million by 2019, according to Goodyear.
During the Deutsche Bank Global Automotive Conference in January, Goodyear predicted HVA tires will claim a 74-percent share of the Americas consumer tire market by 2019, compared with 53 percent in 2012, vs. low-value-added tires.
The Akron-based tire maker acknowledged there is no standard industry definition for HVA tires. Goodyear considers an HVA tire to have a rim diameter of 17 inches or larger, a speed rating of H or higher, a reduced sidewall height, a segmented mold, advanced tread compounds and extra load constructions.
Mr. Kramer said demand for the company's premium products is robust so far this year, which in turn is driving margin expansion.
The ability to supply high-value added tires of increasing complexitysuch as larger rim diameters and greater performance specificationsis where the growth and profitability are and will increasingly be in the tire industry. That's why they are important, he said in a conference call to investors.
The specific segments may differ from region to region but the value proposition is the same. We want to win in the parts of the market where we can capture the full value of our brand, our technology, our distribution, and our products and services. We will not chase volume for volume's sake. Focusing on high-value segments is critical to creating sustainable value and profit growth.
Mastering the complexity of premium tires is a major challenge for every tire company, Mr. Kramer noted.
There's complexity in manufacturing, in OE specs and supply chain, virtually every step in our end-to-end operations. Complexity in the tire industry is increasing at a pace not seen since the shift to radial tires. It's being driven by OEMs, by regulators seeking reduced CO2 emissions and by consumers who won't compromise on performance. It's affecting tire development, manufacturing, supply chain, consumer experience and customer service.
The complexity of today's OE tires, let alone tomorrow's, is significantly greater than it was just five years ago.
The tire maker noted that converting production from low-value-added tires to HVA capacity may not always result in a one-for-one conversion in tire units due to the complex manufacturing process.
Goodyear said it has experienced increased demand, more than it expected, from OEMs and thus has dedicated additional production capacity to that segment.
I'm pleased with that because essentially it says we're on strategy. We said we wanted to get on the right fitments and bring those fitments through to our dealers as a replacement, first and second replacements coming through.
So the strategy is working exactly as intended.
The demand is higher, therefore we are having trouble keeping up with those tires and you're seeing some of that in the replacement market, Mr. Kramer said.
The OE tire segment continues to benefit from strong car sales while the replacement tire market is driven by sell-through programs.
For the remainder of the year, Goodyear is focusing on increasing tire production and getting more tires imported from its factories overseas.
The company's new plant under construction in San Luis Potosi, Mexicowith a potential annual capacity of 6 million tiresis expected to help ease supply constraints when it comes online in mid-2017. The facility is expected to support the growing demand for HVA tires across North and Latin America, the company said.
Meanwhile, Mr. Kramer said Goodyear has updated its strategy road map, which debuted in 2011, to clarify the company's direction and identify a common goal for its associates.
The road map focuses on high-value-segment competition, consumer experience and service, and quality products and programs to achieve sustainable revenue and profit growth.
The strategy calls for Goodyear to build its brand with sales and marketing strategies and increase production to meet demand.
Our goal is to deliver a value proposition built on innovation, reliability and quality that wins over price alone, Mr. Kramer said.