Still A Growth Market

With seemingly everyone increasing the attention they pay to green issues; and following the introduction of ‘green taxes’ like the London CO2 congestion charge, what does the future hold for the 4×4 tyre market?

In years gone by when 4x4s were practical vehicles, rather than milk-run-machines for city dwellers, a London-only surcharge on such cars wouldn’t have made much different. Now however, according the Society of Motor Manufacturers and Traders (SMMT), families who use larger cars in the capital could face bills of up to £6,000 a year. From 27 October, cars that emit more than 225 g/km CO2 will pay £25 to enter the central London charging zone. The scheme has been billed as a gas-guzzler tax, but in-effect it will have a disproportionate effect on SUV and 4×4 drivers.

The question is, is this kind of anti-4×4 legislation likely to affect 4×4 tyre sales now or in the future? Looking at the most recently published SMMT data there is no evidence to suggest that a dramatic 4×4 sales slow-down is on the horizon. The last SMMT UK vehicle parc census, which took place in 2006 found that over 3.32 million 4×4, Utility and Light Commercial Vehicles (LCV) below 3.5 tonnes are on UK roads. Likewise 4×4/SUV registrations have continued to grow – over 175,000 were registered in 2006 (up 7.5%), their fastest rate in over a decade. Interestingly more than a fifth of newly registered 4x4s were Land Rovers, meaning these fitments are likely to remain dominant in replacement tyre sales for some time.

During the same period the total 4×4 replacement tyre market continued its trend of rapid development. Alan Baldwin, wholesale director at leading 4×4 tyre specialist Southam Tyres (a division of Micheldever Tyre Services) estimates that the UK 4×4 tyre replacement market totalled 2.2 million units in 2007. Last year’s official ERMC data put the 2006 figure at 1.5 million, so even when grey, parallel and non-EU imports are added into equation the 4×4 replacement still appears to have grown by as much as 20 per cent year-on-year in 2007.

One explanation for this; and probably the most exciting news for tyre retailers is the reduction in the mileage capabilities of OE tyres. According to Alan Baldwin, high kerb weights, increased engine power and torque, excellent suspension systems with minimal body roll all mean much higher tread wear rates. “If you go back a few years for example to 235/70R16 Michelin and Goodyear OE tyres fitted on Land Rover Discovery, anything between 40 and 70 thousand miles was possible on a set. The new and stunningly successful Audi Q7 can do its boots in under 10,000, and even the less powerful, often more sedately driven Volvo XC90 rarely sees more than 20,000, often only 12,000.” Baldwin explained.

Commenting on recent market trends, he continued: “I still believe that there is good growth in all of the on-road 4×4 vehicle sectors, and CUV is very exciting, but so is the luxury sector. Facelift BMW X5 sales are very strong, the new Audi Q7…Range Rover sport is a massive success, with its 20-inch OE tyres often getting a hard life.”

What the arrival of the CUV may mean for the 4×4 tyre market

However, looking back to new vehicle figures, one of the clearest trends for the future is that the fastest growing sector is the so-called Crossover Utility Vehicle (CUV) segment. CUV sales are reportedly growing faster than any other market section at the moment. The traditional 4×4 vehicle, which tends not to be widely accepted by society, has according to Renault, come of age. Launching the new Renault Koleos crossover vehicle – which the company admits draws heavily on influences gained from its partnership with Nissan – the French car manufacturer explained that 4×4 technology’s “coming of age” is what has led to CUVs gaining ground in recent years.

The presence of SUV-type vehicles can be observed in all segments, in the same way that MPVs spread to other categories in the late 1990s. Indeed, the whole concept of market segmentation is more blurred than ever. In the eyes of a consumer what exactly differs between a car and a CUV; or an SUV and a 4×4?

Today SUVs account for five per cent of the total worldwide market compared with less than one per cent 15 years ago. The SUV/compact crossover market is constantly expanding in the top five European countries and strong growth in the past five years has seen total sales more than double from 222,500 to 522,000 vehicles. This trend can be observed across Europe: in a total market of approximately 15 million vehicles, the SUV/compact crossover category accounts for almost five per cent, with more than 700,000 vehicles of this type sold in 2007. The sector is extremely competitive, too, with 25 models available.

Renault also explained the company’s perspective on the kind of customers that are buying CUVs, an interesting insight for anyone wanting to sell replacement tyres to the same drivers down the line. According to the French carmaker, European SUV/CUV customers essentially come from the C and D segments. The majority of them already own a vehicle of this type (25%), while 22 per cent come from the D segment and 13 per cent from the C segment. Former MPV owners account for eight per cent of SUV/CUV buyers.

Looking forward

While the North American vehicle market clearly has many differences to the Europe market, the fact that the US is home to leading manufacturers such as Ford and GM means what happens in the US market invariably has some influence over what comes to Europe. With this in mind it is interesting to note the findings of a recent PriceWaterhouseCoopers (PWC) analysis. Writing on 14 February 2008, PWC US automotive analysts Michael Mckenzie predicted that assembly of full-size pickups and SUVs in North America would fall 14 and 13 per cent respectively. In fact with car assembly predicted to fall 3 per cent year-on-year in the first half of 2008, the only segment in which assembly rates are expected to increase is the CUV sector (up 7%).

Mckenzie also produced a fascinating graph that plotted US fuel prices against pick-up sales between January 2007 and January 2008. He found that the there was a very clear correlation between increased petrol costs and a marked slowing of pick-up sales. Basically whenever fuel costs went up pick-up sales went down. Exchange pick-ups, which have relatively low sales levels in Europe, for the 225 g/km+ category of vehicle mentioned at the start of this article and it seems logical to predict a similar trend on this side of the Atlantic. Add in the fact that fuel costs roughly 50 per cent more in the UK than it does stateside and this seems all the more likely. Nevertheless market insiders told T&A that sales of pickups like the Nissan Navarra and Mitsubishi L200 both remain “very strong” despite some degradation in the tax benefits they previously offered to drivers registering them as commercial vehicles. Either way, keeping an eye on the OE fitments of the latest CUVs would seem to be very prudent.