Mid-Year Report: Plant expansion to boost SRNA growth

The recently announced expansion at Sumitomo Rubber North America's (SRNA) plant in Tonawanda, N.Y., couldn't come at a better time, as product shortages, high demand, tariffs and supply chain difficulties wreak havoc in the industry.

Richard Smallwood (RS), CEO and president, and Rick Brennan (RB), vice president of marketing, said they are proud of the way the company has responded to these challenges.

How would you describe business thus far in 2021?

RB: We have been faced with many challenges to start the year, from the Thailand tariff and ocean-freight delays and shipping-cost increases to high back-order rates for our customers.

Even with these obstacles, business has been very robust so far in 2021. Every product segment, from motorcycle, PC/LT to TBR is experiencing high replacement demand, and as a result we see product shortages especially in the MC, LT and TBR segments.

On the original equipment front, the microchip shortage has had a profound effect on all tire suppliers as vehicle manufacturing plants have been idled with little notice. As a result, OE sales lag well behind the robust replacement market.

What would you like customers to know about how you tackled the challenges brought on by the pandemic?

RB: During the pandemic, SRNA continued to operate through it all, with work from home initiated and our warehouses continually receiving and shipping, we maintained our full work force. We also continued to request production at normal levels, although several of our factories suffered shutdown periods.

As the demand for our tires rebounded, our warehouse stock depleted. However, we concentrated on turning arriving container stock at a much higher level to maintain the best fill rates possible to our customers. We handled a record number of tires each day to maintain the best fill rates possible.

The SRNA team members responded in a remarkable fashion during the pandemic, transitioning to a work from home environment with lightning speed, causing little disruption to our business. New processes were developed to cope with changing demands, such as team communication styles, ocean freight delays, production disruption and rapidly increasing demand for our products.

SRI announced recently it plans to invest $122 million over three years to increase capacity for car, light truck and medium truck tires at its factory in Tonawanda, N.Y., as well as invest $102 million at factories in Thailand and Japan to update equipment there for increased production of tires for SUVs and light trucks, to support sales growth for these products in North America.

Can you provide an update on expansion at the N.Y. facility?

RS: Our expansion plans are proceeding on schedule. We have placed orders for additional building machinery that will allow us to more than double our capacity for passenger and light truck product lines.

This new machinery is expected to arrive some time in Q2 of 2022, and it will then take some time to get it fully operational. This will have a significant impact on our ability to better meet our customers' needs for light truck and CUV product lines.

Do you expect any supply difficulties in the second half of the year?

RB: We see the robust demand continuing into the second half of the year. As we struggle to meet the demand for MC, CUV/SUV and TBR, expansion of the Tonawanda factory is essential for our future ability to support our dealers. The planned investments will allow significant supply increases.

Of course, these expansions cannot happen overnight, but new machine orders have already been placed, and work is underway to provide the necessary factory space to install the new machines in New York, Thailand and Japan.

With these expansions we will be in a position to meet the increased demand for larger rim diameter CUV, large OD LT as well as TBR.

Will the situation at ports be resolved anytime soon?

RB: With the majority of our products for the U.S. and Canada coming through imports, the container debacle has had a huge impact on SRNA. Our timetable from production order to delivery stretched from a three-month window to five months or longer. This delayed arrival impacted the timing of meeting seasonal product demand (like winter product) and season specific markets (like Canada).

From information we have, the forecast projects improvement beginning after May and improving gradually through the end of the year.

What are some of the pleasant surprises you are seeing in the industry?

RB: Industry volume rebound is in every product segment. The business rebound can be seen in passenger, light truck, medium truck and motorcycle tire markets. The sell-in and sell-out rate in every segment is increasing and indicates a strong overall rebound to the pandemic effect.

Miles driven is finally approaching pre-pandemic levels from March! Even with gas prices increasing and new and used vehicle purchase prices soaring, consumers are returning to driving.