Magazine for the professional tire industry
Issue link: https://mtd.epubxp.com/i/449261
19 www.moderntiredealer.com 2015 can be traced back to two main factors: A favorable outlook for gasoline prices, which should provide a tailwind to driving trends and consumers' discretionary incomes; and a renewed growth in the car parc, including an uptick in the number of cars entering the frst replacement cycle. MTD: W hat's the biggest inventory-related story of the year? Who's got it and who doesn't? And what opportunity, or problem, does that present for 2015? Mitchell: Te most prominent discussion on the inventory front is clearly the debate of whether or not the strategic, forward buying of Chinese passenger and light truck tires ahead of the potential countervailing and antidumping duties is pressuring shipment trends among the branded manufacturers in the U.S. Te topic is defnitely complicated, with ample evidence supporting both sides of the argument. Tere is litle doubt that many of the large domestic dealers and wholesalers fexed their balance sheets and warehouse capacity to import extra tires from China in the wake of the United Steelworkers fling a petition with the U.S. Interna- tional Trade Commission in June requesting antidumping and countervailing duty relief under Sections 701 and 731 of the Trade Act of 1930. Tat said, I believe most of these organizations ratcheted back orders with Chinese suppliers by late September with concerns the shipments would not clear U.S. Customs by Nov. 21, 2014, the date of the preliminary determination in the countervailing duty investigation. More importantly, most of these contacts noted their inventory strategies related to Chinese passenger and light truck tires were not impacting their buying behavior for non-Chinese tires. In other words, sell-in shipments were largely matching sell-out. As such, I, along with others in the industry, had expected the forward buying of tires from China to moderate signifcantly in the fourth quarter of 2014, and any related headwind on shipments of non-Chinese tires to subside. Interestingly, our analysis of federal trade data suggests this is occurring. Specifcally, our work suggests the number of passenger and light truck tires imported from China increased 23%, 18%, 19%, and 12% in July, August, September and October, respectively. Te average monthly gain in the frst half of 2014 was 18%. I expect trends will continue to decelerate into 2015. Still, Goodyear and Cooper both atributed weakening demand trends for their product in the U.S. during third and fourth quarters of 2014 to their customers stocking up on Chinese tires. Te companies indicated the headwind could continue through the frst half of 2015. MTD: W hat's happening with tire prices? W hat do you expect for 2015? Mitchell: Tire prices continue to decline in the U.S. as relief on the raw materials front continues to get passed on to consumers. We estimate retail prices were down 4% to 5% on a year-over-year basis in October, and prices contracted 2% to 4% at the manufacturing level. While the enactment of antidumping and countervailing duties could create some modest upward pressure on pricing in 2015, we expect this will be largely ofset by the beneft associated with falling raw material prices. MTD: How much are tire dealers depending on tire sales for their botom line? Mitchell: Notwithstanding the weak demand environment that has lingered on in the years following the Great Recession, tires are still a key element of a tire dealer's operations, with the category typically contributing 55% to 60% and 13% to 15% of the revenue and gross proft mix, respectively. Additionally, the trafc generated from tire sales provides the installers an opportunity to capture rub-of service sales and build loyalty with the consumer. MTD: Will companies move manufacturing out of China, or bump up production elsewhere in light of the additional tarifs levied against some Chinese tires? Mitchell: Te impact of Tarif 421 (which expired in Sep- tember 2012) defnitely forced many manufacturers to alter their capital allocation and production strategies in terms of where new investments were going to be made and the utiliza- tion rates of their existing plants. I would expect the same to occur this time around. In fact, it could be more pronounced since these protective measures would not be temporary, but rather semi-permanent with mandatory reviews occurring every fve years. Either way, I continue to think that tarifs, including the mere threat of such protective measures, will accelerate the trend of manufacturers adopting near-source production strategies. Examples of this include Giti Tire's, Hankook's and Kumho's decisions to build plants in South Carolina, Tennessee and Georgia, respectively. MTD: Are "green" tires making any headway in the market? Do customers care when shopping for replacements? Do car manufacturers care when planning OE? Mitchell: I think eco-friendly tires are gaining traction in the market, no pun intended, but I believe the atraction to "green" tires is rooted in the promise of improved gas mileage from reduced rolling resistance, which can defnitely lower fuel expense, rather than an over-arching desire to purchase tires produced via environmentally friendly manufacturing processes. Te promise of beter fuel economy appeals to drivers and OE manufacturers. It is also important to remember there are performance trade-ofs when it comes to "green" tires, including the give and take between fuel efciency and traction. MTD: What's happening with the raw materials in tires? Are there new components coming that might change the face, or the price, of tires? Mitchell: Te underlying trend in the basket of key raw materials remains favorable. But manufacturers are not resting on their laurels, as they are all looking for alternatives to some "I think eco-friendly tires are gaining traction in the market, no pun intended."