FULLERTON, Calif.—The massive earthquake, ensuing tsunami and worst nuclear disaster since Chernobyl that hit Japan in March didn't spare Yokohama Rubber Co. Ltd. But all in all, it could have been worse for the Japanese tire and rubber company.
Actually, Yokohama is going strong worldwide despite the unprecedented natural disaster at home, according to Dan King, senior vice president of sales and marketing for Yokohama Tire Corp., the firm's U.S. arm.
“We've been very lucky,” King said. “We lost some operations internal to Japan, but all our plants are up and running.”
Because Japan's infrastructure isn't functioning normally, there are some issues with raw material supplies, especially steel cord, he said. Shipments of certain tires from Japan, particularly commercial tires, have been curtailed.
The earthquake damaged Yokohama's test facilities, but they are back in operation, King said.
A hose and sealing products plant in Ibaraki prefecture sustained damage and initially was closed, and operations at five other facilities were suspended for a time.
“It's been devastating to the country and the people of Japan,” King said. “But it's been great to see the outpouring of concern and sympathy from the people in the U.S.”
Strong markets
Orders for Yokohama tires are brisk in both the original equipment and replacement markets, in turn putting pressure on fill rates, King said.
“Our demand is really strong, and we appreciate that,” he said. “We think there will be fill-rate issues throughout 2011 and possibly 2012 because of strong OE demand—in the U.S. alone it's up 12 percent over last year.”
On the other hand, Yokohama is working hard around the world to eliminate fill-rate problems, according to King. The company will complete the expansion at its Salem, Va., facility in September, and capacity increases at factories in other countries are in place now, he said, although a new plant in the Philippines won't be ready until 2013.
Yokohama is committed to manufacturing tires in the U.S., according to King.
“We've had a lot of success with our U.S. factory,” he said. “It's close to the market and cost-effective.”
While labor costs in the U.S. remain much higher than most other places in the world, global increases in transportation costs balance that out, according to King.
“We like the idea of more U.S. manufacturing because of the efficiency,” he said. “We will be evaluating the possibility of more production in the U.S. in the future.”
As with every other tire manufacturer, Yokohama finds the price and supply of raw materials a problem worldwide.
“There's some controversy as to how 2011 will play out,” King said. “Many people are projecting a rise in prices through 2011. If we see a plateau this year, it will be just that—a leveling off, not a decrease.”
Raw materials are scarce now, with demand increasing from China, India, Brazil and other rapidly developing countries, he said.
“It's a major concern,” he said. “As we manufacture in the U.S., we are trying to minimize the effects. I've been with Yokohama more than 22 years, and these are the strongest price increases I've ever seen.”
Yokohama hasn't been able to pass on the increased prices of raw materials to customers, though soon it will be forced to do so if prices continue to rise, according to King. The company is trying to work with its dealers to mitigate the effects of price increases when they happen.
“Many consumers don't want to hear this, but they're getting a tremendous value for what the tire industry provides,” he said. “There's quite a lot of engineering that goes into a tire. It's one of the most important parts of a car, if not the most important.
“But the economy is still in a transitional position,” he said. “I don't know where it's going in the U.S., though there are some good signs.”
Green tires
Yokohama also is enthusiastic about its continuing research and development into eco-friendly tires, according to King. The company pioneered the use of orange oil as a replacement for petroleum in mass-market tires, he said, and it is committed to advancing that technology.
“We've come out with unique, class-leading eco-tires, and we're really excited about the next level,” King said. Yokohama's new eco-tire will make its debut late this year or early next.
One thing Yokohama isn't doing, however, is making a wholesale adjustment of the tire sizes it offers, according to King.
“Some sizes are in more demand than others, and we are trying to maximize our production where our customers feel the need the most,” he said. “But we're not cutting any sizes or lines.”
Even with the downsizing of vehicles for fuel economy, the market is still trending toward larger-diameter tires, according to King.
“We're seeing 16-inch tires on compact cars and 17-inch on midsize vehicles, so actual diameter is still high,” he said. “We're projecting strong growth in 16-, 17-, 18- and even 19-inch tires, far above 14- and 15-inch.”