Blog from Singapore: Recession may help budget tyre brands

ERJ staff report (DS)

The outlook may look bleak for the tyre and rubber industry, but the view from the world rubber summit, just finished in Singapore, is that it is not and will not be a disaster.

While the short-term perspective from the OE-exposed premium tyre manufacturers of Europe and North America looks bleak indeed, a more global perspective is significantly more optimistic.

Overall tyre sales in 2009 are likely to be about 5 percent down on 2008, at about 1400 million units, according to two respected economic forecasters.

Manufacturers based in Europe and North America are likely to see declines well into double figures, but this reflects their heavy exposure to OE markets and to the markets most affected by the global economic downturn.

Globally there are about 5 replacement tyres sold for each OE tyre. However, premium-brand tyre makers in Europe tend to see a figure closer to just three replacment tytres for each OE unit. With OE sales down by half or more in the last couple of months, this clearly has a disporportuionalte effect on their sales figures.

A second effect is that in the developed world buyers of replacement tyres have been down-trading much earlier. In the past, most tyres sold at the first replacement would have been premium brands, while some second-replacement tyres would also be premium, with a portion of mid-range brands. As the vehicle gets older, the trend to cheaper budget berand tyres increases.. That has changed, in that buyers are now opting for cheaper brands earlier in the age cycle of their vehicles. This applies especially in Europe and in North America where consumers are opting for cheaper brands to conserve their money. In Asia, brand loyalty remains much stronger.

Thus the premium brands have seen their replacement sales fall in addition to the heavy delcine in OE sales, while budget brands have seen a smaller decline, and some have even seen an increase.

Furthermore, not all segments and regions have fallen equally. Tyre sales in both India and China are set to increase by around 4 to 6 percent in 2009. Meanwhile, the tyres closer to economic activity -- such as commercial vehicle tyres and mining tyres -- have seen a disproportionate reduction in demand,especially in the developed world. Tyres aimed at the agricultural sector, for example have remained largely unaffected by the downturn, with the exception of a limited trend towards the budget brands away from the premium brands.

Thus tyre companies exposed to the agricultural sector have remained relatively unaffected by the downturn, while those exposed to the truck business have suffered more than their rivals.