Comment: Stage fright

Whether the occasion is a corporate presentation or a theatre production, the moment immediately before you set foot on stage is probably the most nerve wracking. With a triple dip recession narrowly avoided and some first quarter results suggesting that the worst of the downturn is behind us, this is probably a good analogy for where the tyre market at large finds itself as the first half of 2013 draws to a close. One the one hand manufacturer supplied unit volumes, such as the first quarter figures supplied by the ETRMA, don’t exactly make easy reading and there is talk of restructuring. But on the other hand the worst could be over.

Car tyre demand in the first quarter was down by a double digit percentage across Europe. However various product segments are performing better – take truck tyres for example, which according to the ETRMA were down just 1 per cent to 1.879 million tyres when you compare the first quarter of 2013 with the same period in 2012. In addition different markets are performing, well, better than the broad pan-European trend suggests they should. Outside Western Europe markets like Russia (see further coverage in May’s Tyres & Accessories on pages 44 and 84 for more on this) continue to impress despite what is going on over here. 

Likewise, when you consider the numbers from different vantage points you get a different perspective on what is going on. In the UK at least any first quarter volume declines reported in sell-in figures were around half as bad when counted from the sell-out point of view, leading us to suggest that demand – although battered – is more robust than many may have thought. Indeed, when you consider the numbers of tyre retail branches in the British market as a benchmark metric, things are considerably more stable now than they were a year or two ago (see this month’s Retail feature, especially pages 29-30).  There is even talk of some kind of replacement tyre demand recovery, with the ETRMA suggesting the industry expects summer tyre demand to find itself performing “slightly above last year” by the time the second half of the year is complete.

However, at the same time questions of corporate restructuring and specifically the better balancing of supply and demand in Western Europe have been persistent throughout the first quarter of the year and will no-doubt figure in the second half too. Whether or not the retail demand slump witnessed over the past few years is over, large tyre manufacturers are being forced to re-consider the exactl details of their European manufacturing operations due to both contextual and investor pressures, both of which have arguably been precipitated by the wider economic environment. The financial crisis may have begun with the fall-out of sub-prime mortgage lending and the collapse of institutions like Lehman Brothers, but the ripple effect means the world is now a less stable and less predictable environment for the tyre industry too. And with this in mind the some of the world’s largest tyre markers are seriously considering how long they can continue operating with low levels of production utilisation in low demand, relatively low margin, high cost, highly competitive and less stable mature markets (see page 36).

Only the most pessimistic would suggest the generously proportioned lady got anywhere near singing during the whole credit crunch, financial crises, euro-breakdown, recession saga. But as we approach the end of the first half of the year it does look like some of the financial jitters experienced by routinely profitable companies could be due to the uncertainty associated with questions of restructuring and what is to come. Or in other words, as 2013’s act one draws to a close any wobbles we are witnessing could be a dose of stage fright before the curtains part on the second half of the year.