Continental Tires the Americas L.L.C. continues to ramp up its commercial tire business, which the company says remains strong compared with other years while in the midst of a recession. Paul Williams, Continental's executive vice president of commercial vehicle tires in the Americas region, told Tire Business that the tire maker has the capacity available to meet its customers' demands.
Q How would you describe business thus far in 2020?
A It has been an unprecedented year. Continental is one of the largest automotive technology suppliers and tire manufacturers in the world, and has certainly seen a global impact from the COVID-19 pandemic.
The commercial tire industry has not been impacted as severely as the passenger and light truck tire industry, with truck loadings down just 8% year-to-date. The current situation is not expected to be as severe as the 2008-09 recession, in terms of impact to the commercial tire industry.
Commercial tire replacement shipments in 2020 will finish down 7% year-over-year at approximately 17.6 million. To give some historical perspective, commercial tire replacement shipments during the prior recession finished at 14.8 million in 2008 and 12.8 million in 2009.
The prior recession saw the construction industry suffer severely due to the housing crash, while many tire manufacturers struggled with supply and pricing, contributing to the growth of low-cost imports.
If the unprecedented current scenario between COVID-19 and global recession still see the market finishing at 17 million truck tires or more, this is a win. Even if the effects from COVID-19 bleed over into 2021, overall, the commercial tire replacement industry in a much healthier place than a decade ago.
Our commercial specialty tire business, which includes agriculture, earthmover OTR and material-handling tires, started off the year very strong but we have seen some impact from the shutdowns and stay-at-home orders in April, with slightly more impact in May.
Fleets, while exercising fiscal responsibility, have shown great resiliency, particularly in our specialty tire segments where demand has persisted. Some prime examples are warehouse operations, aggregate producers and some construction work.
Q How has Conti reacted to COVID-19? What are some of the key measures you have taken to keep employees and customers safe?
A Since the outbreak of the coronavirus, Continental's main focus has been on the health of our employees and customers. In each of our locations worldwide, a site-specific hazard assessment has been conducted in order to implement suitable protective measures to ensure that our employees are safe at work during this pandemic.
These include a substantial increase in the frequency of cleaning, staggered shifts, social distancing markers and greater distance between seating in canteens and break rooms.
Wherever possible, we are asking employees to work from home or outside of our offices in order to minimize personal contact. In our manufacturing locations, we are supporting affected sites, for example by providing our employees with personal protective equipment where needed.
Q Do you expect any supply difficulties in the second half of the year?
A Continental has a large manufacturing footprint in the U.S. This has been leveraged especially on the commercial tire side, helping mitigate any impact to truck tire supply.
Our plant in Mount Vernon, Ill., is Continental's largest truck tire plant worldwide, with a capacity of more than 3 million truck tires annually. The plant suspended production for a short period to give us time to implement additional protective measures for our employees, and in line with demand.
The plant has already resumed production, and we don't anticipate any impacts to stock or availability this year for truck and bus radial tires.
We kept the precured tread rubber plant on the same Mount Vernon campus, which produces tread rolls for retreading, open throughout the entire period under the "essential manufacturing" provision. Due to differences in the production process for tread rolls, employees in that building were already socially distanced, so with increased sanitation efforts and following all CDC guidelines, we felt it was safe for our employees to continue working.
We also do not anticipate supply difficulties with our specialty tires. We keep adequate inventory in our U.S. and Canada warehouses, so we should be well insulated from supply shortages, even though we did have some short-term plant closures. Broadly speaking, we don't anticipate any supply issues.
On both the new tire and retread side, Continental is ready to supply our customers now and as the market continues to rebound.
We also see dealers working to deplete their on-hand inventory to preserve liquidity during the crisis. As the economy stabilizes, we expect to see additional orders as they replenish inventory.
We are working closely with our customers to prepare appropriately to meet their needs toward the end of the year. We anticipate a just-in-time inventory model being utilized by many of our dealers this year, so we're preparing ourselves to be able to provide the level of service and partnership required for that model to work efficiently.
Q What are some of the pleasant surprises you are seeing in the industry?
A One of the pleasant surprises for me has been the openness and willingness for our commercial tire customers to conduct virtual business. In a very traditional industry, it was a pleasant surprise to see the level of trust that our customers exhibited, allowing us to continue doing business with them and to share information throughout the crisis.
We have actually been able to spend more time in front of customers by using these virtual tools, since it eliminates the travel time. It's a testament to how adaptable this industry truly is. Of course, it wasn't really a surprise, but we also have to applaud the ways that our fleet and dealer customers are reaching out and doing good in their communities.
Q The USW has petitioned for antidumping and countervailing duties on passenger and light truck tires made in Thailand, South Korea, Taiwan and Vietnam. What is your company's reaction to that?
A As a company, we are in favor of free and fair trade. We respect the rights of all countries to investigate and take corrective action in the event there is evidence of unfair trade.
Q How might additional duties impact the industry?
A As Thailand, South Korea, Taiwan and Vietnam make up a significant portion of the total tire supply to the U.S. market, we would expect to see the larger global tire manufacturers operating in these regions to rebalance their supply sourcing approach for U.S. deliveries away from facilities in these regions.
This is similar to what happened when the tariffs on Chinese product were implemented. Therefore, manufacturers with less diverse manufacturing networks may have challenges. Continental is in a strong position as we are not reliant on sourcing from these countries to support our U.S. business.