Sumitomo ramping up Falken production at N.Y. plant

BANFF, Alberta (Sept. 6, 2016) — After Sumitomo Rubber Industries Inc. (SRI) dissolved its 16-year alliance with Goodyear last October — acquiring Goodyear's 93-year-old factory in Tonawanda, N.Y., in the process — plans for North American production of the firm's Falken-brand tires became inevitable.

That goal materialized just a few months later, with Sumitomo curing its first Falken-brand tire at the plant in January.

Since that first experimental tire, the company has been working to ensure consistency in tires manufactured at the plant in preparation for its upcoming production cycle, Rick Brennan, senior vice president of marketing for SRI subsidiary Sumitomo Rubber North America Inc. (SRNA), told a room full of dealers Aug. 9 at the firm's Falken dealer meeting in Banff.

“We've spent the last seven months actually making tires, checking them, making sure that not only the spec but the performance is where it needs to be,” he said.

• This story appears in the Aug. 29 print edition of Tire Business.

SRI already has begun transferring the production of some North America-bound tires from its plant in Amati City, Thailand, and recently disclosed plans to double capacity at Tonawanda for car and light truck tires to 10,000 units a day by year-end 2019, investing $87 million along the way.

In July, the Tonawanda plant began regular production on its first two Falken SKUs, the Ziex ZE950 all-season passenger tire in sizes 215/60R15 and 225/60R16. Size 225/60R17 was added to the production schedule in August.

In September, the plant will expand its production further with the addition of ZE950 tires in size 205/50R16 and 205/60R16, along with the Wild Peak H/T light truck tire in size 265/70R16. The production schedule for both tire lines will continue to expand through the remainder of the year, Mr. Brennan said, and the plant will begin to manufacture additional lines.

“As we go through the rest of the year, you'll see our planned production for the Falken brand out of the Buffalo factory,” he told dealers.

“…We are actually doing the work up front to make sure that we separate where we get these (tires) from, so you won't have the same size coming from two different factories in two different countries. We're managing our inventory and making sure that we don't make the same size in two different places.”

Mr. Brennan told Tire Business that having local production is expected to help SRNA improve its inventory management and give the company more flexibility in the face of changing market conditions in ways that are nearly impossible now.

“Let's say we order on the 10th of August. That order that we sent to the factory on the 10th of August is for September production,” Mr. Brennan explained. “Depending on when it gets made in September, it's about a month from the time it actually comes out of the mold before we get the tire.

“Basically, it can be up to a 90-day timeline,” he continued. “So we're taking a forecast for what November's supposed to look like, by size, by warehouse and then guessing so that we can ship it and get it to that warehouse before we run out.

“And our fill rate stays high, but in reality you just have to keep more tires because you can't really plan it out that well.”

With the Tonawanda plant up-and-running, the company will benefit from timely and more flexible manufacturing.

“Now we can send an order to the factory and they can start being produced within the next week,” he said. “And the other thing too is we can get with the factory and change the production. ‘You know what, our sales just dropped in this tire. Take that size down and put this one in.'”

Furthermore, Mr. Brennan said local tire manufacturing is a must if the brand wants to extend its already growing OE portfolio. He noted that the company will add several North American fitments through 2018, but he did not disclose what they will be.

“There's a lot of fitments in the works now, and we're trying to be as active as we can to expand our fitments for OE as fast as we can,” he said.

Regarding the Tonawanda plant expansion, the Japanese company said the project will “enhance our ability to produce tires locally for the North American market, focusing especially on expanding local production of SUV tires, which are in particularly high demand in North America.”

The move will allow the company to reduce sales lead times while enhancing its ability to supply high-performance SUV tires, environmentally friendly fuel-efficient tires and other high-value-added tires to customers in North America.

The plant — opened originally in 1923 by Dunlop Tyre Ltd. — also has capacities for medium radial truck and radial motorcycle tires.

Pricing changes

During the meeting, Mr. Brennan also announced a price adjustment on several key consumer tires, including the Sincera SN250, Wild Peak A/T3W and Wild Peak M/T.

While the company's newest products performed well at launch, slower-than-expected sellout led to stagnant order growth from dealers, Mr. Brennan said.

“We've seen a lot of you buy a lot of tires but the sell-out hasn't followed at the same expectation we have for continued sales growth, so we want to work with you and make sure that happens,” he told dealers. “…We want to help you sell-out as much as we want you to buy in, because if you don't sell it out we don't sell anymore to you. We want you to buy a whole lot more.”

SRNA determined that the impact of sales promotions on these tires was inconsistent and reduced prices on them in order to make the products more competitive.

At the same time, the company said it has cancelled its promotion on those tires for the third quarter.

“Pricing is, right now, more difficult than I've ever seen it,” Mr. Brennan told Tire Business. “You can get a price sheet and you can get a glimpse of what the tire price is, but there're a lot of other things that the dealer gets.

“He gets, not just the traditional volume bonus and things that are part of a program, but because the market's so difficult right now a lot of manufacturers are going and saying, ‘OK, if you buy this many more I'll give you this much more money.' It can be a lump sum, it can be for a specific reason, it can be for a specific tire—we call it back side pay.

“It's not in a written program document that you can maybe get your hands on,” he continued. “It's probably 10 different communications — some of them maybe even over email — so you don't see it. All you do is you have to track the wholesale and retail pricing, then all of a sudden you see a change then backtrack and say, ‘OK, what happened?'”

For manufacturers, these pricing practices can make it difficult to gauge the best competitive level for a new tire, so launch promotions typically are put in place to drive sales. When unit requirements are included in these promotions — as was the case with Falken's — dealers may not always use the promotional pricing.

“With all of the other things, part of that promotion had to be used to make us competitive,” Mr. Brennan said. “So all of that discount that we gave for the promotion wasn't just profit. The dealer actually had to reduce the price to sell it.

“Well, if you do a promotion that has some unit requirement the dealer may not know if he's going to hit it or not, so he doesn't use that money in the price.”

Mr. Brennan said the goal for the tires moving forward is to get a consistent position “instead of flattening out and having to do something to make it move,” but that requires a “consumer velocity change.”

“That trend has to be a price change or a promotion or better communication, whatever it is,” he said. “So you have to take some action. That's what we want is, ‘Okay, we're going to get ourselves a little more competitive, but we want you to put us more competitive in the marketplace instead of keeping us at high margin/lower volume.'”

Marketing

Nearly a year has past since SRNA's Falken brand became the official tire of Major League Baseball, an agreement that has given the brand multiple promotional opportunities, ranging from virtual signage behind home place to global marketing rights for post-season games.

The company also added team sponsorships with the San Diego Padres, Cleveland Indians and Detroit Tigers in 2016.

“We had to spend a lot more money, but we've had to because now we aren't just performance (tires),” Mr. Brennan said. “We sell a lot of other things.”

He said the increased advertising spend has been successful.

In 2014, the number of impressions for the Falken brand — generated primarily through signage, racing, project car activity and TV sponsorships — reached about 9.5 million. That number plummeted to 3.5 million last year, largely as a result of changes to its motorsports program.

Within the first six months of 2016, Falken has had about 498 million impressions.

Expectations are for MLB partnership to generate more than 2 billion impressions by the end of the post-season.

Since partnering with the MLB, Falken's website traffic has increased 41 percent, Mr. Brennan added. However, that hasn't necessarily translated into increased tire sales so far for the company.

“If the consumer isn't aware of you, then he never engages your brand,” Mr. Brennan said. “So you have to get that awareness up, get his familiarity up to a certain level before he will even engage with your brand.

“So have we seen a lift of sales just because of that? Impossible to know at this point, because the activity with MLB is a long-term process.”

What the company has seen is a different attitude from its dealers, with a larger number of them now purchasing the company's product offerings.

Mr. Brennan said the MLB partnership likely made the decision easier for those dealers.

“It is risky,” he said. “(The dealer's) got tires and inventory, and if he buys us and puts them in (his product screen), the market's not growing. He's got to take share from somebody, so he's got to get rid of that stuff he's got there.

“If he buys it, all of a sudden his inventory went up,” he added. “If he doesn't sell these, we've got a problem because he's not going to buy another one. That's why we're tracking sell-out.”

Additional advertising and marketing activities for the brand will include continued motorsports involvement; print, TV and online advertising; and engagement with fans through social media.

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To reach this reporter: [email protected]; 330-865-6148; Twitter: @Will_Schertz