Strong winter tyre demand means shortage, despite increased production

Premium tyre manufacturers such as Continental AG are going to struggle to meet demand for replacement winter tyres stock this season, according to the latest research. Continental’s management, for example, said it has upped winter output this year, but it still won’t completely meet demand and therefore customers may still face shortages of certain sizes. But, speaking off the record, representatives of other leading tyre manufacturers have said much the same thing.

According to a new report by German newspaper Handelsblatt, Conti’s tyre unit chief Nikolai Setzer said the tyremaker has increased winter tyre production in order to counter “bottlenecks” due to “the current global boom for automobiles.”

“Strong demand from substitute purchases and from original equipment calls for extra production. In our view, car drivers’ demand for winter tyres will this season be above the high level of last year, not only in Germany,” he told the newspaper.

Setzer also added that despite the fact that “new winter tyres have been rolling off the production lines non-stop since May,” the company may not be able to meet short-term demand for certain sizes. Conti, he said, expects to “catch up with the market’s demand by the end of the year,” the story said.

Far from frozen: winter tyres in a European context

To put the situation into context, winter tyres represent a high 20 per cent of the European tyre replacement market (or 60 million units of which approx 45 per cent are sold in Germany – 27 million units).

Due to seasonality, most winter tires are sold in the second half of any given year. According to research conducted by financial analysts at Deustche Bank, they generate high margins due to their built-in pricing premium. This can be roughly seen in an average selling price of approximately 80 euros and incremental profit of an estimated 1520 euros per tyre, says Deutsche Bank. Due to a strong winter last year, dealers started this season with low inventories and have been actively restocking since.

The analysts report that this inventory build up explains why 2011 should be a good year for the industry. And furthermore there are continuing signs that this trend will continue you in the medium term after Germany made winter tyre fitment two years ago. Italy have since followed suit this and France is expected to be next to jump on the bandwagon.

Continental plays a key role in the European winter tyre market as it is market leader with an estimated market share of 30 per cent, followed by Michelin (around 20 per cent), Goodyear (again around 20 per cent), Nokian Tyres (circa 17 per cent), and Pirelli (roughly 10 per cent), according to the analysts.

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