In it for the long haul
While no-one in the tyre industry claims to have bypassed the combined effects of the credit crunch, euro-crisis and the consequent recession(s), it is fair to say that these economic phenomena have had particularly marked effects on the commercial vehicle tyre market. First of all, as a direct result of customer demand scaling back, truck makers cut down on vehicle production, with the tyre manufacturers responsible for supplying these OEMs forced to follow suit. As fleets responded to falling demand for their services and extended the life of their tyres as far as possible (as well laying up trailers and cannibalising tyres whenever they could), what began as a demand shock in the OE side of the business developed into a replacement slump as well.
The fact that the market has been ploughing through a challenging chapter is not news to anyone – but what this means for market size, continuing demand and those directly involved in sales is of interest to us all. That’s why Tyres & Accessories recently spoke to representatives of all the most influential players in the new commercial vehicle tyre segment including representatives of Michelin, Bridgestone, GiTi, Continental, Hankook, Goodyear Dunlop and Pirelli.
Where is the market on the road to recovery?
As a result of the well-documented headwinds facing the market mentioned above, Hankook estimates that the UK new truck and bus radial tyre market totalled 1.3 million units in 2011. Bearing in mind that this starting figure is at the generous end of the spectrum (owing to the fact that it includes non-ETRMA members and other imported tyres – Goodyear Dunlop puts the market at 1.7 million units including retreads), the tyre manufacturer reports that the market for truck and bus tyres is down between 20 and 25 per cent in the year-to-August 2012. Pirelli reports that the market is down 20 per cent on previous years which equates to an annual market of just under half a million tyres in the year to July, according to Europool. This is obviously the smallest figure for the UK truck tyre market cited by any of the top manufacturers and, even when you take into account the fact that it doesn’t include imported tyres from non Europool contributors and only reflects part of the year, it confirms other views of the status quo. As well the usual explanations for decline, Pirelli also suggests that in one respect top tyre manufacturers are victims of their own success as product quality and tyre efficiency increases. This particular trend has been gradual over a number of years as technology in general progresses, but the idea is that in recent years the decline has been more pronounced due to the macroeconomic environment as well as the continued polarisation of logistic fleets.
At the top end of the range of estimates T&A received this year, Continental representatives suggested that the replacement new tyre market is “just under 1 million units” annually, slightly down this year, and that the retread market is similar volume at 1 million units. Figures like this go some way to quantifying the effects of the varying demand damaging factors seen in the market over the years, however due to the unstable economic climate several manufacturers report that this has also resulted in something of a reshuffle in the established order – as far as unit volume market share is concerned at least. Hankook, for example estimates that basically all significantly sized budget brands have increased their UK sales in the past five years. And as unit market share growth in a down market literally is a zero-sum game, this means taking market share from mid-range and even some premium brands. Therefore Hankook estimates that the main budget brand players have not just increased their unit sales so far in 2012, but also their market share during this period.
While it is difficult to get up and coming tyre manufacturers to speak on the record about their particular pricing policies, there are certainly those outside this pack that suggest they are using recent rounds of price increases issued by larger manufacturers as a strategic opportunity to leverage their initial purchase price and ultimately pence per kilometre value. There are also signs that they could also be using these increases as an opportunity to increase their own low base price on the quiet with a sales argument apparently goes something like this: I can sell you economy brand X for old premium brand Y money. The emerging brands argue they are better value and their quality is improving all the time.
The premium brands on the other hand suggest that it doesn’t take long for customers that leave them via this route to return because either the prices or the quality don’t stack up in the long term. Continental for example suggests that tyre quality and product care are as important as price:
“In difficult economic times, premium products will always come under pressure. However, truck operators should be advised not to focus on the initial buying price of the tyre – which may give a short term saving – but instead to consider the long term cost benefit of using premium tyres on their fleet. For example, tyres with better mileage, tyres which give better fuel efficiency, tyres which can be regrooved/retreaded…will save operators far more over the life of the tyre.”
Pirelli reports that its share has grown recently, mostly due to the investment and introduction of a totally new line of products – the :01 series. Pirelli representatives add that the company can’t rest on it’s laurels and the range will continue to expand during 2012/13, especially within the niche 19.5-inch segment. However it must be pointed out that this growth comes from a relatively low historic base and that this recent growth can only be undoing some medium term faltering.
In addition to the effects already described, currency effects are also said to be influencing the wider market with the strengthening pound reportedly influencing the grey market from Europe as European wholesalers capitalise on the increased profitability which now available when supplying into the UK. In response UK premium brand manufacturers are said to have introduced rebates on TBR tyres based upon the currency exchange ratios.
However even with the price actions taken to date, Hankook – which has grown into a commanding position at the top of the middle ground over the years – reports that the majority of the premium priced products have seen sales reduce “dramatically” through 2012, Hankook concede that they are “not immune from this reduction” but are countering this trend by continuing to win new accounts from competitors in the “very depressed market.”
Vertigo or view from the top?
Taking into consideration pre-recession market parameters, Goodyear Dunlop agree that the industry has declined, affected by the downturn in the UK economy. Their predicted outlook for the future is a drawn out recovery over the next three to five years with a return to pre-recessionary levels not expected any time before then. But if we take the “very depressed market” perspective as a given, does this necessarily mean that it is the biggest players that have had lumps bashed out of the market positions or is it (recessionary factors that are applicable across the board aside) more a battle for the middle of the market?
Pirelli agrees that “certain key premium brands have seen volumes shrinking” although as always they are keen to react. More focus upon profitability has also been seen, with the “buy market share philosophy” being de-prioritised by many. This has been in part driven by the massive pressure all manufacturers have seen from raw materials which during 2011 were sending regular shockwaves through the industry.
So what’s it like at the top of the tree? Have the largest tyremakers really lost much share? Michelin representatives certainly didn’t recognise the wounded giant scenario. In fact they believe they are defending their sales position and have even increased market share. Bridgestone, which along with Michelin dominates the truck tyre market (the two occupy approaching two thirds of Europool market share between them), conceded that the last 12 months have been a challenging time, but also didn’t accept that share have been dented as significantly at the top as elsewhere.
Judging by what GiTi representatives, who position themselves in third place behind only the most established brands in the market (see separate article for more on this), are saying the changes are really taking place in the following pack and specifically with companies such as Goodyear Dunlop which embarked on a rightsizing strategy mid-downturn.
Nevertheless, according to Marc Preedy, Goodyear Dunlop commercial director, the company is still holding its own: “National accounts continue to be as demanding as ever, and we work closely with each of our fleets to assist operating cost reductions collaboratively. Fuel efficiency has become more important recently and our products have helped many of our fleets to reduce operational costs through close collaboration with their Goodyear Dunlop account managers and the ability of TruckForce to fit the right tyre on the right application at the right time. Labelling will also play a key role going forward as it will highlight the fuel efficiency of the products and help fleets to compare the benefits.”
Asked what effect the growth of relatively new manufacturers has on more established names like Goodyear Dunlop, Marc Preedy continued: “Our go to market strategy has been consistent for a number of years, right tyre on the right vehicle at the right time and so the growth of other manufacturers does not phase us or take us off this strategy. We work closely and collaboratively with our customers, as proved in the attached articles. We aim to work with more vehicles but by fitting less tyres due to the quality and high level of husbandry offered to our customers, working as a key partner with our customers we can contribute operational savings to their fleet through collaborative work.”
So while the wide range in estimates of market size and brand specific shares make it difficult to pin down precise details of what is going on in the market, it is clear that those operating in the truck and bus tyre segment are both under pressure from declining demand and witnessing some degree of shift in the middle market. Whether this can be sustained once the market recovers to a more usual size depends on those trying to instigate the changes and crucially on the quality of both their products and services.