Sumitomo execs: 'Really looks like this recovery is the real deal'

RANCHO CUCAMONGA, Calif. — The tire business is on the rebound after a pandemic-induced slowdown in March and April, according to Sumitomo Rubber North America Inc. (SRNA).

Contributing to the upbeat forecast is the fact that SRNA's Falken Fanatic associate dealer program is on track to set record sales in the second quarter, SRNA executives said during the fourth SRNA COVID-19 Dealer Resource Forum, held online June 17.

"It really looks like this recovery is the real deal. It will be long term. If there is no recurrence of COVID-19, we think this will be a full recovery," Matt Leeper, SRNA director of sales – consumer, said.

"Purchases for most dealers, year-to-date, is projecting very close to 2019. … Almost every dealer is claiming that June is up."

For the Fanatic program, "Q2 will be best quarter we've ever had as far as our distributors selling tires to their Fanatic dealers. It could be tied to our bonus, which is a 40% bonus on their dollars paid out for Fanatic purchases in Q2. But we are going to beat our best quarter ever in Q2," Mr. Leeper said.

Overall, SRNA's tire orders slowed down in April, but it is reporting an "unprecedented" amount of orders in June, exceeding its budget set last December. And the company claims it increased its market share by more than 1% during the business slowdown.

"It does look like June will be an all-time record month for Sumitomo Rubber North America," Mr. Leeper declared.

"It seems as though consumers have both time and money, which is very conducive for them having their vehicles serviced. Consumers are not buying new vehicles right now, so they're having to service their current vehicles, and we feel like consumers are planning on driving more and flying less. They're also planning on quite a bit of travel in a consolidated summer. All those things paint a pretty picture for our business and the tire industry overall moving forward."

Interestingly, Sumitomo tire dealers serving rural customers in the Southeast and who offer a diversified portfolio, are doing better than other dealers — up 20% in sales as a group versus 2019, he said.

Within the dealer channel, regional retailers/wholesalers are on pace with 2019 sales, he said. Car dealership national accounts were slightly down in their April and May sales but now seem to have recovered. Large corporate retailers, however, are struggling.

He noted that the temporary closure of Walmart tire and auto service centers during the business slowdown probably created a windfall for independent dealers and wholesalers.

"We are hearing that Tier 1 premium brands are down and that value brands are winning. So Tier 1 is getting hit. It looks like people are seeking out more value products in our industry," Mr. Leeper added.

The one downside to the recovery of orders is that back orders of SRNA's popular lines are rising again since March.

In the first COVID webinar in April, Mr. Leeper predicted that back orders, especially for the popular Wildpeak A/T3W, would get under control during the order slowdown. During the most recent webinar, he apologized for not anticipating the increase in orders a few months later.

What's contributing to the back-order situation are an increased demand for the Azenis FK510; Wildpeak HT02 production delays at the Buffalo, N.Y., plant; and unforeseen demand for the repackaged ZE950 line, launched as a catalog product with fewer sizes.

Tire sales also seem to be tied to increased vehicle miles driven during the past couple of months.

Passenger vehicle miles driven increased through mid June from a low in March. Normally, vehicle miles driven in June increase about 16% over March; this year June mileage has been down 7% compared with March 1, Rick Brennan, SRNA's vice president of strategic planning, said.

June is not seeing normal mileage numbers "but at least we're getting back to where we were pre-COVID," he said.

Vehicle miles traveled vary widely by state, with California and Florida mileage down about 20%, while Wyoming's increased 37% over March, he said.

In the trucking industry, line-haul mileage is down 3% and local fleet mileage slipped 2%.

"The challenge, though, is there is less freight still moving around. Even though the miles have gone up, the amount of freight that's moving is less and it's having an impact on the freight rates. They are actually dropping at the current time. …

"Over the long run, we see freight experiencing some large increases as we go forward. We expect the freight rates in 2021 to be much higher than they are now, even though we are having a downturn at the present time," Mr. Brennan said.

All this has impacted tire sales and shipments in the U.S., Mr. Brennan said. Based on U.S. Tire Manufacturers Association data, passenger tire shipments fell 35% in May; light truck tires were down 25%; and truck/bus tire shipments decreased 27%. But SRNA expects shipments to improve during June.

Meanwhile, Canada is not faring as well. In May, shipments of passenger tires declined 55%; light truck tires plummeted 63%; and TBR tires slid 32%. Mr. Brennan attributed the low performance in part to the seasonal nature of the market, but expected the Canadian market to improve in June.

Advertised tire pricing among several tire brands appears to be remaining stable, he said.

The commercial tire side of the business is slowly recovering as well, as manufacturing and construction activity resumes.

As businesses open up, construction increases and manufacturing plants, especially auto plants, resume production, "there are brighter days ahead," Bob Klimm, director of sales - commercial, said.

Commercial tire volume in June continues to be down, compared with a year ago, but at a lesser pace than it was in May. Volume decrease varies by dealer and by region, he noted, due to locations of manufacturing plants and construction activity.

The temporary shutdown of vehicle production plants will negatively impact annual vehicle sales and OE tire sales.

Vehicle production is expected to be at 70% of expected output in June, returning to 100% in July, David Colletti, vice president, OE/technology and QA, said.

Vehicle sales in the U.S. plummeted 50% in April, compared with the year-ago period, and slid 20% in May.

The full-year projection for U.S. vehicle sales is 12.7 million units, after originally forecast to be similar to the 2019 level of 17.1 million vehicles, he said, noting that the slump is still better than the 10.4 million vehicles sold in 2009 during Great Recession.