A minority purchase?
Reading the recent UK winter tyre usage survey commissioned by Manheim Auctions, anyone would think that the concept of fitting winter tyres was a) peculiar and b) a “minority purchase.” The reality is that all across Europe millions of winter tyres are fitted every season and that the numbers of motorist taking the winter option are at an all-time high and growing fast.
Of the 3000 people Manheim Auctions surveyed, around 95 per cent said they were not planning to buy winter tyres. Obvious observations about what they might mean by planning and how likely consumers may be to change their minds aside, if just 5 per cent of the driving population did buy winter tyres this year it would mark a watershed in the development of this market. It was not so long ago when the market polite referred to winter tyre share as “around 1 per cent” when official figures sometime put it at a tenth of that. In 2010 sales of winter tyre products grew to between 450,000 and 500,000 (1.5 per cent plus) with sales still going north this year. If Manheim are even half right that would signal a 50 per cent jump in take up. If they are spot on the market would be tripling. So while we are still talking about a small percentage of overall volumes, taking this out of context fails to represent the rapid development that has been taking place.
And what’s more many traders told Tyres & Accessories that last year’s figures could have been even better if supplies were able to meet demand. Sadly for those that experienced this supply bottleneck last year, it looks like something similar is happening this time round with premium tyre manufacturers such as Continental AG reportedly struggling to meet all their orders. Continental’s management, for example, recently said the firm has upped winter output this year, but still won’t completely meet demand and therefore customers may still face shortages of certain sizes. Speaking off the record, representatives of other leading tyre manufacturers have said much the same thing.
According to an October report in German newspaper Handelsblatt, Conti’s tyre unit chief Nikolai Setzer said the tyremaker has increased winter tyre production in order to counter “bottlenecks” due to “the current global boom” for automobiles. Then, perhaps not directly referring to the UK, but certainly highlighting the wider European situation, he added: “Strong demand from substitute purchases and from original equipment calls for extra production. In our view, car drivers’ demand for winter tyres will this season be above the high level of last year, not only in Germany.”
Before anyone rushes to judgement against the tyre manufacturers, it is worth remembering that this is despite the fact that “new winter tyres have been rolling off the production lines non-stop since May.” Also, due to de-stocking in the last two years and a strong winter last year, dealers started this season with low inventories and have been actively restocking since. Nevertheless Conti, Setzer said, expects to “catch up with the market’s demand by the end of the year” probably too late for the peak of this season, but definitely better than not at all.
To put the situation into context, perhaps those writing the research for Mannheim would do well to read this: Winter tyres represent a high 20 per cent of the European tyre replacement market (or 60 million units of which approx 45 per cent are sold in Germany – 27 million units). So they are big in terms of volume. They are also valuable items. According to research conducted by financial analysts at Deustche Bank, they generate high margins due to their built-in pricing premium. This can be roughly seen in an average selling price of approximately 80 euros and incremental profit of an estimated 15-20 euros per tyre, says Deutsche Bank.
Continental is said to play a key role in the European winter tyre market as it is market leader with an estimated market share of 30 per cent, followed by Michelin (around 20 per cent), Goodyear (again around 20 per cent), Nokian Tyres (circa 17 per cent), and Pirelli (roughly 10 per cent), according to the analysts. While its difficult to be sure, it looks likely that these figures don’t include the increasing numbers of imported tyres entering the European market (especially the UK) and so it really is very difficult to say they are a “minority purchase” without being at least a little disingenuous.