Tire makers expecting significant declines in Q2 results

Akron, Ohio — As bleak as the tire industry's collective financial results were in the first quarter, the second quarter is expected to be even worse since the economic impact of the Covid-19 pandemic didn't take hold outside of Asia until mid-March.

That's the conclusion being drawn by a number of the industry's leading players in their first-quarter financial reporting. While all major tire makers reported drops in both revenue and unit sales in the first quarter, the damage was "limited" in most cases to low double-digit or high single-digit declines.

In the second quarter, the drop in shipments could be 30% to 40% in Europe and the Americas, according to forecasting by Continental and Pirelli with commensurate negative effect on the companies' earnings potential.

In the consumer segment (passenger and light commercial vehicles), Continental said it expects global replacement sales volumes to drop more than 30% in the second quarter — based on declines of 40% and 45% in Europe and North America, respectively, and offset a bit by a "recovery" in Asia/China, where unit sales are expected to be off 19% versus a year ago as the economies there start to recover.

In arriving at its forecast, Conti noted that the pandemic and the containment measures in the first quarter did not cause demand for tires to fall in Europe and North America until the final weeks of the reporting period.

In Europe, sales volumes fell by around 13%, and in North America they declined by around 9%.

Pirelli pushed its forecasting out to the whole year, projecting a drop in consumer tire shipments of 19% for 2020.

"In light of the elements available today and based on a prudent scenario, Pirelli now expects a fall of 2020 GDP at the global level of about negative 2.8%," the company said in a revised earnings statement published 3 April.

Pirelli said its forecast is based on an 18% drop in replacement market sales and a 21% decline in the OE segment, although the company did not publish sales/shipment figures.

Pirelli attributed the replacement market drop in part on restrictions in movement across different countries.

Within this category, Pirelli said it anticipates the premium segment — tires with rim sizes of 18 inches and bigger — to decline 14%, down from prior indication of 6% growth. Demand for standard tires will take a more significant hit as Pirelli expects the segment sales to fall 20% as opposed to the original indication of 2% decline in February.

In the commercial sector, Conti is projecting a drop in demand of over 20% in the second quarter, with the decline even steeper in Europe at over 30% after shipments in the first quarter were on par with 2019. In North America, the decline could be 15%, Conti said, after being up 1% in the first quarter.

In China, Conti said it expects demand to stabilise slightly below the 2019 level as COVID-19 containment measures are gradually eased.

Globally, Conti said it anticipates a decline of more than 20% in the second quarter for replacement medium/heavy commercial vehicle tires.

Other major companies thus far have opted not to make forecasts for the current quarter or fiscal 2020, owing to the uncertain nature of various nations' responses to the pandemic and the eventual easing of economic restrictions.

In a recent filing with the Securities and Exchange Commission, Goodyear said its tire volumes in the second quarter will plunge 50%, or roughly 25 million units, from 2019, due to the negative economic effects of the global COVID-19 pandemic.

Goodyear said it was forced to close many operations temporarily throughout the world during the first quarter, including most of its manufacturing facilities. This has limited global business activity.

The company reported an 18% drop in unit sales volume in the first quarter, to 31.3 million units, and 15.1% lower sales revenue of $3.06 billion.

In North America, the US Tire Manufacturers Association (USTMA) is predicting tire shipments could fall nearly 18% this year from 2019 to their lowest level in decades, 273.6 million, with the OE sector dropping as much as 24%.

Among individual categories, the USTMA said replacement truck tire shipments would show the resilience, falling "just" 7.3% from 2019. As such, the USTMA's assessment falls in line with Continental's view of the market.

The USTMA said it issued this update now to "better reflect the impact of the pandemic on the tire manufacturing sector." Normally the trade group publishes shipment data three time annually — in February, July and at year-end.

By individual category, the USTMA is projecting:

Replacement passenger, light truck and medium truck/bus — down 17.2%, 16% and 7.3%, respectively.

OE passenger, light truck and medium truck/bus — down 24.3%, 18.4% and 30.7%, respectively.

Similarly, the European Tyre & Rubber Manufacturers Association (ETRMA) recently published a forecast from industry consultants LMC Tyre & Rubber Ltd. that shows European consumer and commercial replacement market tire shipments dropping 26% and 38%, respectively, in 2020 from 2019 and taking until 2022 or even longer to rebound to the 2019 levels.

In its assessment of the market, LMC noted that while freight volumes across Europe have been holding up, declines in manufacturing and investment confidence are expected to result in larger falls in commercial tire sales and production than in consumer (passenger and light truck) tires in 2020.

The market research firm said that governmental policy initiatives, such as those employed in 2009, can encourage new vehicle sales.