Tire executives: Changes abound in marketplace

ORLANDO, Fla.—The tire market is changing in multiple ways, ranging from tire sizes to distribution channels to marketing tools, four top tire manufacturing executives told the audience during a roundtable discussion at the International Tire Exhibition and Conference in Orlando.

But there are also plenty of opportunities for independent tire dealers if they know their customers and the product mix they want, the executives said.

The panelists during the Aug. 21 roundtable discussion at the ITEC meeting for tire dealers and auto service professionals included:

• Chris Ostrander, president of Cooper Tire & Rubber Co.'s North America Tire Division;

• Gordon Knapp, chief operating officer, CEO, chairman and president of Bridgestone Americas Tire Operations, both commercial and consumer;

• Tomoshige (Tomo) Mizutani, president of Toyo Tire Holdings of Americas Inc.; and

• Richard Smallwood, president and CEO of Falken Tire Corp.

The panelists responded to questions from moderator Dave Zielasko, Rubber & Plastics News publisher, and audience members on a number of industry topics, including shipments; miles driven; new products; tire pressure monitoring systems; education and training; and the use of social media.

“I'd love to tell the audience the market is growing, but I'm expecting kind of what we've seen,” Knapp said regarding tire shipments. “There will be a steady rate of shipments, but I'm not expecting significant growth.”

Knapp said he expected growth of 1 to 3 percent in the replacement tire market in the very near future. But the original equipment market, he said, is having a banner year, with expected sales of 16.6 million to 16.8 million vehicles.

“This is the fifth year in a row of growth for the OEMs,” he said. “That bodes well for the replacement market two to four years from now.”

Ostrander noted there was a negative U.S. Gross Domestic Product in the first quarter of 2014, but a major economic rebound is expected later in the year.

Neither of these was predicted, Ostrander said. “There are two jobs in which you don't have to be right—a weatherman and an economist,” he said. The current market situation, he added, is “more of a pent-up supply issue than a pent-up demand issue.”

Mizutani saw a mixed tire market. “Some segments are getting hot, others are cooling down,” he said. “We need to keep an eye on each segment.”

Smallwood warned that the official figures on tire shipments might not be totally accurate in reflecting market conditions. “The replacement tire rate per vehicle segment has me concerned,” he said. “Are tires lasting longer? Are people waiting longer to buy new tires?

“If you look at shipments, the industry looks like it's doing OK,” Smallwood said. “But if you talk to dealers, they're not so optimistic. I don't know what's going on.”

In his question to the panelists regarding miles driven, Zielasko noted there are 2.3 vehicles per person in the U.S., meaning that some cars are not being driven.

“If miles driven don't increase, that's definitely a factor that will impact demand,” Knapp said. “We have an aging population, and as people get older, they drive less. Also, the mass migration to the suburbs has been reversed, as the population becomes more urbanized.”

When asked what tire dealers should look out for, Ostrander said, “Having the right product is key.”

T-rated tires have a negative trend, while the high-performance market is growing, according to Ostrander. “It's a matter of what your brand is, and how you're presenting yourself on the Internet,” he said. “From a digital marketing standpoint, you can compete with anyone.”

Smallwood said independent dealers should rely on their skills and try to seek as much information as possible.

“Most of us have never sold a tire in our lives,” he said, referring to himself and the other panelists. “I recommend you push your suppliers and manufacturing partners for what's going on in the industry.”

Mizutani urged his listeners to keep close tabs on market trends and not be afraid of a changing market.

“I've met many tire dealers,” he said. “Some are successful, and some are struggling. The difference is attitude. Change is coming. Do you want to embrace it, or treat it as an enemy?”

Knapp said Bridgestone expects independent tire dealers to continue to play a key role in distribution, noting that convenience and service are where dealers can offer an advantage.

“The average driver doesn't think a lot about tires for two or three years,” he said. “Then he has to make a sudden, major purchase.

“The quality of the attendant behind the counter is absolutely crucial,” he said. “Whether tire dealers succeed depends on the quality of the person behind the counter.”

“When you look at independent tire dealers, there's a lot of value they provide to consumers, not just service,” Ostrander said. Tire dealers' support of their local communities is priceless both for building good will and for the general quality of life in their towns, he said.

However, that doesn't mean they won't have fierce competition, executives said. Auto dealers now have about 7-7.5 percent of the replacement tire market, and they aren't about to relinquish that share, they said.

“In some ways, car dealers have been pulled into service and tires to maintain their viability,” Knapp said. “We'll see them become more aggressive in those areas.”

Auto dealers' share of tire sales will continue to grow because they have a very large infrastructure in place, according to Smallwood.

“They desperately need to have customers come back in,” he said.

“The game is how you adapt to a changing market. In 1990, there was a lot of speculation that independent tire dealers would die and go away. Obviously, that hasn't happened. You have to concentrate on what you provide that no one else does.”

The tire industry still is waiting for the labeling and consumer education portions of the tire fuel efficiency standard promulgated by the National Highway Traffic Safety Administration in 2010. The panelists agreed, however, that when labeling finally becomes a reality, it could shake up the tire market.

“Tire labeling could be an asset,” Smallwood said. “It could really differentiate your tire. But there are questions. Will the ratings be accurate? And will consumers be informed enough to understand what they mean?”

Consumers are more educated about tires than they used to be, because of the Internet, Smallwood said. “You need to find out what products consumers want and what products they need,” he said. “If the customer is more knowledgeable than you are, you're in trouble.”

NHTSA is moving deliberately on the labeling standard to ensure it does what it's supposed to do, according to Ostrander. “It's going to come down to educating consumers of what the labels mean and how it impacts performance,” he said. “It's a way tire dealers can really differentiate their businesses.”

Developing the labeling standard will take some time, according to Knapp, because NHTSA is trying to avoid the problems that arose when the European Union unveiled its labeling system.

“It's encouraging that NHTSA is taking the time to get it right,” he said.

It now seems possible, perhaps even likely, that the International Trade Commission, at the United Steelworkers union's request, will levy antidumping and countervailing duties against Chinese passenger and light truck tire imports. The Obama administration already levied stiff tariffs against Chinese tires between 2009 and 2012, under Section 421 of the Trade Act.

“I don't know that the magnitude of the duties will be,” Ostrander said. “All you can do is plan for the contingency. We learned in 2009 that tariffs are disruptive, but regulatory issues are a subject we have to address. If there are tariffs again, there will be repercussions again, and not just in the U.S., Canada and Mexico. We have to determine what product mix will minimize the impact.”

Compact utility vehicles, or CUVs, are replacing SUVs in the vehicle market, with a corresponding effect on tires, according to Smallwood. Both he and Knapp said that run-flat tires look ready for a growth spurt.

“Over time, run-flat tires will be an important trend, but only if you give customers the other attributes they want in a tire,” Knapp said.

The OEMs, meanwhile, will continue the push for ever lower rolling resistance, mostly because of stringent federal mandates for better fuel economy, according to Knapp.

“You are going to see that trend continuing really strong,” he said. “Again, you could get low rolling resistance but lose stopping distance.”

Developing a good all-around tire with the lowest possible rolling resistance will be the major goal for tire makers over the next several years, the panelists said. “Focusing on the material science to achieve that fuel economy is absolutely crucial to the growth of the market,” Ostrander said.

The best way to find out what products are going to be most popular, Mizutani said, is to hang out in high school and college parking lots and listen to what they like in a car.

“If you want to see the future, talk to future drivers,” he said. “Unfortunately, students are losing interest in vehicles because of smart phones. Owning a car is less attractive to them.”

All of the panelists agreed that social media such as Facebook and Twitter are crucial to tire dealers who want to expand their businesses and develop a distinct business identity. No one was a bigger booster of social media than Mizutani, whose company has 9 million followers on Facebook.

“For a small company, this was a chance to compete with the giants,” he said. “The Internet and digital media are a gift from God.

“We had no money for advertising, but we listened to what our customers want, and now we're competing for the business of Ford, GM and Toyota. Word of mouth is important. If our customers post about us, 10,000 people will see it.”

By definition, a CEO is never off the job. But there are ways, the panelists said, that top executives can alleviate their workload—simply by hiring competent, trustworthy people in key positions.

“If you want to be successful, surround yourself with excellent people,” Knapp said. “I may take a longer time filling key positions, but the effort pays off.”

The panelists had slightly different attitudes toward their positions. “I love what I do, but I love my family a heck of a lot more,” Ostrander said.

On the other hand, Mizutani said the last baseball game he attended was to check the sponsorship. “I love working hard, because I love to win,” he said.