Truck Tyre Replacement Market is Weathering the Storm

In the midst of some of the worst falls in Europe truck tyre production in a decade, opinions about the short and medium term prognosis for the segment remain divided. But while the research available fails to offer conclusive answers to the question of whether or not the truck tyre market has yet “bottomed out”; and fails to clearly indicate whether or not it is yet in recovery mode, there are signs that the worst is over. Looking at the SMMT’s UK commercial vehicle registration figures is a depressing place to start, but it reflects how bad the situation has been up till now. This data shows that there were just 309 3.5 – 6 tonne truck registrations (-35.89 per cent) in August; 7,531 3.5 tonne van registrations (-34.56 per cent); and 1546 heavy truck registrations (-46.49 per cent). Year-to-date registrations aren’t any better and are currently -43.88 per cent, -21.79 per cent and -44.59 per cent for each of those three segments at 203,117; 5,669 and 32,263 registrations respectively. According to SMMT chief executive Paul Everitt, not only are the truck and van markets “dogged by weak demand,” but the outlook is that “van and truck registrations will stabilise at around 45 per cent down” compared with 2008.

While not venturing as far ahead as a projection for how far down the market will be at the end of the year, Michelin’s latest figures (for July) show a similar pattern. The leading French tyre manufacturer confirmed that OE tyre demand is likely to remain down for some time, reporting that the European (including CIS) truck tyre OE market experienced a 68.7 fall in demand in July. European truck tyre replacement demand was reportedly down 16.6 per cent in July. The news is that, as big as these month falls are, the rate of decline appears to be slowing at around 2 points a month in OE (compared with April) and 4 or more points or month the truck tyre replacement markets.

With this in mind Morgan Stanley said market conditions are “slightly better than our expectations.” Their view is that the 16.6 per cent fall is “the most mild year-on-year decline since October 2008.” However, Deutsche Bank analysts suggested that the same data shows that the market is still “very poor.” Make of this what you will, but the consensus seems to be that improving year-on-year declines should turn to “outright growth in many key markets by year-end with growth accelerating into the first half of 2010.”

Goodyear’s Debica, Poland plant increases truck tyre production 17%

One sign that the demand doom and gloom could be lifting in the medium term is that Goodyear’s TC Debica S.A. factory recently announced it is jump-starting truck tyre production by increasing output 17 per cent. Debica has halted truck tyre production three times so far this year due to faltering demand, after it said (on 26 February) it would triple commercial vehicle tyre production from 1,700 to 5,000 units a day. It is not clear where the latest increase in production puts current truck tyre output, but the figure is likely to lie between the 1,700 and 5,000 unit per day range. This example is significant because company data shows that 75 per cent of production at Debica is destined for export, and that just under 99 per cent of the factory’s output (which includes passenger car and agricultural tyres) is destined for major European aftermarkets such as UK, France and Germany.

So what signs are there a wider recovery in the market? Positive general economic indicators out of Europe, Asia and the US have reportedly given market analysts reason to forecast a recovery in the wider global logistics industry. However for global freight volumes and revenues to rebound significantly – and therefore the tyre sales which rely on logistics firms of this kind prospering – analysts at Datamonitor suggest there will need to be “major improvements in consumer confidence, industrial output and subsequent international trade volumes.”

Datamonitor bases its predictions on the fact that positive German exports, which have traditionally driven the country’s economic growth, surged by 7 per cent in June compared to the previous month, representing the fastest growth in almost three years. Imports were also up by seven per cent month on month. As a result, the German economy has now exited the recession, recording 0.3 per cent overall growth between April and June. With France matching this performance, Europe’s two largest economies have rebounded from a 12-month period of recession. The UK – as has been well publicised – may not have got there yet, but the government and OECD data, not to mention the delayed introduction of the “bangers for cash” seems to suggest that recovery is running late rather than AWOL.
 
The one word of caution is that such broad economic figures are, by definition, imprecise. For example the French and German economies have managed to haul themselves out of recessions thanks to their respective oversubscribed car scrappage incentive schemes. But Germany’s scheme ran out of steam in August. Healthy economies are usually good environments for business in general and therefore tyres, but will France and Germany’s currently good overall economic figures look so good next year when car sales are predicted to plummet due when consumers are no longer being offer 2000 euros to buy cars? The point is that unless you are in the new car transportation business, France and Germany’s relative economic strength (and hopefully the UK’s soon) doesn’t say much about tyres sales.