A tumultuous, but profitable, year has ended for most tire makers, but the key woes of 2011 probably will remain for at least the first half of 2012.
Supply/demand along with rising raw material and other cost issues will continue to be troublesome areas tire producers will have to deal with, according to two top officials at Yokohama Tire Corp.
Yokohama and some other tire companies also had to overcome the aftereffects of the tsunami and earthquake that ravaged Japan last March, which proved to be costly and slowed production.
Looking back at last year and ahead at 2012, Rick Phillips, director of the Yokohama's commercial sales—primarily light to heavy duty commercial truck tires—said that because demand has outweighed supply, “we have literally sold everything that we are able to build.”
Across the industry, tire makers are entering 2012 with very little inventory, much as they did in 2011. That's a challenge, he said, “but add to it a demand that's forecasted to remain at high levels—especially within the OEM segment—and further pressure can only be expected on the replacement market.”
Phillips said he expects demand probably will continue to be greater than supply, at least through mid-year.
Then there were cost pressures that persisted during the last two years. Although raw material prices have fluctuated of late, during that span they increased dramatically, as did transportation, insurance, labor and related expenses, he said.
In Yokohama's case, increased costs more than offset price increases the company instituted, Phillips said.
Costs are not likely to rise at the rates they did last year, he predicted, but they probably will continue to climb.
Gaining ground in consumer tires
On the consumer tire side—which includes light trucks, passenger cars and SUVs—Yokohama gained a good deal of ground in the U.S. despite the fact that meeting orders was dicey in 2011 as demand also outpaced supply in that sector, according to Fred Koplin, director of marketing communications.
Because of the poor economy, consumers are keeping their cars longer, which means more replacement tires are needed.
In many cases, buyers opt for better tires, he said.
The majority of Yokohama's light truck and passenger car tires made for the U.S. market are produced at the company's Salem, Va., plant, which was expanded in 2011.
“We also draw on offshore plants to help stock our tires to meet demand,” Koplin said.
Yokohama is spending about $13 million through next summer at the Salem passenger car and light truck tire factory to expand passenger tire capacity and Japan-based parent Yokohama Rubber Co. Ltd. has a tire plant coming on stream in Russia during the first half of 2012.
The parent company also is doling out about $600 million to more than double the capacity of its passenger tire facility in Clark Freeport Zone, Philippines, to 17 million tires annually.
Capacity will grow to 10 million tires annually by 2013 and to 13 million by 2014.
“We see steady growth in demand for tires” across the industry in 2012, Koplin said, “and we see growth in demand for Yokohama tires globally.” He said the tire maker will continue to refine and maximize its production this year to meet those needs.
In addition to the U.S., he cited potential growth coming in China, where he admitted the economy may be slipping a bit, along with improvement in Russia and Brazil. “On a global basis, sales should be strong.”
Commercial sales rise
Meanwhile, the trucking industry continues to be strong, Phillips said, despite worries that the economic recovery may be stalling.
“Commercial equipment sales and future orders remain high as does the demand for freight,” he said.
Amid bad economic news, “we actually have had eight consecutive quarters of GDP growth,” he said, although not every quarter had robust growth.
Yokohama's commercial operation expects to have a solid year in 2012, he said, and has several new products that soon will hit the market.
Included is a new steer tire, the RY47, which will be built on a highly retreadable casting, be fuel efficient and resistant to irregular wear, the company said.
Another is the 709ZL, a shallow and ultra-fuel-efficient drive tire and the newest addition to the company's Zenvironment line.
Yokohama's goal is to turn this into the most fuel-efficient drive tire in the industry.
Yokohama will continue to expand its customer base and in-store share this year, Phillips said. “We'll also go after new strategic business that will allow us to grow.”
In addition, he indicated Yokohama would focus more on higher-end products.
Areas of the world where he thinks the most growth for tires will occur include Brazil, Russia, India and China along with the U.S. “And we plan to be part of it.”
To match that, Yokohama is looking to expand its manufacturing operation, both officials said.
That includes adding one or more factories and expanding facilities. But those plans are only in the study stage, according to Koplin.
“We are actively looking at a number of options all over the globe to expand production and, yes, that would include the possibility of building a facility in the U.S.,” Phillips said.
“We will continue to conduct research and will make a decision based on what is the most appropriate strategically for Yokohama on a global scale,” the executive said.
Phillips said the company already has made some internal improvements at its plants and “we're looking to expand further, but where has not been determined. We'd like to do this as soon as possible, and hopefully within the next couple of years we'll have new capacity coming on board.”