Supplying the automotive industry is a demanding task, and with tires playing such a vital role as the only component of the vehicle to make contact with the road, it shouldn't come as a surprise that winning original equipment contracts from auto makers isn't easy.
The tires themselves take about two years of development, a lot of back and forth between the tire maker and OEM in finding just the right balance between the dozens of properties required by the auto maker.
That's a lot of time and resources to dedicate towards one product, but the rewards seem to be worth it. And tire makers that win OE programs enjoy some very attractive fruits of their labor. For starters, Michelin said once the tire is approved the prototype goes into mass production and is supplied to the OEM for anywhere from four to six years. While it may be a long road to get the approval, once there the supplier gains some very consistent business.
Winning an OE program also is a tangible measure of success, which helps increase brand awareness and opens the door for other business within the industry.
Beyond that, however, there's invaluable information gained from working so closely with auto makers. Tire makers that can consistently nurture these relationships benefit from insight as to where the industry is headed in the next two years simply by seeing what their OEM customers are requesting of them. And with the automotive industry in the middle of one of the largest disruptive periods in history—the emergence of electric and autonomous vehicles and the megatrend towards a ride sharing economy—that insight could come in handy.
And while the replacement market has separate demands, OE business does give that side a couple of advantages. First, technological advancements implemented on the OE side eventually make their way into the replacement market. As customers need to replace those OE tires, they naturally will want the same performance characteristics they've grown accustomed to.
Perhaps more importantly, though, is OE loyalty. According to Michelin, the industry average across all brands and segments of customers who return to the vehicle's OE tire as the replacement is 36 percent—slightly more than one in every three people.
By volume, the replacement market dwarfed that of the OE in North America by more than a 4-to-1 ratio in 2018, including imports. Based on market dynamics, that won't be changing anytime soon. But the additional benefits gained from winning OE contracts more than makes up the difference as they remain a key ingredient towards tire maker's success.