Hayes Lemmerz, the wheel producer who recently emerged from Chapter 11 bankruptcy protection, is trying to reduce costs without compromising financial recovery. This comes in response to the expectation that US vehicle manufacturers will ask suppliers to reduce prices in order to improve the manufacturers’ own bottom lines.
Analysing some of the marketing opportunities open to the retreading industry and how it might approach a common strategy. In doing so, the retreading sector, will initially have to face the fact that as an industry it has never been in a position where it has had to design a classical marketing plan before. Retreads traditionally were taken for granted as the budget option for the tyre industry. All tyre shops stocked passenger retreads and these were automatically sold to budget oriented customers. Budget new tyres did not form a viable competition to retreads at the bottom end of the market because retreads still enjoyed a significant price advantage and many budget tyres were of poor quality. To secure a sale all retreaders needed to do was to assure good prices, good product quality and good service to the retailer. Nowadays, it is clear that these attributes alone are no longer adequate. In the truck tyre market the situation is somewhat different. Retreads have long been part of the life cycle of the tyre. The market has always been considered healthy and so the question as to whether the industry’s marketing strategy was being efficient in reaching its message to as much of the potential market as it should was seldom raised. However, with pricing issues now becoming more relevant, the issue of the optimisation of the market is becoming more critical. The impact of the downturn in car tyre retreading has been particularly severe in the UK where sales by UK retreaders fell from 4.4 million units in 1995 to around a million today, with a number of high profile retreaders being forced into receivership. This situation was exacerbated by the strength of Sterling resulting in the almost overnight disappearance of vital export markets. It has to be recognised that passenger retreads are now niche products. There is still a place for passenger retreads in Europe but, unless the generic marketing of passenger retreads is improved, the fear must be that the market will follow a similar path to the United States, where it has now almost completely disappeared. To counter this, a sample marketing plan has been drawn up, the key elements of which are as follows: A scientific research programme to ascertain the performance qualities of retreads, using the results as part of a PR campaign. Direct lobbying of government departments and public bodies with a view to highlighting the environmental message that the retreading industry wishes to portray. At government level, the aim would be to persuade individual departments to accept retreading as the best practical environmental option and to include retreads in their purchasing policy. The incorporation of tyre dealer seminars and training days. This proposal generated some considerable thought as it was felt that there was not much point wasting money trying to change the views of tyre dealers and fitters whose minds were already set on opposing the sale of retreads. Instead, the idea would be to use funds to help in the training and support of dealers who had proved themselves to be positive towards retreads. Allied to this is the decision to create a “Green Tyre Dealer Scheme” backed up with the production of a retread buyers guide. This would allow the retreading business to channel sales through dealers who support the retreading industry, thereby reducing switch selling. A promotionally effective presence at exhibitions. This would include car and truck shows as well as events frequented by the environmental lobby. A comprehensive PR campaign is proposed, aimed at the tyre trade press, environmental magazines, motoring magazines, the national and regional press and other consumer interest groups such as women’s magazines. In addition, the incorporation of a press monitoring service to measure the success of the campaign. It has also been planned to introduce a response service to react to bad press in the same way as TRIB does. For the truck and bus market an informative newsletter is suggested dealing with tyre related issues in general but, allowing plenty of scope for promoting the argument in favour of retreads. This activity is based upon the knowledge that the regular truck press is editorially light on tyre related issues and indeed rarely covers anything concerning retreads. Other activities include the design of a campaign website, the increased use of environmental newsgroups on the internet to promote retreads, the production of brochures and presentation materials for use by fleet engineers, the police, schools and tyre dealers and the production of promotional merchandising items such as cab stickers, tacho holders, mugs etc. Finally, a comprehensive but highly targeted advertising campaign focused on environmentally friendly consumers. Part of this strategy would be the promotion of the “Green Tyre Dealer Scheme” mentioned earlier. These are the main elements of a package which could make a considerable contribution towards improving sales of retreaded tyres.
Cooper Tire & Rubber Company has announced that it will publish its financial results for the second quarter on July 17, 2003. The company also indicates that it expects those results to fall short of current analyst expectations. “This was a difficult quarter,” said Tom Dattilo, Cooper’s Chairman, President and Chief Executive Officer. “Raw material prices were dramatically higher and overall demand for replacement tyres was weak. The replacement tyre industry remained very soft during the quarter. Although we did see strong improvement in the latter half of June, it was not enough to offset the weakness earlier in the period.” The Company expects earnings per share to be in the range of 13 to 17 cents. These results include charges of 2 cents for restructuring, 4 cents related to temporary tire plant shutdowns, and a total of 2 cents for a minor accrual adjustment and the write off of certain tooling assets.
Firestone Agricultural Tire Division in the USA has announced a price increase of 3 to 5 per cent on all Firestone brand agricultural, industrial and forestry tyres. A significant upward trend in raw materials costs necessitated the price increase, the second announced by Firestone in 2003. The price increase, which varies by product line, will be effective for all orders placed after September 1, 2003.
In South Africa, Yokohama is drastically cutting prices of passenger car tyres, by up to 26 per cent. The company says that this is because the Rand has strengthened against other currencies and is challenging competitors to reduce prices also. Yokohama has an estimated 2 per cent share of the South African market.
It is better to be a tyre manufacturer in Western Europe rather than the USA, say analysts from the Deutsche Bank. The main reason is that raw material prices, billed in US$, have risen 20 per cent in Dollar terms, but only 3 or 4 per cent in Euro terms. Another advantage is in the performance of the respective tyre markets, with the European replacement truck tyre market in the first four months up 5 per cent (US market up 2 per cent) and the car tyre market in Europe rising 8 per cent, against a 5 per cent decline in the USA.
Sumitomo Rubber Industries has announced its intention to increase prices from three to five per cent in the second half of the year. These increases will apply to Sumitomo brand passenger, light truck, truck and bus tyres in Asia, Middle East, Latin America and Africa and they will vary according to country and product line. The increase is necessary, says SRI, because of increasing raw material costs and follows a similar price increase introduced in January this year.
Dr Peter Kronthaler, Managing Director Pirelli Motorcycle Tyres Germany, has confirmed that production of Metzeler car tyres will go ahead. The tyres will be offered alongside Pirelli and will not be marketed as middle market or budget tyres but have a parity with Pirelli. It is believed that two production lines will be given over to Metzeler production, but sizes, names and prices have yet to be confirmed.
Michelin is expected to announce a small drop in sales to 15.54 billion Euro from 15.75 billion Euro. Analysts say this is likely to be due to the weak dollar. They also suggest that Michelin will increase prices to meet growing costs of oil-based raw materials. An announcement from Michelin is expected later today after the close of the stock market. Michelin’s full results are expected in two week’s time. The company’s share prices were pressured last Friday when Standard and Poor’s put the group on negative credit watch over unfunded pension liabilities. However they were given a 4.6 lift on Tuesday by good news from the auto sector suggesting a revival was under way.
Speaking in Malaysia, on recent news that Thailand may not cut rubber supply by four per cent as previously agreed by the three key producers, Primary Industries Minister Datuk Seri Dr Lim Keng Yaik said “I hope that is a misquote. However, should it be true, there was an urgency to have a discussion with Indonesia and Thailand. After all, being the biggest producer, Thailand is benefiting more with the present high level of prices.” The three countries, which account for about 60% of world rubber production, agreed in Bali in 2001 to cut exports and output by 10% and 4%, respectively, aiming to support rubber prices.
Four years ago: In an interview at the Geneva Autoshow, Goodyear CEO Sam Gibara put forward his views. Goodyear had, according to him, the best people, the best distribution, the most cost-effective plants, the best products and – with its innovative EMT tyres – a three-year lead over its competitors. Within three years, he predicted, 75% of Goodyear tyres produced would be EMT tyres (in 2002, the actual figure was one million tyres). The IMPACT production process (Integrated Manufacturing Precision Assembled Cellular Technology) was held up as a revolutionary advance, guaranteeing predominance over the competition and an example of Goodyear’s technical leadership. The reality is that there have been no significant profits for years and Goodyear is still in third place. It made a loss of $203 million in 2001 and might not have been able to avoid another loss last year. Goodyear needs a turnaround in its loss-making home market, costs are too high, selling prices are too low and the once-proud corporation is fighting for nothing less than its survival, however unpalatable this might sound to company managers. In the first two years under Gibara’s leadership, Goodyear enjoyed very good results, but these have since declined to today’s levels and the “Mission into the 21st century” has been a flop. The group is overloaded with a mountain of debt, has big problems with its underfunded pension fund and the credit rating was reduced to junk bond status. All this means no picnic for Gibara’s successor Keegan, who knows that his assignment is a difficult one but who believes that the problems are manageable. What he does not know for sure is whether he will have time enough to make the turnaround happen.
Cooper Tire & Rubber has reported a 50 per cent rise in net income in the 4th quarter of 2002, compared to the same period in the previous year. Net income was $23 million on a turnover of $842 million (4Q 2001: $16 m/$777 m). For the year, the Tire Group posted a turnover of $1.8 billion ($1.7 bn) with unit sales up 5 per cent and the operating profit rose 88 per cent to $137 million, although the 2001 figure was affected by class action settlement charges totalling $72 million. Excluding these charges, operating profit for the year declined by $8 million or 5 per cent. Sales for the Automotive Division last year rose 7 per cent to $1.6 billion. Thomas A. Dattilo, Cooper chairman, president and CEO, said that the group had achieved its targets for the year and the outlook for 2003 was “challenging”.
Raw material price uncertainty is likely to pull down Bridgestone Australia’s profits for 2003. This follows significant rises in the prices of natural and synthetic rubber. The company reported a profit of 12.6 million Australian Dollars for 2002, a 41.2 per cent rise on the previous year. Total revenue rose from 513 million dollars to 517 million dollars. The improvements in profitability came from non-tyre related business and reduced borrowing costs. A company spokesman said that the tyre business in Australia remained marginal and directors are concerned that significant improvements in productivity and reduction in manufacturing costs will be required to sustain this business into the future.
Concerns over liquidity, increases in oil prices and declining market shares are making analysts cautious over Goodyear’s attempts to turn the group around. Analyst Lache, from DB Global Equities New York, is expecting Goodyear to come up with an aggressive restructuring plan in March, involving moving production to lower cost areas with subsequent plant closures and giving up loss-making OE contracts. Investors may regard such plans with a pinch of salt, as Goodyear has spent $640 m so far in unsuccessful restructuring efforts. Lache estimates that Goodyear will have to reduce costs by up to another $850 m in order to be competitive
Intertyre, Goodyear’s South African distribution operation has been taken over by African Genesis, a wholly black-owned investment company. African Genesis has taken 70 per cent of Intertyre leaving Goodyear with the remaining 30 per cent. Currently Goodyear has 40 per cent market share in South Africa and the change in management of Intertyre is planned to increase the company’s performance. Intertyre CEO Lawrence Mavundla, who is also the national president of the African Chamber of Hawkers and Informal Business, said yesterday that the deal presented an opportunity for small business to set up mini distribution enterprises in the tyre industry. He said the partnership would bring about a “robust growth” in Goodyear’s market share, mainly in the passenger vehicle market. ”There are some chamber members who trade in tyres. However, the tyres they sell mostly don’t meet the SA Bureau of Standards’ requirements,” he said. Mavundla said while some of these small enterprises import tyres illegally, the situation was worsened by some traders who used glue to retread tyres, making them unsafe. Intertyre hopes to address these problems by making tyres available at reasonable prices to Chamber members. It is also hoped that this will initiate strategic alliances with Goodyear subsidiaries and create a platform for generating other larger projects in South Africa and neighbouring countries.
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