New products, programs key to Falken's growth

ASPEN/SNOWMASS, Colo. — 2021-22 is shaping up to be a critical period in the evolution of Sumitomo Rubber North America Inc. (SRNA) evolution into a more well-rounded, more completive player in the North American tire industry.

The company, which goes to market primarily with the Falken brand, gained market share last year thanks to some timely decisions and a growing dealer base and is looking to keep the momentum rolling with a trio product launches in critical segments despite dealing with unprecedented supply fulfillment issues.

That was the message SRNA executives delivered to representatives of 30 of its larger customers during the company's dealer meeting Sept. 12-16 in Aspen/Snowmass.

"The word of the day is — Supply," Rick Brennan, vice president, marketing, told those attending the company's annual gathering of its leading distributors and dealers.

"Everybody's short," he said, noting that according to U.S. Tire Manufacturers Association data, the U.S. industry's passenger tire stock on hand is roughly 5 million units short of what's traditional at this time of the year. For light truck tires, the shortage is 1.2 million to 2.8 million units, while truck/bus is 1 million units short.

The shortages are especially critical in light truck and the larger passenger sizes for the SUV/CUV categories.

"When will it improve?" Mr. Brennan asked the gathering. "Your guess is as good as mine," he responded, noting that the best scenario is for mid-2022 for passenger and light truck tires and year-end 2022 for truck/bus tires.

While acknowledging the industry is extremely tight on supply, Mr. Brennan said SRNA believes it's ahead of most of its competitors, achieving fill rates of 75% to 85%.

In touting SRNA's fill rates, Mr. Brennan lauded the company's logistics staff for working 24/7 to get tires that have been sitting in containers on ships in the Long Beach port off-loaded — SRNA imports from plants in Brazil, Japan, Indonesia and Thailand — and into the distribution stream, as well as the plant engineers at the firm's Tonawanda, N.Y., factory for their efforts to accelerate the company's $122 million capacity expansion project under way there.

In particular, the expansion of capacity for truck/bus tires is ahead of schedule, Mr. Brennan noted.

SRNA's ambitious product plans come in the wake of measurable market-share gains last year in all three key product areas, largely the result of gambling on building inventory in the early days of the pandemic, according to Richard Smallwood, CEO of the Sumitomo Rubber Industries Ltd. (SRI) subsidiary.

SRNA gained share in 2020 largely because it had product to sell when the firm's major competitors did not, he said in an interview with Tire Business.

The momentum built up last year — overall market share in the U.S. exceeded 3.5%, according to figures presented at the dealer gathering — has continued into 2021. SRI reported recently that its sales revenue in North America through the first six months of the current fiscal year was up 39% over the 2020 period, as well as up 22% over the 2019 period.

"We're firing on all cylinders," Mr. Smallwood said, noting that SRNA has a growing dealer base, a growing OE presence with key North American-based vehicle makers, a steadily expanding product portfolio in both consumer and commercial tires and a commitment from SRI to re-engineer and expand the company's plant near Buffalo to support growth.

The latter is key to continued growth, Mr. Smallwood said, since the company relies on imported tires for up to 80% of its sale, and now the company's supply of passenger and light tires from Thailand — where SRI operates the world's largest tire factory — are now subject to antidumping duties of 14.6%.

SRNA also benefited immensely, Mr. Smallwood said, from management's decision early in 2020 to gamble on building inventory at a time when most domestic competitors were throttling back their factories as the pandemic swept across the country.

"We took a gamble on bringing inventory in [from overseas]," Mr. Smallwood explained, "thinking if this thing [the pandemic] turns quicker than most think, there's not going to be inventory in the market."

The gamble paid off for SRNA, which reported 2020 tire sales of roughly $1.3 billion, nearly on par with 2019 and in contrast with the company's other regional business units, which all suffered double-digit sales declines.

In their reports to the dealers attending the conference, SRNA's management team stressed the importance of the Falken Fanatic program for the company's strong performance last year and continued growth in 2021.

That program, which launched several years ago but which was overhauled radically two years ago, now encompasses nearly 10,000 predominantly smaller (one to three outlets) dealerships across throughout the U.S.

As for new products, SRNA has three key Falken-brand product launches on tap for 2022: The FK460 A/S all-season ultra-high-performance tire; Wild Peak R/T 01 rugged-terrain tire; and BI 837 drive-axle tire.

SRNA is touting the Y speed-rated FK460 A/S — set to launch in mid-2022 in 63 sizes — as an affordable alternative to the UHP category's acknowledged leaders. SRNA is targeting a 50,000-mile warranty for the product, although Mr. Brennan acknowledged that figure's not 100% yet.

The Wild Peak R/T 01 will be positioned between the AT3W and MT lines. It's set for launch in March 2022 in 50 sizes and will be offered with a 50,000-mile warranty coverage.

Mr. Brennan noted SRI has invested heavily in new mold technology that eliminates the mold separation line at the tread/sidewall interface, producing a much cleaner sidewall look for tires that employ tread elements that wrap around the tread edge and onto the upper sidewall.

The BI 837 closed-shoulder drive tire will complement the BI 830, offering improved performance on gravel roads and light off-road situations, Mr. Brennan said. It will be available in mid-2022 in the four most popular sizes. The BI830 will remain in the line-up for line-haul and regional-haul over-the-highway applications.

The company also is planning considerable size-range expansions for both the Ziex and Wild Peak product lines, including the addition of C-spec sizes to the H/T HT02 line for the growing category of European-style delivery vans.

Separately, Matt Leeper, vice president, sales, addressed the company's belief in and adherence to its minimum advertised pricing (MAP) policy, which he touted as providing adequate profit margin opportunities for both wholesale distributors and dealers.

He noted that independent analyses of SRNA's MAP policy show customers tend to adhere to the system at rates measurably higher than competitors.

SRNA has implemented three price increases (of 8%, 8% and 10%) so far in 2021 and has another on tap (of up to 8%) set for Oct. 1.

Customers for the most part haven't complained, the SRNA execs said, because they recognize the reasons for the increases and because nearly all the competitors are raising prices as well.

Mr. Smallwood said SRNA expects the increases to offset most, but not all, the added costs the company is experiencing this year, including the tariffs on products from Thailand. One cost the company likely won't be able to recoup are the premiums it has to pay from time to time to get tires sitting on cargo ships in U.S. harbors.

He said the company's operating profits this year most likely will suffer in comparison with prior years as a result.