Out of the woods?
…or are we about to witness a real dip in tyre markets? While the massive drops in OE demand of a few years ago appear to have turned a corner, and while tyre manufacturers the world over are steadily ramping up production to pre-recession levels, some are questioning whether or not replacement markets have really felt the full force of the recession. Could 2011 be shaping up to be worse than 2008/2009?
According to Morgan Stanley research, feedback from tyre dealers around the world “reveals a tyre market much more fragile than we thought in North America and some potential risks in Europe and Russia…” These comments largely refer to the fourth quarter of 2011 impacting on the overall full-year result, but the fact that that they are far from isolated should make us sit up and take notice. Referring to slightly longer terms prospects, the analysts continued: “For 2012 we now forecast [that] car tyre replacement [will] decline by 1 per cent in Europe and North America while truck tyre replacement should post 2 – 3 per cent growth.” However, owing to the fact that they are writing to an audience of global investors, Morgan Stanley’s figures are often painted in broad brush strokes across regions and diluted by continental averages. Look a little closer and some more marked trends are visible.
Perhaps because it is geographically an island, the UK market often stands alone in bucking the trends of its European neighbours when it comes to tyre sales and strategies. Sometimes this means leading the way in the development of business approaches and models and other times it means falling behind. But when it comes to recent replacement market sales, on this occasion all the indicators seem to be saying the same thing. 2011 full-year sales are headed south compared with 2010’s numbers and the long term norms.
The latest GfK figures show that there was a 14 per cent fall in retail sales in the second quarter of the year. According to the data, which was recently published to NTDA members that helped provide the raw figures for comparison, essentially the picture is one of decline, with car tyre sales standing at 4.41 million tyres in quarter two (down 14 per cent). This figure was also 8.5 per cent behind the first quarter 2011 figure of 4.82 million. Talking to the leading premium tyre manufacturers you hear a similar story. They are generally a bit more cautious than suggesting that the double digit drops measured by GfK will result in similar sized fall in full-year sell-out volumes, but they do concede that this is possible. For the most part they like to point to a high single digit/low double digit percentage drop. But either way the consensus is that we will indeed experience a far greater drop in sell out sales, far sooner than the Morgan Stanley estimates appear to suggest.
When you consider these figures in the mature market context they come from they are perhaps more shocking. Due to the fact that it is one of the most mature markets in Europe, passenger car tyre replacement sales in the UK generally remain stable. Occasionally there are two to three per cent fluctuations, but double digit drops in demand are far less common. The cause lies at the feet of the R word as the recession brought with it high fuel prices, poor credit access and tighten domestic budgets. And, together with high fuel prices, this in turn has led motorists to drive less often.
In July the AA reported that 1 billion litres less diesel and petrol was purchased than during the year before – that is a15.2 per cent collapse in petrol sales and 6 per cent fall in diesel sales. Or in other words a roughly 15 per cent drop in miles driven. And a drop in miles driven also means less tyre wear and therefore a delay in tyre replacement. Add in the fact that retailers are increasingly telling of tyres being replaced well under the 1.6mm legal level plus suggestions that the part worn market could be 50 per cent or more larger than the previously accepted 2 million units a year figure; and you can see why the last quarter of 2011 could be a challenging time for those in the tyre trade. And we haven’t even started talking about tyre prices yet…