Unfortunately, as much as the title suggest. I will not be able to say what these issues are exactly and what should and can be done to ensure an enterprise continue to prosper over this difficult period and what can be done to capitalize on the better times. We know for sure the present global economic situations will definitely be reshaping the tyre industry. The general questions we could be asking ourselves are perhaps;
1. Excesses from China
How will the excesses in China, way beyond local demand, affect the global supply and pricing situations? This question can be further digested, and an analysis of individual product category is required. But I think this is my crystal ball guess;
· The number of manufacturers will diminish particularly the ones who have poor cash flow
· We may even see some of the big ones go under for mismanagement and over expansion- a result of bad cash flow management.
· The ones who will prosper will probably be restricting themselves in size and cutting back on unnecessary expansion. The better ones will concentrate on product specialization be it in TBR, PCR, LTR, or even OTR.
2. The American Market
How will US tyre market, dominating practically a quarter of global tyre demand evolve? Will SUVs and light truck demand really start to diminish, and if so, how will this mutation pen out? Will this mean better and further penetration of Asian car make in US, and if so, what are the new preferred car models since it affects tyre size mix?
· The American market will always dominate, and I doubt the few remaining manufacturers will disappear. Some tie up will bound to happen and the consolidation will result in cost cutting and perhaps produce a leaner and better organization
· I do not think the US market, particularly the LT and SUV demand will diminish. It may be scaled back in demand over this period, but I am sure when better times are here, the demand will resurface.
· Asian makers will penetrate US this period with economical car makes and may swing part of the SUV and LT demand into saloon cars. The size mix may change slightly but should not be too drastic.
· In this sense, I think Asian auto makers may be in for a smoother transition over this tough period compared to American manufacturers. When I say this, I am also making reference to the tyre manufacturers and the situation that may unfold for them.
· Tyre manufacturers will naturally push out fewer patterns and have cross functional patterns that perhaps cater both to the demand of an average car owner as well as the owner who needs his bigger car size replacement.
3. American tyre manufacturers
What will become of American tyre plants which have skewed production to SUVs and light truck? What is the cost of transforming existing plant structures from producing SUVs and light truck to producing more passenger or even commercial tyres?
· The cost structure of the US based manufacturers, and the fact that Asian makers will be making bigger inroad into the US markets will simply mean the US makers will be forced to scale down in terms of size and further concentrate on a specific SUV/ LT tyres.
4. Automobile demand
How will the definite drop in global new automobile demand over the next few years affect tyres required for OEM? Will the excess created by this drop in OEM tyre demand further place more excesses into the replacement tyre market?
· Excesses will force closure and stoppages and makers are expected to shoulder the burden of overheads. In the case of prolonged stoppages, closure may be inevitable. The combination of stoppages and closures, a measure of last resort, will hopefully balance out reduced demand.
· The replacement market will be there, but competition (until the reduction of supply balances reduced demand this period), prices will be driven down and we should witness downward pressure on all raw material.
· What will happen to consumer demand over the next two to three years, when economic situations are expected to be at its worst? What will happen to retailers and distributors, particularly the large ones, who have geared themselves to the good times two to three years back?
· Distributors, or at least those that I know, particularly the larger ones are in dire situation of having to cut cost, lower overheads, stock cautiously, and prepare for a period of reduced demand.
· Consumers will be cautious and demand for higher end products will slacken.
5. The 3 big markets
The global demand for tyres can generally be classified into 3 big markets- US, EU, and Asia. Together they each take up an approximated a third of market demand.
The automotive markets are in disarray, and practically all automotive makers are either stopping or cutting production. This sudden reduction in OE will shaft supply into the aftermarket we have not witness before.
We also have to understand that this phenomenon of a global crack is never before witnessed, and the historical growth in demand has driven an excessive expansion of production capacity.
Parting words
· Further integrations of major players- acquisitions and mergers will happen over next 2/3 years
· Chinese manufacturers will go through a period of “big acquiring small” either voluntarily or involuntarily
· Chinese will dominate TBR with lower end and in the near future mid range products, major players will dominate higher tier product category. While mid tier will predominantly be the realm of Taiwanese, Korean makers.
· A few Chinese manufacturers will appear as a player in the budget UHP market.
This is the final post by Ler as he discusses the trends of the tyre industry. Ler Hwee Tiong is Managing Director at Tyrepac Pte Ltd .
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