AKRON—Customers—both individual and corporate—are driving rapid changes in how tires are designed, distributed and sold, and successful tire companies will embrace those changes.
This was the message of Rich Kramer, Goodyear chairman, president and CEO, in his keynote speech at the International Tire Exhibition & Conference in Akron Sept. 12.
"My job is planning for the Goodyear of tomorrow," Kramer said. "That means keeping an eye on long-term challenges and opportunities."
Change doesn't happen in isolation, Kramer said, so understanding how industry trends are connected is crucial to seeing where the industry is headed and how to respond to change.
Kramer began his speech with the image of a sailboat whose mast could not clear a bridge. It's a laughable image, he said, but it denotes rising sea levels in Florida.
"A rise in sea levels impacts on housing and property values, mortgage brokers, home lenders, the economic system of an entire society," Kramer said. "More than $400 billion of Florida real estate is in danger of being submerged by the end of this century."
The boat itself doesn't have to do with with the tire industry, but it serves as a visual reminder that there are early warning signs that great change in on the horizon.
"What are the early warnings that your industry is changing?" Kramer asked.
One of the biggest signs that the tire industry is changing radically is stock keeping unit proliferation, which he said was the tire industry's equivalent to the mast hitting the bridge. In 2000, tire stores had an average of 267 SKUs, Kramer said. By 2017, this had grown to 625.
"If a dealer has two full sets of tires under each SKU, and if he has 10 stores, that means he has to keep 50,000 tires in his stores every day," Kramer said.
This proliferation is driven by auto makers.
"Vehicles are changing rapidly to deliver what customers want," he said.
He pointed to the Chevrolet Impala, a vehicle typical of today's market. It is a mid-level, four-door sedan, yet it has seven different models, each requiring its own type of tire.
"This trend puts a premium on distribution," he said. "Dealers need multiple deliveries of tires each day, and that raises the value of distribution. It is a major factor in the consolidation of independent tire distributors."
This was why Goodyear joined with Bridgestone to create TireHub, their own distribution network, according to Kramer. He said the formation of TireHub was a strategic response to SKU proliferation and gave them more control in several areas.
"We have more efficient management of SKU proliferation," he said. "We can better serve our customers by having our tires available when and where they want to buy them. We capture the value of our brand, rather than diluting it through distributors who might be promoting another brand over ours."
Change in tire distribution and sales begins and ends with consumers, according to Kramer. By next year, millennials—consumers aged 22 to 37—will outnumber baby boomers in the tire market, and millennials seek the easiest ways to shop for and buy any product, he said.
"The tire industry is not immune to this," he said. "Tires are vital, but the product is just the point of entry to the market. We're really after consumers, and the one who makes the purchase easiest will be the winner."
Selling tires must be as frictionless as possible for the new type of consumers, according to Kramer.
"They can go on Amazon and buy things with one click," he said. "If they have to click multiple times, or if the website isn't optimal for phones, they're gone."
Technology also in changing the game, but not only in the ways you may expect. Tech companies entering the transportation market are competing with auto makers and even ride-sharing companies. And they're driven, Kramer said, by the value of your time. Specifically, the time you spend in the car.
"They estimate the market at $4 trillion, and they're going to figure to get their share," he said.
Vehicle connectivity is also driving change in the tire market.
"Cars will soon be linked to each other, and cars will be linked to the infrastructure," he said.
"Say your tires are underinflated and there's a Goodyear store at the next exit," he said. "Will your car be able to call the store and make an appointment?"
Meanwhile, urban life will dictate massive changes in driving patterns. By 2050, 70 percent of people will be living in or near urban areas, which will make vehicle ownership less of a necessity, he said.
"If the waiting time for a shared vehicle is less than five minutes, consumers will forgo car ownership," he said.
It will take many years for car owners to become a minority, though—the average life of a vehicle is 11 years, and there are 240 million personal vehicles in the U.S. alone. But the time is coming, he said.
The future of the transportation industry, can be described with the acronym FACE: Fleets, Autonomous vehicles, Connectivity and Electric vehicles.
- Fleets. By 2030, Kramer said, 25 percent of vehicle miles traveled will be through shared vehicles, as compared to 4 percent in 2015.
- Autonomous vehicles. Autonomous vehicles will be a $7 trillion business by 2050, according to Kramer.
- Connectivity. "Connected vehicles are the third fastest-growing technology after phones and tablets," he said.
- Electric vehicles. "The first million electric vehicles were sold in six years, and the second million were sold in two," he said. "Sales will increase as batteries improve and range anxiety dissipates."
Global miles driven will nearly double in the next 10 years, from 10 trillion to 19 trillion, according to Kramer.
"This means the 1.5 billion tires sold globally each year will double," he said. "The tire business is stronger than it's ever been."
Goodyear's e-commerce platform was not designed to replace dealers, according to Kramer. "There is clearly a place for dealers as we go forward," he said.
The emphasis of the market will go from individual vehicle owners to fleets, but none of that will change the need for independent dealers, according to the Goodyear CEO. "We believe that dealers are a key for us to get to consumers," Kramer said. "At the same time, we bring customers into their stores. Goodyear e-commerce does not replace going to dealers, but just reflects how consumers want to shop."
Goodyear spends a great deal of time training dealers to take advantage of the benefits of e-commerce, he said.
Asked about recent economic downturns in China, Kramer acknowledged that new car sales had fallen there in July and August. But Goodyear still sees the Chinese and world economies as strong, he said.
"By and large, the economy is going very well," Kramer said. "We still have significant raw material cost issues we're working through. The sedan market is falling, and emerging markets and currency fluctuations are on the minus side."
Kramer was cautious in his answer regarding potential tariffs on truck tires imported from China.
"Goodyear is for free and fair trade anywhere in the world," he said. "When tariffs go in place, tire production tends to move to different geographies. We prefer to approach trade holistically."