Levelling off or still falling?
It has been quite a month for the forecasters. Not the weather forecasters mind you – although the winter weather that has sprinkled the UK and parts of Europe with a fresh dusting of snow will no doubt have kept them busy too – but rather the market forecasters. With ETRMA reporting that tyre unit sales fell off a cliff last year, Conti saying the market is likely to bottom out in 2013 and with other analysts predicting 2013 will be a good year for tyre retailers, what is on the horizon for the next 12 months?
Basically, the European Tyre and Rubber Manufacturer’s Association reported that after two consecutive years of modest growth in total tyre unit sales, European tyre makers experienced double digit drops in sell-in demand virtually across the board in 2012. While previous market growth can be qualified by the fact that the increases came despite a decrease of ETRMA member market share, it is clear that the economic crisis is far from being over (see Company News for more on this). This meant that all major tyre segments were negatively affected, with the biggest fall affecting replacement truck tyres (-19 per cent), followed by consumer replacement tyres (-13 per cent). Furthermore demand for winter tyres was described as “saturated” resulting in a drop of 20 per cent in 2012.
This somewhat depressing news is supported by Michelin’s most recent market trend figures which suggest tyre sell-in unit volumes were weak both in December 2012 and the year as a whole. European light vehicle replacement sales, specifically, continued to slip (-7 per cent), despite falling 19 per cent year—on–year in December 2011. Overall this is being interpreted as a response to a poor winter tyre season.
However, it may not all be doom and gloom. In parallel with previewing its 2012 full-year financial results Continental AG executives suggested that this the could all be the tail end of the decline. Some may see it as somewhat optimistic, but their view suggests that the decline in European market demand will “bottom out” soon. But that is not to say that it is all over. Instead Conti’s view is that the European markets will only be down by around two per cent more than current levels by the time we reach full-year 2013.
This view would seem to be in line with the analysis espoused by third-party market analysts GfK. Their UK market data for the first nine months of the year highlighted a similar trend. Comparing the latest two moving annual totals GfK sees a market that is 3.7 per cent down. However, comparing the latest two year-to-date figures up to September 2012, the situation looks brighter and the market is a better 2.6 per cent down. Or in other words the pace of decline is slowing.
What about the sharp end?
However, while all these different views on what has been taking place in the market are all valuable, they are of course limited. Naturally they are all retrospective so, with the best will in the world, cannot claim to represent what will happen next, but rather give an indirection of the direction things are heading. By definition, these figures tell us more about the relationship between tyre manufacturers and the market than sales of tyres to end-users. Therefore there is a paucity of prognostications when it comes to retail/sell-out outlook.
For its part Plimsoll Publishing’s latest report goes some way to filling this gap and is even more positive than the variety of sell-in projections observed. The company’s Tyre Dealers Analysis states that 190 UK tyre retail businesses are showing growth as high as 15 per cent compared to the average growth of just over five per cent. Apparently these “elite” companies are driving up their productivity. In general, they are said to be 25 per cent more efficient than the industry average, averaging over £266,000 sales per employee. Something else the report points out is that the largest companies are increasing sales fastest. Typically larger companies are seeing sales increases of almost 11 per cent.
However, it must be said that the Plimsoll analysis is based on past financial performance of companies and not necessarily trends affecting the market factors that precipitate improvement or otherwise. Therefore predictions about the performance of the companies are based on their relative fiscal strength rather than their ability to increase sales or gain market share. Nevertheless the suggestion that certain companies are growing quicker and are investing in growth strategies in order to achieve this stands as a point in and of itself and – balanced with other market perspectives – is an interesting take on what may take place this year.
So where does that leave us? Any further forward? A little. While the question: “is the market levelling off or still falling?” remains to be answered, there are signs that the decline is slowing and that optimism is gradually increasing. Whether these turn out to be so-called green-shots of recovery only time will tell.