SRNA targets Falken-brand TBR growth in U.S.

RANCHO CUCAMONGA, Calif. — Falken-brand truck tires will represent a bigger share of the capacity at Sumitomo Rubber USA L.L.C.'s Tonawanda plant near Buffalo, N.Y., to meet aggressive growth plans, according to Falken distributor Sumitomo Rubber North America Inc. (SRNA).

The plant, which Sumitomo Rubber Industries Ltd. took over from Goodyear in 2015, had split its capacity between the Sumitomo brand, distributed by TBC Corp. and the Falken brand that SRNA distributes.

Now, Sumitomo will devote a larger share of the plant's capacity to the Falken brand, SRNA officials said during the company's COVID-19 Dealer Resource Forum on Aug. 20.

"So we have pretty aggressive growth plans on the Falken TBR side and we based that on the production capacity of Buffalo (Tonawanda plant) and increased future capacities," Bob Klimm, SRNA's director of sales - commercial, said.

"… Right now 80-85% of our products come from Buffalo, which enables us to get new products to the market a little bit faster, make any countermeasures or improvements in products or refinements in products a little bit quicker.

"… It's not so much that Sumitomo pulled out of Buffalo, it was always designed for us to have more of a share of that and, when it switched over from a Goodyear plant to a Sumitomo plant, there was a lot of capacity. We didn't have the volume or the dealer base to take that. We've accelerated that so we've been able to speed up that process a little bit more. We depend less on volume from TBC or from Brazil (plant)."

Mr. Klimm said that when SRNA took over the Ohtsu brand in 2010, there were about 31 dealer customers in the U.S. and about $18 million in volume. The company has since transitioned its commercial tires to the Falken brand, which now has 99 dealers, he said.

"We decided to enhance and upgrade the product and do a conversion from Ohtsu over to the Falken brand. And then when we take it to market, to really concentrate on the premier regional, strong regional, bolt-on servicing dealers. So eventually we could take it to the next stage when we go into fleet business that we have good coverage coast to coast. And that's worked."

He said SRNA's commercial tire business got a boost when it became a stand-alone division in 2015. He said the company is looking to expand the product line and add national fleet accounts "in a year or two."

SRNA has been positioning Falken to replace Ohtsu, which had been the company's primary brand for commercial tires.

The company still markets a range of Ohtsu-brand passenger and light truck tire lines as a value-line brand.

Rick Brennan, SRNA's vice president of strategic planning, said development of an associate brand has been pushed down the road. He predicted that by the fourth quarter of 2021 or into 2022, consumers will see changes to the brand.

"With the pandemic we've seen quite a bit of expansion in that price-point category," he said.

"So we're looking at being able to offer a wider range of product, for example in the light truck, because right now we're pretty limited. But also changing the products we have and updating it, because some of the stuff we have been around awhile," Mr. Brennan said.

"We're dedicated to the associate brand. So whether it's Ohtsu or even another name, SRNA will have an associate brand to complement the Falken brand. We're committed to that long-term," added Matt Leeper, SRNA director of sales – consumer.

SRNA increased commercial tire sales by 10.8% in July, compared with the year-ago period, Mr. Klimm said, adding that the company had experienced "very strong demand" in August. He noted that most commercial tire dealers are experiencing similar trends with a rebound in commercial tire sales, service and retreading.

He said SRNA sales increased 23.2% for the first half of August, compared with last year, while the U.S. Tire Manufacturers Association (USTMA) reported overall TBR shipments in the U.S. decreased 2%.

Year-to-date, SRNA increased sales 6%, compared with the year-ago period, while the USTMA reported a 7.4% decrease, Mr. Klimm reported.

Mr. Klimm noted that trucking is rebounding with an increase in manufacturing and construction in the U.S. creating demand for more product deliveries.

July tire shipments, based on USTMA data, show the U.S. tire market is slowly recovering from the hit it took during the state shutdowns in March and April.

Passenger tire sales were down 4.5%, compared with July 2019; light truck tires increased 23.4%, passenger/light truck tires combined slid 1%; and TBR edged up 3%, SRNA reported from USTMA data.

For the first half of August, passenger tire shipments were down 10%, light truck was up 3%, passenger/LT combined fell 8% and TBR slid 3%, Mr. Brennan noted.

"A lot of what we think has happened in August is a lot of the inventory that was built up in April and May actually was sold out in June and July as the industry rebounded," Mr. Brennan said.

"So we see the first 15 days of August, especially for us, impacted by the amount of inventory that is actually in the warehouses and what we can actually fill. We see the order rates, at least for us, are actually increasing from the June/July number. But we can't fill those orders as fast as we could before. We have a lot of inbound product (from overseas plants). … So we are basically unloading a container, moving around the corner and putting it back on a truck going out to dealers."

Through the first six months, passenger tire sales fell 21.2%, or down 22 million units, in the U.S.; light truck tires dropped 13.4% or 2 million units; and TBR tires down 5.3% or a half-million units.

"Quite a drop from 2019 but the second half of the year will let us rebound a bit," he said.

"We're projecting passenger to be down 15.5%, light truck to be down 11.8% and TBR still running about the level it has been for the last couple of months, coming in at about 5%. So we see things continuing to get better through the second half, but the inventory levels may be a bit of a struggle going into the last quarter of this year."

Meanwhile the recovery in Canada is taking longer.

July passenger tire shipments fell 5.8%, LT slid 3.3% and TBR decreased 19.9%.

For the first six months of 2020, the Canadian tire market decreased 31.4% or 3.4 million units, compared with the year-ago period.

But Mr. Brennan said SRNA expects conditions to improve in the second half.

"When we look at the overall market, it will be down only 7.8% in the second half. So a pretty good rebound. …

"We're still in recovery mode. Some segments are doing better than others but, overall, we're still recovering from the COVID impact that we've been struggling with for the last few months," Mr. Brennan said.

For the year to date, SRNA sales have been basically flat, while USTMA shipments decreased 18.8%, according to Mr. Leeper.

July sales increased 23%, compared with the year-ago month, with the new Wildpeak A/T Trail for CUV/SUVs and the Wildpeak H/T02 for pickup trucks both having a record month, he said.

Corporate national retailers are recovering, car dealerships are looking robust and regional wholesalers continue to perform strong across almost every region, he said.

He noted that some dealers are placing large orders and container-load orders in anticipation of possible antidumping and countervailing duties the U.S. is considering imposing on tires imported from Thailand, South Korea, Vietnam and Taiwan.

SRNA executives surmised that if the U.S. does impose duties on tires imported from Thailand, where parent Sumitomo Rubber Industries (SRI) has a manufacturing plant, the company may have to look at shifting production to other plants, "which we have the capability to do, given that SRI has production in nine countries," Mr. Leeper said.

Mr. Brennan said SRNA receives "a fairly large percentage of our tires coming out of that Thailand factory." A shift of production to another plant would involve finding available capacity and moving the necessary equipment to produce certain tires.

"There's a lot of activity going on right now to make sure we continue to supply all of you with all the products you need," he told dealers.

Mr. Brennan said SRNA is working on designing its first all-weather passenger tire, to join the new segment of tires designed as all-season tires with improved winter driving capabilities.

"Our target is to launch a new product in the 2022 zone that will actually provide a broader range of performance, a la more mileage and be able to have that mountain snowflake (symbol). The key is we can provide a winter tire but you don't get the mileage. And that's been the biggest challenge we've seen from all of the all-weather tires is still falling short on mileage," Mr. Brennan said.

So SRNA is focusing on a technology to extend mileage, shorten stopping distance and solve what he called the shortcomings of all-weather tires.

SRNA also plans to introduce an entry in the R/T (rugged terrain) tire segment this year.

"The R/T segment we see as being a real important segment for the future, mainly because a lot of the lifted trucks are running around on the street," Mr. Brennan said.

"The mud tires have smaller blocks and make more noise, so we see the R/T being a product that can really take off in that segment. So we've seen other manufacturers do quite well, namely Toyo and Nitto, and for us we do have an R/T that is in the works.

"Our plan was to launch it earlier this year but now it's been pushed basically into the fourth quarter of this year, we hope."

The R/T tire will have expanded sizes into load range F with 12-ply-rated sizes, he said.

"We see it as a real important segment for us moving forward and, with the strength of the Wildpeak A/T3W, we plan on really jumping into that segment and being a strong performer in that segment as well. Our tire looks a bit different than everyone else's. ...

"We probably won't launch all the sizes at once, given the nature of the tariff and the COVID impact on our business, so we'll probably launch it in segments. But through the end of 2020 and 2021 we'll have a full lineup and we'll be going after it."

Sumitomo Rubber USA L.L.C.'s Tonawanda plant near Buffalo, N.Y.

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