Can you provide an update on your $130 million expansion and modernization project in Tonawanda?
The expansion in Tonawanda continues to proceed on schedule. Building expansion, increases in rubber mixing capacity, additional automated building machines, production modernization for building components, and additional curing capacity are all part of the expansion project.
When fully implemented, Tonawanda will have double the capacity of passenger and light-truck tire production as well as increases in truck/bus tire capacity. We will see production increases in the second half of 2023 as new machines come online with even greater gains throughout 2024. The additional capacity will relieve production constraints we have had for light truck products and allow for planned sales expansion in North America. More U.S. production will also offer some relief from the effect of the additional Thailand and China tariffs.
Sumitomo Rubber Industries Ltd.'s (SRI) tire business revenue in North America rose 23% to about $1.6 billion, despite lower unit sales volume in 2022. How important is North America to SRI? What is the key to being successful here?
Our revenue increase is the result of planned and unplanned actions. First, the impact of the rapid rise in ocean freight costs and additional tariffs dictated the need for unplanned price increases over the past couple years. In addition, the growth of the Falken brand in North America created supply limitations that drove a rather rapid change of product mix. We discontinued sales of low-cost products to make room for the expanded demand for Falken products, such as WildPeak light truck tires and TBR, increasing our revenue per unit.
The North American market is extremely important to SRI, from a growth perspective as well as a driver of new trends and technology. Growth plans for North America call for consistent growth through 2028 for SRNA. We still have product segments with limited volume due to production constraints. Entering those segments as well as new product launches over the next five years will be a key growth driver.
The keys to success for us will be continued focus on the independent dealer and our Falken Fanatic program, launching innovative products, and being a great supplier to our distribution partners. Optimizing service elements, such as on-time delivery, proper market positioning of our brand, and maximizing profit opportunities are all part of being a great supplier.
SRI reported U.S. production grew about 1.5% in 2022 and is projected to increase close to 9% in 2023. Is demand still high?
With the investment into the Tonawanda factory we will increase U.S. production dramatically for PCR, LTR and TBR. The market will see these increases from the second half of this year through 2024.
Production limitations have held back our penetration into large market segments such as the light truck H/T market that this plant expansion will remedy. We will also transfer production of other key products from offshore factories that will speed time to market, helping us meet our increasing demand.
In its most recent five-year business plan, SRI proposed the possibility of additional production capacity being built in North America. What is the status of that?
With long-term plans for growth, the need for production planning is a must. North America is a key global market for SRI, so we must plan for future needs. Although there is not a firm timeline for factory expansions in North America, our sales plans will call for more supply in the future.
SRI recently ended its participation in U.S. motorsports. What is the thinking behind that? Where have those resources been allocated?
Although the Falken brand has come a long way in the past 10 years in terms of consumer brand awareness, we are still relatively low in unaided awareness — less than 5%. To dramatically increase consumer awareness of our brand requires a great deal of time and money.
We must be strategic about the most efficient way to move our products into the market with the resources available to us. Our brand awareness will increase with our market share and exposure through sales efforts at the counter. As a result, we will make our brand as easy for the dealer to sell as we possibly can.
We've decided to move away from certain motorsports programs to instead focus on more grassroots opportunities; connecting with enthusiasts on a smaller scale and ensuring we develop the best product possible for their needs.
Our marketing focus has evolved from brand building to the consumer — with platforms like Major League Baseball — to increasing support for our dealer partners to sell our brand and products at the retail sales counter. Our Fanatic program for associate dealers and our direct dealer support, creating and policing a MAP (minimum advertised price) program, the Fanatic Associate Sales Team (FAST), original equipment fitments and our increases of point-of-sale activity and material have proved to be more effective at our current brand level to achieve our growth than focusing on increasing our awareness with consumers. As our brand evolves in the market, we will increase our consumer branding activities in the future.