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September 12, 2018 02:00 AM

'Convenience' will drive tire industry growth, differentiation — Rich Kramer

Miles Moore
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    Tire Business photo by Bruce Davis
    Kramer

    AKRON — "Convenience" is the watchword that will dominate the tire-buying experience as millennials take center stage in the consumer arena, and those companies that figure out how to streamline the buying process will outpace the competition.

    This was the essence of the message that Rich Kramer, Goodyear chairman, president and CEO, delivered in his keynote speech at the International Tire Exhibition & Conference (ITEC) in Akron Sept. 12.

    Customers — both individual and corporate — are driving rapid changes in how tires are designed, distributed and sold, he said, and successful tire companies will embrace those changes.

    "My job is planning for the Goodyear of tomorrow," Mr. Kramer said. "That means keeping an eye on long-term challenges and opportunities."

    Change doesn't happen in isolation, he stressed, so understanding how industry trends are connected is crucial to seeing where the industry is headed and how to respond to change.

    Mr. Kramer began his speech with the image of a sailboat whose mast could not clear a bridge. It's a laughable image, but it denotes rising sea levels in Florida.

    "A rise in sea levels impacts on housing and property values, mortgage brokers, home lenders, the economic system of an entire society," he said. "More than $400 billion of Florida real estate is in danger of being submerged by the end of this century.

    "This is completely unrelated to tires, but what are the early warnings that your industry is changing?" he asked.

    There are several signs that the tire industry is changing radically, according to Mr. Kramer. One of the biggest is stock keeping unit (SKU) proliferation, which he said was the tire industry's equivalent to the mast hitting the bridge.

    In 2000, the industry needed 267 passenger/light truck SKUs to ensure 80-percent market coverage, Mr. Kramer said. By 2017, this had more than doubled to 625 SKUs.

    "If a dealer has two full sets of tires under each SKU, and if he has 10 stores, that means he has to keep 50,000 tires in his stores every day," Mr. Kramer said.

    This proliferation is driven by auto makers, according to Mr. Kramer. "Vehicles are changing rapidly to deliver what customers want," he said.

    The Chevrolet Impala is typical of today's vehicle market, the Goodyear CEO said. It is a mid-level, four-door sedan, yet it has seven different trim levels, each with its own tire specification.

    "This trend puts a premium on distribution," he said. "Dealers need multiple deliveries of tires each day, and that raises the value of distribution. It is a major factor in the consolidation of independent tire distributors."

    This is a key reason why Goodyear joined with Bridgestone Americas earlier this year to create Tire Hub, a jointly owned wholesale distribution network, according to Mr. Kramer. He said the formation of Tire Hub was a strategic response to SKU proliferation and gave them more control in several areas.

    "We have more efficient management of SKU proliferation," he said. "We can better serve our customers by having our tires available when and where they want to buy them. We capture the value of our brand, rather than diluting it through distributors who might be promoting another brand over ours."

    Change in tire distribution and sales begins and ends with consumers, according to Mr. Kramer. By next year, millennials — consumers aged 22 to 37 — will outnumber baby boomers as the largest group of consumers, and millennials seek the easiest ways to shop for and buy any product, he said.

    "The tire industry is not immune to this," he said. "Tires are vital, but the product is just the point of entry to the market. We're really after consumers, and the one who makes the purchase easiest will be the winner."

    Selling tires must be as frictionless as possible for the new type of consumers, he said.

    "They can go on Amazon and buy things with one click," he said. "If they have to click multiple times, or if the website isn't optimal for phones, they're gone."

    Today tech companies are entering the transportation market, competing with auto makers and even ride-sharing companies, Mr. Kramer said.

    These companies look at the time people spend in their vehicles — 400 billion hours a year by one estimate — and treat that as potential content consumption, he said, which they value at $4 trillion.

    "And they're going to figure to get their share," he said.

    Vehicle connectivity is also driving change in the tire market. "Cars will soon be linked to each other, and cars will be linked to the infrastructure," he said.

    "Say your tires are underinflated and there's a Goodyear store at the next exit," he said. "Will your car be able to call the store and make an appointment?"

    Meanwhile, urban life will dictate massive changes in driving patterns, according to Kramer. By 2050, 70 percent of people will be living in or near urban areas, which will make vehicle ownership less of a necessity, he said.

    "If the waiting time for a shared vehicle is less than five minutes, consumers will forgo car ownership," he said. It will take many years for car owners to become a minority, he said—the average life of a vehicle is 11 years, and there are 240 million personal vehicles in the U.S. alone. But the time is coming, he said.

    The future of the transportation industry, according to Kramer, can be described in an acronym called FACE. The different parts of FACE, he said, are:

    • Fleets. By 2030, 25 percent of vehicle miles traveled will be through shared vehicles, as compared to 4 percent in 2015.
    • Autonomous vehicles. Autonomous vehicles will be a $7 trillion business by 2050.
    • Connectivity. "Connected vehicles are the third fastest-growing technology after phones and tablets," he said.
    • Electric vehicles. The first million electric vehicles were sold in six years, and the second million were sold in two. Sales will increase as batteries improve and range anxiety dissipates.

    Miles driven globally will nearly double in the next 10 years, to 19 trillion from 10 trillion..

    "This means the 1.5 billion tires sold globally each year will double," he said. "The tire business is stronger than it's ever been."

    Goodyear, in 2015, was the first major tire maker to launch an e-commerce platform http://www.tirebusiness.com/article/20150126/NEWS/150129920/goodyear-to-offer-online-tire-buying , but that move was not designed to replace dealers, according to Mr. Kramer.

    "There is clearly a place for dealers as we go forward," he said. The emphasis of the market will go from individual vehicle owners to fleets, but none of that will change the need for independent dealers, he said.

    "We believe that dealers are a key for us to get to consumers," he said. "At the same time, we bring customers into their stores. Goodyear e-commerce does not replace going to dealers, but just reflects how consumers want to shop."

    Goodyear spends a great deal of time training dealers to take advantage of the benefits of e-commerce, he said.

    Asked about recent economic downturns in China, Mr. Kramer acknowledged that new car sales had fallen there in July and August. But Goodyear still sees the Chinese and world economies as strong, he said.

    "By and large, the economy is going very well," Kramer said. "We still have significant raw material cost issues we're working through. The sedan market is falling, and emerging markets and currency fluctuations are on the minus side."

    Mr. Kramer was cautious in his answer regarding potential tariffs on truck tires imported from China.

    "Goodyear is for free and fair trade anywhere in the world," he said. "When tariffs go in place, tire production teds to move to different geographies. We prefer to approach trade holistically."

    _____________________________

    Bruce Davis, Tire Business staff, contributed to this piece.

     

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