Capacity tight, yet 2011 brings cautious optimism

The market can change so quickly: Passenger car alloy wheel manufacturers, both large and small, recently and sometimes reluctantly reduced their production capacity while others became casualties of the consolidation that takes place within the sector whenever overcapacity is present in the market. Now the picture is very different. Alloy wheel firms are desperate to find factories whose utilisation capacities are less than a hundred per cent.

Even the larger manufacturers have forgotten their reservations about utilising other wheel producers in order to meet the current increase in demand: German manufacturer Borbet, for example, is having wheels produced for it in six-figure amounts by Komponenta (a Finnish company with a factory in Turkey) under its second brand name, CW. Ronal gladly took over a factory in Herbolzheim, southwest Germany from archrival BBS, not least because of the site’s reputation for quality off-take manufacturing. Uniwheels was quick to acquire surplus equipment from Toora in Poland and Fundo in Norway, both of whom were victims of the recession. The company was then able to make good use of the machinery to boost its own manufacturing in the short-term. Likewise, Brock has its eye out in Poland for equipment for its Bosnia-Herzegovina based factory. And at the AEZ facility in Neuenrade, Germany, new warehousing capacity has been established a few kilometres away from the main site as the space there was needed for additional production machinery. In total, manufacturers throughout Europe have added several hundred thousand additional units of capacity to existing plants; the courage to erect brand new factories in Europe is admittedly still absent.

A company with its own production capacity has a ‘problem’ others may envy: First and foremost it will satisfy its own requirements and give itself priority over third-party customers, and in many cases no remaining capacity exists for this contract work. Only a year ago the situation was so different that external customers were fawned over. Currently, any unused capacity for cast alloy wheels within Europe is treated as “insider information” or “top secret,” yet simply shifting production to the Far East comes with its own set of problems: Tariffs have taken away the advantage Chinese wheels had, while plants in other locations such as Indonesia, Taiwan and Korea are themselves not far away from reaching full utilisation. And then there also are a few manufacturers are best avoided: Although moulding alloy wheels is not exactly rocket science there is no guarantee that products will meet European standards. As several well-known instances have shown, audits, certification and credentials and should sometimes be viewed with caution. Furthermore, many companies actually able to produce the goods drop the ball when it comes to shipping and deliver the wheels when the season is over and the products no longer required.

The acquisition of goods is the problem par excellence for the Spring 2011 aluminium wheel season, and buyers working for wheel suppliers are frustrated. Sellers, on the other hand, are smiling: Those with available products needn’t haggle and make deals. Yet despite this, at the moment many tyre dealers don’t conform with this hard-times cliché: The cold winter and, in some markets, new winter tyre regulations, led to brisk business of late and turnover has been better than expected. Warehouses are empty and cash registers full.

When it comes to stocking their warehouses, retailers have learnt from past mistakes and are taking a cautious approach. Instead of haggling for a bargain they are paying bills promptly and everyone is happy: The end consumer is pleased to have treated him or herself to a new set of aluminium wheels, the retailer is finally once again selling wheels based on their appearance instead of price, wholesalers have jumped on the direct marketing bandwagon and wheel manufacturers have full order books. The sole, sullen exceptions are distributors who instead of having their own production have moulds gathering dust in someone else’s factory until the wheels are no longer required, the fashions move on and customers have turned away from their fickle suppliers…

It’s no secret that further difficulties exist alongside the availability problem: The Chinese have cleaned out the raw material market, aluminium prices are going through the roof and summer tyres are said to be in short supply as priority is given to meeting the needs of OEM customers. But on the other hand, without OE tyres there would be no OE wheels. And at the end of the day it shouldn’t be forgotten that we live in a fast-paced world and wheel fashions come and go like…fashion. Demand for new wheels will always be there. In this regard, some people may regret that certain wheels are “out”: Multi-piece and chromed wheels had always sold for good prices and consumers were more ready to dig deeper into their pockets for these products. However, the change in taste away from these products in the premium segment has been compensated for by the increasing popularity of forged alloys, while trends towards “anthracite” wheels or other options give the opportunity for an increased consumer spend.

The European replacement market is estimated to be some eight million units in good years and seven million in more difficult years; in 2011, market watchers are on the whole cautiously optimistic about what the year will bring.