Why are those tire plants closing? By David Shaw, Tire Industry Research ? In the last couple of weeks, we have heard announcements from Michelin and Sumitomo that they are closing passenger car tire plants in France and the United States, respectively. Yokohama is also closing the former Alliance off-road tire plant in Israel, but that is not part of this story. The Hadera plant was old and inefficient and its closure was more likely than not ever since Yokohama acquired the Alliance business. In this article, we examine some of the causes of the closures by premium tire brands and what it might mean for the future.. The first thing to note is that Michelin and Goodyear have been losing share in the passenger car tire market, largely to import brands. This is partly a deliberate decision to withdraw from less profitable (below 18-inch rim sizes) tire segments and partly the impact of strong competition and downward price pressure from consumers. As far as the deliberate decision to withdraw from the 17-inch markets and below, the premium brands have all said – in one way or another – that this is part of their mid-term strategy. The positive take is that the increased price/mix could lead to improved profitability. A tire maker can increase top-line revenues in three ways. Either by selling more tires (volume); or by increasing the price of all its tires (price) or –?more subtly –?by selling the same number of tires at the same prices as previously, but changing the mix toward higher-priced tires while reducing exposure to the lower-priced segments (mix). In the real world, they strive for a balance of all three approaches. One of the major challenges is that in the car tire sector, those high-profit tires in the 18-inch upwards segment make up between a quarter and one third of the total volume, depending on how you count the numbers. Outside the advanced markets of Europe and North America, 17-inch and below still make up around 90% of the volume in the replacement segment (but less in the OE segment). Those markets will, eventually, move toward higher rim diameters, but today they are only worth addressing as part of a wider mix of sizes and specifications. Read the full 1500-word analysis for free on our main page here: https://lnkd.in/efiF29qN Subscribe to our reporting service here: https://bit.ly/2BenMEs #tires #tyres #analysis Additional note: this post hit 1000 views just 59 minutes after posting.
Bruno Maroscutti
3 个月
Practically a copy and paste of the strategy adopted by Pirelli several years ago; considering that not only GY and Michelin are following it, but also Bridgestone and Conti, it will only move the competition to a higher level with consequent reduction in prices and return to the current situation like in a loop. Furthermore, Hankook, Apollo, Khumo, Linglong... will not stand by and watch.
Marco M.
3 个月
A few thoughts to ponder as it relates to GT; 1. Higher price/mix always sounds great but it can’t be achieved by exiting lower level segments and thereby assuming profitability will improve. Why? 2. A plant ultimately depends on output per man hour. 3. HVA (or 18”+) add complexity as the tail gets longer and longer. What does that mean? 4. More change overs…drives less output per man hour 5. Less output per man hour means more unrecovered OH impacting profitability 6. HVA tires get produced on different tire machines. GT has made no investments in its plants and barely spends enough on maintenance capital. GT no longer has machine build and when it buys tire building equipment it buys industry machines, but if you want to be a true global leader you need some proprietary technology. 7. GT (especially Kramer, we will see w Stewart) wanted to pursue HVA but never addressed complexity, proprietary technology, capital needed to pursue such a strategy and instead exited business faster than he grew the HVA and to compensate he centralized, cut, shut down machine build, stripped first principle R&D, and bought Cooper with its 100 year old plants. Pirelli started 20 yrs ago, had a comprehensive strategy=most profitable today!
James Innes
3 个月
It would be interesting to see data on how fast the transition to large rim sizes has occurred in Europe and North America. It has certainly felt quite sudden that SUVs are now considered the go-to for a lot of people in the UK. Presumably there are barriers to this happening elsewhere (cost of vehicles etc.). Might we expect the whole market to end up moving to 17-inch+ within a decade or two just because of how EVs and hybrids are being made now?
Great summary, thanks!
Managing Partner @ DLS Innovation Group, Inc. | DBA
3 个月Great article on the overall status of the industry. It stands to reason that Goodyear and its previous management did not have the a grasp of their internal price structures, operating capital investments and costs, segments that were profitable or lack thereof. Imagine having to sell off older factories of which they may have purchased and now at a loss. Regardless, of any accounting schema that allows write offs. Bad management decisions as to your commentary of adding in Cooper sales within a dying segment that further reduces the profitability of the brand (Goodyear). Further eroding the value of goodwill in the brand. David, Goodyear should have you on staff as a consultant so that you’re the red herring negating all the back slapping bad decisions. CEOs that are surrounded by yes men/women. Great article!