Hauling Out of the Recessionary Market
As in almost all industries, the calamity of the credit crunch has had a huge impact on the truck tyre market, reducing demand for products, and forcing manufacturers and traders to regroup. As a result of the economic crisis commercial vehicle businesses were forced to become savvier, demanding more from their tyres. Others simply went under. So with the remaining customers demanding improved performance, mileage and fuel consumption from their tyres while simultaneously being under economic pressure themselves, what affect has this scenario had on the size and development of the market? And what does this mean for truck tyre pricing both in the UK and across Europe?
In 2007 before the credit crunch bit down, the total UK new commercial vehicle tyre replacement market totalled some 1.4 million units. Add in another million or so retreads and the truck tyre total replacement parc was around 2.5 million tyres/year. During 2008 and 2009 the market in the UK, and across Europe, experienced savage double-digit drops in demand. It appears to be recovering now (more on this throughout this section), but the sources Tyres & Accessories spoke to generally accept that 1.2 million new unit tyres a year plus another 900,000 or so retreads is now a considered to be a good UK benchmark figure.
One premium manufacturer T&A spoke to commented that our preview for this month’s Truck Tyre feature, which suggests the market has entered recovery, would have looked pretty stupid if it had been printed at the start of the year. However, by the second quarter and into the start of the second half of 2010, indications of a positive uptick in demand have become increasingly clear. To put this in perspective, during the last peak in the market in 2007/2008 monthly UK replacement volumes were seldom much below 100,000 units. By 2009, the mid to high 80,000s had become the norm, with even less at the beginning of this year.
At this point it is worth pointing out that there was said to have been one artificial spike that saw demand return to peak levels around the end of the first quarter, but this was put down to tyre buyers bulk purchasing in advance of price increases implemented in the first half of the year. After a temporary correction, demand reportedly returned to around the 90,000 unit/month mark in June. Since June there are signs that the market is picking up again and steadily returning to more familiar – and pleasant – territory. Look a little closer and you can see that there is a particular increase in demand for tyres for the construction industry, which is widely seen as a good indicator of increased overall economic confidence.
Keeping to a budget: mileage, fuel or cost conscious?
Nevertheless, the highly competitive nature of the UK haulage industry means brand loyalty is difficult to build and sustain and that there will always be an emphasis on bottom line cost. This also translates into a potential over-emphasis on mileage performance amongst some customers. The other side of the coin is that if tyres consume less fuel, they pay for themselves. But still, some customers remain worried about initial product cost and so have been tempted away to purchase budget products.
What the premium manufacturers are looking to capitalise on is the fact that throwing away a cheap Far Eastern casing, which is un-retreadable, with no casing aftermarket to add value to the product, is as a waste of the 80 litres of oil that went into producing it. The premium manufacturers also state that they these products are more liable to fail when it comes to giving operators the maximum mileage and fuel efficiency for their money.
However, this may not be quite as easy an argument as they hope. Especially with the aforementioned brand fickleness in mind, added to the fact that a recent Morgan Stanley survey of tyre dealers found that a “green tyre” argument (which the premium manufacturers are increasingly trying to leverage) is the least important factor for dealers when they come to selling a tyre.
Truck Tyre Pricing in 2010…
Source: Morgan Stanley European Survey of Tyre Distributors
European market bounces back
Looking across the European truck tyre market as a whole, there are clear signs of a considerable return to form (see “A Tale of Two Markets” later in this section for further analysis). According to Michelin, on a pan-European level the truck tyre aftermarket grew 35 per cent in the first half of 2010, compared with a 16 per cent drop in the same period the year before. A recent Morgan Stanley survey suggests this puts the European truck tyre market in line for a total of 10 per cent growth this year, following an overall drop of 19.8 per cent last year. These analysts expect growth of a further 10 per cent in 2011 and then 6 per cent more in 2012.
The overall European pricing environment however, is much less clear. While 73 per cent of the tyre dealers questioned in Morgan Stanley’s European Survey of Tyre Distributors said the wholesale cost of tyres was more this year than it was in 2009, 21 per cent said prices stayed the same or decreased (7 per cent and 14 per cent respectively). Of the 14 per cent that said truck tyre prices decreased, 46 per cent (6 per cent of the total surveyed) said prices actually decreased more than 10 per cent. Another 3 per cent of respondents said their truck tyre prices fell 5 – 10 per cent.
The survey questioned tyre dealers from around Europe, drawing answers from companies in Germany, France, Italy, UK and Russia (with roughly a fifth of the answers coming from each of the five countries). This could account for some regional variations and foreign exchange differences, but the fact that just under a sixth of those surveyed saw prices drop significantly, while three quarters saw prices rise, could suggest that some tyre companies are looking to occupy stronger market share positions and are willing to strategically delay inevitable price increases in order to do it.