Is there a Future for Passenger Car Tyre Retreading?
The European market doesn’t appear to hold a bright future for retreaded passenger car tyres. Just recently one of the biggest manufacturers of the tyres, Reiff Reifen + Autotechnik GmbH, withdrew from this segment. Nokian Tyres has also taken a similar decision: the Finnish tyre manufacturer has sold its passenger car retreading plant to a Swedish company even though its retreading business was recently brought together under the roof of a new “profit centre”.
It is difficult to see how the passenger car retreading market will develop in the future. However, that idea that the market will be bullish in the face of cheap imports from the Far East and Eastern Europe is hard to believe and few would bet on an expanding market. The writing is on the wall for this segment – and it points to a shrinking market and decreasing profits and turnover. Just look at Reiff Reifen + Autotechnik from Germany.
Reiff Reifen & Autotechnik withdrew from the production of retreaded passenger car tyres at the end of December 2004, because it was not making a good enough return on its investment. The Condor tyres it produced were a well-known brand and the Reiff manufacturing plant, built only five years ago, was considered the “most modern in the world.” What caused the degeneration of such a promising business model?
Managing director and shareholder, Eberhard Reiff, injected approximately 2.5 million euros into the reconstruction of a new plant following the destruction of the previous site in a fire. He believed that Germany had a future in retreaded passenger car tyres if it invested in the most modern machines and operational sequences, and so the company did.
The withdrawal of its major competitor, Gummi-Mayer, at the same time was also encouraging to Mr Reiff. He recognised changes in the market and believed that other retreaders would also retract their services from the segment. The market seemed to comply with his prediction: At the end of 2001 Vergölst (Bad Nauheim, a subsidiary of Continental), which was the largest producer at the time, negated its retreading activities. But Mr Reiff’s calculation, that Gummi-Mayer and Vergölst’s business would distribute itself through the remaining market from which Condor would take the largest piece of cake, was wrong. Instead of changing to alternatives like Condor the end consumers bought low price budget new tyres from Eastern Europe or the Far East.
Through a quality offensive and with the support of the German Association of Industrial Retreaders (AiR), Mr Reiff and his colleagues (from companies Ihle and Schwarz) began a campaign to impress upon customers that German retreads were more sophisticated than cheap new tyres. Their opinion had little effect on the consumer, neither did references to the environmental benefits of purchasing retreads instead of new tyres.
Despite all efforts the German retreader could not compete with the low labour and energy costs that existed in Eastern Europe or South East Asia, where the new tyres were produced. It was particularly impossible for the company to stop the price purge. Eberhard Reiff could have continued to sell Condor retreaded passenger car tyres, but at prices that could not justify further investments. With the initial investment repayment due to be completed this year Mr Reiff had to decide whether to re-invest a considerable six-digit sum into new and current tyre forms – or to make the decision to leave the market segment. He decided that any further investment would be an unprofitable move.
Reifen Ihle (brand Rigdon – Reifen Ihle Günzburg Donau) and Schwarz (brand Respa – Reifen Schwarz Passau) make up the remaining retreaders of passenger car tyres on the German market. Together they produce less than half a million pieces per year. Like Reiff Reifen before them, the companies believe they can compensate for Reiff’s closure and thus survive in the niche of passenger car tyre retreads. However their long-term success is in doubt. It seems that the retreading of passenger car tyres, in a modern, western and highly developed country is a diminishing business model.
The decision of Reiff Reifen + Autotechnik GmbH to withdraw from passenger car retreading can be seen as an illustration of the most recent developments on the German market. During 2004 only 1.4 million retreaded passenger car tyres were sold, according to the German tyre trade association BRV. A decade ago it was a different story, more than 4.3 million passenger car retreads were sold in Germany. Since 1995 the sales figures of ‘second-life’ tyres have continuously gone down; and on average it has shrunk, 10.4 per cent every year. However, in the past few years BRV has detected a certain stabilisation of the market. It is still decreasing but not as quickly.
The decreasing market has been a particular problem for retreaded summer passenger car tyres, which have literally vanished from the market. In 2003 only 100,000 pieces, without the M+S logo on the sidewall, were sold on the biggest European market. This only represents seven per cent of the passenger car retreading market. 10 years before the corresponding ratio was 35 per cent summer and 65 per cent winter tyres. Today if there is demand at all, it is almost exclusively for winter retreaded passenger car tyres. Taking the whole passenger car tyre market into consideration, retreaded winter tyres only account for 2.9 per cent (2004); retreaded passenger car tyres (winter and summer) account for no more than 3.1 per cent. Retreaded winter car tyres don’t account for much of the rapidly growing winter car market, claiming 6.4 per cent. In 1994 the balance of power was slightly different, with retreaded winter tyres accounting for 21.9 per cent of the passenger car winter tyre market.
Despite its performance there are still players that believe in business opportunities within this niche market segment. For example the German company Reifen Ihle GmbH, benefits from Reiff’s retreat and is doing a lot to enhance the image of retreads through its truck racing commitments.
Reifen Ihle is one of the few renowned passenger car tyre retreaders that continues to brace itself in the face of a seemingly hopeless future. Adolf Mayer, commercial director of Reifen Ihle, is of the opinion that retreading car tyres has, “from today’s perspective,” got a future. Every year the company retreads 355,000 passenger car tyres of which there are only 5,000 summer tyres. This could change slightly in 2005: “We benefit from the withdrawal of others,” says the commercial director, commenting on the retreat of competitor Reiff. Mr Mayer believes that the demand for Rigdon and Impuls tyres could increase by 20,000 to 30,000 now that Reiff has left this market segment. In order to remain on the market Reifen Ihle has to invest in new patterns and new moulds. The company’s moulds are produced by an in-house department of Reifen Ihle; and cost about 30,000 euros. In addition to that, Ihle is going to buy two new moulds for the coming winter season each of which will cost about 50,000 euros. All in all Ihle will then have 70 moulds.
In order to make these investments profitable Ihle is endeavouring to develop new distributions channels. The commercial director recognises the sales potential associated with selling the company’s second brand (Impuls) in DIY stores and supermarkets, although he realises that theses channels woudn’t account for large increases.
Furthermore, Mr Mayer hopes that the decreasing average person’s disposable income will have a positive effect on sales. For consumers, buying a tyre is “not an exciting shopping experience“ but, it is hoped that the car drivers will eventually go for cheaper alternatives, i.e. retreads. At the same time this hope is being undermined by tough competition from cheap imports from the Far East. Increasing numbers of new tyres have come onto the market and are threatening even though they often have outdated tread-patterns. The image of retreaded passenger car tyres also goes against them: “Indeed there is a certain reservation,” Mr Mayer explains. According to the commercial director, the “reservation” he is referring to is mainly found among younger tyre dealers. For them, it makes no difference that Ihle only uses premium casings for its passenger car tyre retreads. The various quality control procedures the company adopts, before, during and after the retreading process, don’t seem to convince sceptical tyre dealers that retreaded car tyres are quality products either.
Despite the various negatives of the business, retreading passenger car tyres is still supposed to be a relatively profitable business. Alexej von Bagh, Nokian’s vice president, responsible for the retreading operations, told Tyres & Accessories that its passenger car retreading business has always been a profitable one. “But it was not a significant role in the new profit centre’s operations”, he adds. Until the end of last year Nokian Tyres and its tyre trade chain Vianor ran 10 retreading plants in Scandinavia and Russia respectively. But the facility in Vara, Sweden (near Gothenburg) was sold 31 December last year, to the Swedish competitor Mac Ripper AB located in Skepplanda (also near Gothenburg). Neither company ever made the price public. Nokian’s tyre trade chain Vianor retreads about 125,000 passenger car tyres every year in Vara. They were sold under the brand name “Galaxie” in Vianor’s outlets in Sweden, Norway, Finland, Estonia and Latvia and Mac Ripper is said to continue this business.
“Giving up the car tyre retreading business”, says Alexej von Bagh, was a “strategic decision” of the Finnish company in order to be able to concentrate on the new tyre business as well as truck tyre retreading. Of course, Nokian is pleased with the 125,000 retreaded car tyres it produced during 2004. The fact that Nokian also retreaded about the same number of truck tyres across its eight facilities in Finland, Sweden, Norway and Russia is also something to be proud of – that equates to an average annual capacity of 16,000 truck tyres per facility.
According to Alexej von Bagh passenger car retreading was always a profitable business for Nokian although detailed data has never been published. The reason the Nokia, Finland based company decided to sell the retreading unit, all came down to market volume – the company just didn’t believe there was enough, explains the vice president.
Now the profit centre only focuses on the retreading of truck tyres. “Combining truck tyre retreading and retreading material business generates synergy to both of these”, Mr von Bagh comments. The vice president in turn doesn’t think the sale of Nokian’s passenger car retreading business has interfered with its truck and bus tyre retreading business “in any way”.
Nokian’s move to implement some retreading changes was not a surprise and had been indicated by a plan of “reorganisation” published in the summer of 2003. Back then vice president Raila Hietala-Hellman, responsible for communications and industrial relations at Nokian, said: “The closure and concentration of small retreading plants is an increasingly common phenomenon”. The “change” announced was said to “clarify Vianor tyre chain’s role in the sales and marketing of products and services”.
Whether or not the hopes of some industry members will be met will be seen within the next few years, at least when several new winter tyre tread patterns are introduced to the market by the new tyre industry. We will see whether the retreading industry is willing and capable of taking up these investments or whether they will follow Reiff’s example. Alternatively, Thorsten Schmidt, vice president responsible for the retreading materials division at Kraiburg, may be right in predicting: “Passenger car tyre retreading doesn’t have any future!”