Sumitomo moves forward with New York plant expansion

Rick Brennan, vice president of marketing for Sumitomo Rubber North America (SRNA), discusses the tire maker's plans to boost production at its plant in Tonawanda, N.Y.

How would you describe business thus far in 2023? What segments have been strong and/or sluggish?

We continue to be on a bit of a roller-coaster ride in some segments while others are showing a return to normalcy. Passenger and light truck segments are returning to pre-COVID trends. We are still experiencing market shifts that were in play before the pandemic—such as vehicle trends toward CUVs and emerging tire segments like all-weather—but we can see a return to more predictable pre-2020 trends.

Truck and bus (TBR) is another story. The sharp decline in the trucking industry and the continued arrival of tire imports have dealer inventories bulging at a time when sell-out is soft. As a result, TBR has struggled so far in 2023 with recovery a bit cloudy at the moment.

How have outside disruptions—inflation, war in Ukraine—affected the company this year?

Market influences from outside the tire industry continue to have an impact. Rising ocean-freight costs of the past have high-cost inventories holding prices high, not only for imported tires but also for raw materials to manufacture tires in North America.

The Ukraine conflict has had little impact on SRNA, although supply has improved due to European market disruption easing demand from other parts of the globe. Raw-material acquisition has shifted a bit due to the conflict, but our tire supply remains strong.

How is the supply chain improving? Raw material prices?

Industry supply chain has improved tremendously. The availability, cost and timing of delivery of ocean freight has eased, which has been the largest factor affecting us the past two years. Raw materials (prices) are stabilizing with demand becoming more predictable and shipping congestion improving.

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.

 

 

Do you expect to roll out any additional products in 2023? What will they be and what sector will they serve?

SRNA will launch several new products in 2023. Already this year we have launched the WildPeak R/T, a hybrid all-terrain offering more rugged-terrain capability than traditional A/T designs but less mud-terrain capability than an M/T. Later this year the new Aklimate all-weather tire will debut, featuring the industry's 3 Peak Mountain Snowflake designation, 65,000-mile warranty and confident wet and dry road handling and grip.

Our most anticipated new product release will be the next generation of WildPeak all terrain tire, the WildPeak A/T4W. Building on the success of the WildPeak A/T3W, the A/T4W will bring new sidewall and shoulder design, two different sidewall treatments and performance improvements.

For the TBR market, the new BI837 on-highway, closed shoulder drive tire designed with improved resistance to hold stones will be offered for applications with light gravel use.

 

What technology will be a game- changer in the tire market?

Consumers are increasingly more mobile-oriented when it comes to how they shop and engage with brands, and this includes tires. To advance how SRNA best serves our customers, we launched a refreshed, mobile-friendly website in December 2022 that makes finding the right tire easier than ever. The new site also includes consumer reviews and an FAQ section for each of the tires, helping drivers find the right Falken tire quickly and easily.

On the dealer side SRNA just launched a new spiff program app making it easier for our dealers to submit their claims and earn rewards.

 

What is the most compelling initiative/product that your company has or is taking to address sustainability?

SRI has been very active in the area of sustainability for many years, producing a 100% fossil-resource-free tire as early as 2013. SRI continues to create technology to increase biomass and recycled material content of tires, introducing tires to the market under the Enasave series name.

On the production side, SRI is incorporating solar power and hydrogen technologies to reduce the carbon footprint for manufacturing.

 

Other than what was cited above, do you expect any other major investments in the next six months or year, in either personnel, distribution facilities or capacity expansions? What are some of the challenges of the industry going forward?

The evolution of tire technology, vehicle types and the expansion of electric vehicles will bring increased SKU counts and greater inventory challenges. Increased complexity of vehicles will create vehicle maintenance challenges in terms of knowledge and tooling to facilitate maintenance and repair.