Plenty of Room for Large Retreads

Now that the supply drought in 25-inch plus earthmover tyres is “well and truly over,” as one industry observer told T&A, tyre buyers are being more selective about which products they purchase. The consensus appears to be that most of the cheap Chinese EM tyres imported into Western Europe and used as stop-gaps to keep machinery going are simply not up to the job. “The production and supply problems educated companies about their rubber assets. Customers are still reluctant to spend, but they have seen that even the best [Chinese tyres] appear to have been designed to be worn out and throne away,” Wayne Cornell commented. So does that mean everyone is going out and buying premium new earthmover tyres? Not exactly. Retreading was widely seen as the most economical alternative to new tyres during the shortage, as this method offered tyres with nearly new performance at something like 60 per cent of the new price. OTR Tyres reports that some canny new customers have caught on to the idea that running tyres to destruction is false economy and looking after and then retreading tyres is the way forward.

As a result, companies like OTR Tyres and Vacu-Lug are aiming to capitalise on this. That’s why OTR offers a multi-life tyre management service called TotalTyreLogic which the company already operates in dozens of quarries across the UK. TotalTyreLogic tracks the condition and usage of tyres through regular visual inspections and measurements. Where the company has managed casings itself, OTR claims to know which tyres have been working in which environment and what if any damage has been sustained “to the hour.” The latest tool in OTR’s TotalTyreLogic is an RFID-based wireless tracking research and development project (see textbox). All this, say company representatives, allows OTR to produce retreads that compete directly with new products in terms of quality and performance. But with OE demand coming down isn’t there a danger that the premium manufacturers will cut earthmover tyre prices, as some analysts have predicted they will in the car and truck segments, and reduce the cost advantage of buying retreads?

While production at OTR tyres is said to be down between 10 and 20 per cent as a result of the general market slowdown, Wayne Cornell expects increased retread take-up in the second half of the year. And as far as premium manufacturers competing on price is concerned, there are apparently no signs of price cuts – quite the contrary, the last move the big tyre makers made was to increase EM tyre prices. (Michelin put EM tyre prices up 3 to 5 per cent on average in Europe on 1 July 2008). Nevertheless, Cornell maintains that – as long as retread quality remains at the top the agenda – there will always be a sufficiently impressive price differential between retreads and new tyres. Besides looking at Michelin’s corporate balance sheet, there doesn’t appear to be any sign that premium new tyre manufacturers will be in a hurry to cut costs. In 2008 something like 45 per cent of the French manufacturer’s operating margin was derived from speciality and earthmover tyres. With the market as it is, premium tyre makers like Michelin are likely to want to defend these profits. ‘Our biggest asset is our factory’ For its part, OTR Tyres is seeking to grow its business by keeping the new customers it gained during the tyre supply shortage.

In addition to the TotalTyreLogic management programme, the main way the company hopes to do this is competing on product quality. OTR’s Alfreton headquarters and tyre retreading factory is the model for the company’s relatively new Australian and Ghanaian facilities and all staff training emanates from Derbyshire. On top of implementing lean manufacturing techniques and making significant investments into some of the latest machinery and staff training, it is fair to say that as the only EM retreader T&A knows to have improved efficiency through the adoption of six sigma processes, it is a leader in its field. To give an example of the kind of improvement the company has been able to achieve, you need look no further than OTR’s 2700R49 curing press. Changing moulds on this machine used to take two days, but now the job can be done in just six hours. Output is now entirely either mould-cure or smooth and groove, after the company finished selling out its stock of Schelkman-licensed pre-cure retreads in 2007.

The decision to move on from cold-cure production falls directly in line with OTR’s policy of competing for market share against premium products, as hot-cure retreads have a distinct aesthetic advantage over pre-cure tyres and provide the opportunity to rebrand remoulded casings. The most recently installed machinery was the factory’s second tri-head buffing machine, which was installed at the end of 2008. This addition allows factory output to respond better to customer demands and adds further flexibility in the company’s general product offering, which ranges from 25 to 49-inch tyres. The company is particularly selective when it comes to casing selection and uses Earthscan ultrasonic technology to inspect potential products. At the last count the company had 196 gigabytes of result data from this test on its quality control system servers. And we haven’t even covered the well-documented environmental advantages retreads have over new tyres. As was suggested in the pages of the last retreading special, the combination of the increasing price of Chinese products, mixed with a lack of trust of some of these tyres offers retreads the potential to increase sales. When you consider the price pressures buyers (especially earthmover tyre buyers) are facing in the light of the recession and the green benefits retreads can and always will offer over new tyres, you can see why forward thinking retreaders like OTR believe they can compete with the higher cost of premium new tyres.