Michelin: Political and Economic Instability Slowed UK CV Tyre Recovery

Following the recession of 2008 and 2009, in the most recent part of this year there has reportedly been “an about turn” in market truck tyre demand. However, the commercial vehicle sector’s recovery is said to be much slower in the UK than in Europe. Tyres & Accessories spoke to Michelin UK’s head of marketing – Truck, Earthmover, Martin Covington, who explained how the market’s recent history has been “a very competitive 18 months.”

While Michelin reports that truck tyre volumes in Europe shot up 28.7 per cent during the first half of 2010. The UK market recovery appears to be much more gradual, rising just 6 per cent in the same period. (The niche Republic of Ireland market flew up 42 per cent, but this figure is based on the market’s relatively small volumes rapidly recovering from a low base). “OE has obviously been poor, but replacement hasn’t been as much better as it should have been,” Covington commented, pointing out that economic and political instability hit haulier confidence in the first half of the year. Interestingly (happenstance or not) the market’s return to form appears to have coincided with the formation of the current coalition government following the general election.

On top of this there is another key difference between the UK and European markets on the whole. While many European fleets buy their tyres en masse and keep their own stocks, the more mature UK market generally runs complex service agreements which see hardly any tyres kept in stock by the customer themselves. Therefore while European customers ran down their stocks during the recessions and have been re-stocking of late, UK customers have been responsible for a more steady return to demand.

In absolute figures the pre-recession UK CV tyre market was said to have been around 1.3 million, but this reportedly fell around 15 per cent to roughly 1.1 million units, according to market research conducted at the French tyre manufacturer’s Campbell Road headquarters. However Michelin, which produces and sells large numbers of retreads along with its new tyres, tends to look at the truck market as a whole combining the new and retread production and sales figures. By this measurement the post-recession marketplace is said to equate to around 2.1 million truck tyres of all kinds.

De-segmentation?

So what does this mean for Michelin a tyre manufacturer that has occupied a leading position in the UK truck and bus tyre market for decades? Has the firm experienced the much ballyhooed de-segmentation phenomenon? The market’s improvement has reportedly resulted in improved Michelin brand sales, but as far as de-segmentation is concerned, Covington reports that Michelin has actually experienced the return of customers that previous switched to cheaper products in a bid to reduce initial costs and have since decided against them. That said, demand for Michelin-owned Komoran and Taurus brand tyres is said to be up on previous years, with growth in this sector moving faster than Michelin branded products. Nevertheless, in the last two months there are particular signs that Michelin tyre sales are on the up once more, as a result of increased haulier confidence, says Covington.

Whilst Michelin has been successful in retaining customers on their existing Michelin policies, Covington admits it’s been more difficult getting new fleets to invest in tyres which might have a higher up-front cost than their existing policy. “When the credit crunch hit, a lot of operators battened down the hatches, fitting ‘budget’ tyres and low-cost remoulds, as well as cannibalising tyres from vehicles sitting idle in the yard.  The net effect means that many hauliers have been left running on cheaper rubber which is arguably more prone to failure, wears out faster and simply doesn’t have the same low rolling resistance properties as Michelin. This means that fuel bills are likely to have risen, and they’ll face significant replacement costs once the fleet is back to full utilisation.”

Another trend Michelin has found is a noticeable increase in the take up of both retreads and regrooving. “Fleets already running a Michelin policy have been able to enjoy the benefits of their investment during the tough times, without downgrading the spec of their tyres,” says Martin Covington told Tyres & Accessories. “We’ve had many instances where customers which had previously operated a new-only policy have started sending their worn tyres back to our Remix plant. Part of this reflects vehicle replacement cycles being extended, as more companies have to replace a Michelin tyre whereas previously a vehicle might have been sold after three years, before the tyre ever needed changing.”

Regroove rates have also increased, as more fleets take advantage of the additional layer of base rubber built into Michelin truck tyres as standard. In 2007 approximately 43 per cent of the worn casings received at the Remix plant in Stoke had been regrooved. By the final quarter of 2009 that figure had risen to 46 per cent. “Regrooving…can increase longevity by around 20 per cent, whilst also maximising the most fuel-efficient state of the tyre,” Covington explained, adding: “It reflects the pressures operators are under to make efficiency gains.”

But as critical as product selection and the right tyre husbandry are, a company like Michelin also needs the right people communicating and servicing these areas. Perhaps that’s why, in addition to the company’s well-known ATS Euromaster equity chain, earlier this year Michelin refocused its efforts on its MBA network of independent truck tyre dealers. As a result on Friday 23 April 2010 Michelin Russell Bowyer was introduced as the new full-time manager of the programme along with the promise of a new name for MBA. At the time Bowyer said he will “invest time and resources in re-establishing and invigorating MBA”. Also the company currently has 55 department members on the road calling on dealers and hauliers, communicating the messages of whole-life cost, reliability and consistency.

Looking forward Covington predicts that 2010 will continue to be competitive, but that Michelin will be able to maintain and steadily growth its position. One of the key reasons for the company’s relative stability in this market is that it has a strong track record of securing medium and long-term contracts with customers. Many fleets currently run on three year contracts, while in once instance a specialist military tyre deal saw Michelin sign a 25-year supply agreement. But once again, while European and global growth has shown signs of fast double-digit growth. For the time being at least, the UK truck market looks likely to continue its steady single-digit recovery.