SRNA navigates challenges to grow Falken tire brand

SAN JUAN, Puerto Rico — Sumitomo Rubber North America Inc. (SRNA) navigates an ocean of challenges with a steady hand.

CEO Darren Thomas, appointed at the start of the year, for example, has been with the company since 2001. Former CEO Richard Smallwood, with the company since 2000, is now chairman of the SRNA board.

As far as leadership and vision, Thomas said, "nothing has changed from that perspective" — the steady hand in the storm.

SRNA, based in Rancho Cucamonga, Calif., knows where it's going, and much of it can be related to "volume." The company is turning the volume down on outside commercial pressures and turning the volume up on Falken's brand power.

The firm's team is growing, the Falken portfolio is expanding and becoming more robust, and SRNA's tire plant in Tonawanda, N.Y., is nearly doubling capacity.

These are all plans long in the works, the course has been set, and the challenges that come are being mitigated, Thomas said during the Falken tire dealer trip, held in San Juan in early August.

"In the next year or so, our focus is going to be as closely as possible aligning our business strategy with the commercial demands of the markets place and commercial pressures," he said. "Right now, it's outside commercial pressures that are dictating the moves of brands; that is not natural in terms of brand movement."

"Once those two pressures start to become less significant, brands will try to move back to normal positions," he said.

Bloated freight costs and elevated U.S. import duties should fall. Thomas said SRNA is confident it will be able to decrease the 14% antidumping duties on tires imported from Thailand. Sumitomo Rubber Co. Ltd. from Thailand is among more than a dozen tire companies from South Korea, Taiwan and Thailand has petitioned the U.S. Department of Commerce to review import duties the U.S. imposed on passenger and light truck tires from those nations in June 2021.

"We're going to go through some kind of demand cycles until it settles," Thomas said. "We'll see the industry move into a financial managed reality, and the financial parts of tire companies will be fighting the sales and marketing side."

While freight costs may not decrease right away, soon enough the market will balance out.

"Shippers are not immune to commercial economies," he said.

The tire industry is experiencing a "financial hangover" so far this year after record demand (and tire sales) in 2021, SRNA officials said. Miles driven is trending down, so is spending, as gas prices and interest rates increase.

"There's a lot of things happening that indicate a possible recession, and it will be a challenge to the tire industry, as well," Matt Leeper, SRNA vice president of sales, said.

Less consumer spending, overstocked tire warehouses and an increase in private-equity-led acquisitions have destabilized the distributor base, he said.

Tire warehouses are filling up, and many of those tires are from value-tier brands. These tires were ordered to meet demand at a high price but are now losing their value and taking up space — a situation that Thomas described as brands being out of price position. Leeper said some distributors are now canceling back orders because they don't have the inventory space.

When it comes to its dealer base, SRNA said mergers and acquisitions, especially from private-equity firms, have presented challenges.

Some longtime Falken dealers and distributors have been lost because of consolidation through M&A activity. American Tire Depot, for example, a Falken customer, was lost when its 107 retail stores were bought by Percheron Capital, aka Big Brand Tire & Service.

Other M&As, like that of tire wholesalers, have also impacted SRNA.

"Wholesalers get a connection with the dealers that is sometimes stronger than the brand. So, if a distributor buys another distributor, just the fact that the distributor changes can cause you to lose the Fanatic dealer," Leeper said. "We're aware of that, and we've taken actions to address that issue."

Leeper said he believes that as consolidation increases, it will impact pressure on brands and the number that serve the market. Wholesalers are carrying so many brands, it becomes hard to do them all justice, he said.

"The theory is that consolidated companies just won't need as many brands," Leeper said, adding, "Falken is going to stay alive and succeed in this environment."

SRNA is taking a "boots on the ground" approach to challenges in the tire industry and how it will expand the Falken-brand dealer base.

Leeper said the company employs a "big and dynamic field staff" of around 30 focused on signing up "Fanatic dealers," or those dealers who will support the Falken brand. SRNA has identified around 60,000 possible associate dealers on whom they will focus their efforts.

"The way we'll differentiate ourselves from other manufacturers is that we have a huge field presence. We're on the streets," Leeper said. "The fight is going to be won on the street, and it's going to be won largely through the dealer."

SRNA has strengthened its Falken Fanatic associate dealer program, which includes more than 13,000 accounts. Leeper said the program has been successful thanks to stringent requirements "to make sure the distributors are good stewards of the program," and its minimum advertised price (MAP) policy.

SRNA rewrote its co-op program to give dealers social and display advertising, and other things to help their businesses. One addition is market analytics that will be available "to help our dealers understand where opportunity lies."

The Falken product portfolio is being expanded with more sizes (mostly aimed to capture more of the larger rim-diameter fitments) and new product launches across several segments.

Products to be rolled out include a "next level" ultra-high performance all-season, the Azenis FK460 UHP; the final piece to the WildPeak light truck line, the WildPeak R/T; as well as several new medium truck tires.

Rick Brennan, SRNA vice president of marketing, said the goal with Falken is to realign the product screen to capture more of the market.

Brennan also said the $130 million expansion of the Sumitomo Rubber USA L.L.C. plant near Buffalo, N.Y., continues to progress. The project involves new construction and reconfiguration through the existing structure, which does pose some challenges for the old buildings.

Brennan said SRNA is "moving a lot of dirt to fit the new machines." While the project is still a few years away from completion, he said, the build-out and addition of a number of new VMI Group tire building machines will be completed by year-end.

During the expansion, the plant is producing Falken tires — along with one Dunlop OE fitment — and it is producing new Falken products, including three new TBR products.

"We are now laser-focused strictly on the Falken brand," Leeper said, adding that SRNA wants tire dealers to know, "if you're going to invest in Falken, (know) we're investing in Falken."