The Trends

In my recent conversation with Itochu, Continental, Pirelli, Goodyear, and some of the biggest stockiest in the region- some trends are pretty obvious.
1. Manufacturers are beginning to realign product lines
2. Stockists are contending with tighter credit and practice caution in purchase
3. Smaller retailers or retail chain remains relatively stable as of now, but big retailing players are feeling the heat from hot properties secured, and high lease properties.

You would have noticed that I relate all incidences to the impact created to the manufacturers. Unfortunately, manufacturers end gets the repercussions of market upheavals.
1. Tyre manufacturers go through particular hardship during economic down trends. This fact is very closely linked to the fact that automobiles are luxury items for many countries. And during down trends, the car is a luxury we can do without. In countries which cannot do without a car, the US for example, people switch their buying habits or delay buying urges. We have already witness how this impact is so eminent and already auto makers are reacting by either shutting production plants, or realigning production. We may have to examine the role of automakers a little more to understand how this impact will turn out.

2. Tyre manufacturers are also hit hard because they are raw material reliant, capital and labor intensive.
a. When the times are good, raw and related material rises with the good times. Manufacturers rarely can capitalize much on the up swings since majority of price adjustments cater to rises in raw material.
b. When the down swings come, manufacturers are handicapped by intensive capital invested and poor efficiencies due to capacity cut backs.

3. When the economy weakens, the entire sales channels stop stocking beyond required and consumers become rational in purchases. The artificially inflated demand disappears, and manufacturers are left wondering what happened. We are already witnessing this phenomenon in progress. From past trends, prices will start to collapse and moving further south when raw material prices come down. The market demand at the retailing end is there, but the trading channel and distribution channel stops or slow down purchase. By chewing further, we know;
a. OE demand drops drastically creating excesses into the replacement market
b. Weakening of domestic markets further create excesses
c. Export/ trading activities minimized as traders become cautious- whatever price level.

4. Extreme up and down trends, are however also opportunities. The Asia financial crisis in 1997, saw various countries with currencies in a state of imbalance vie-a-vie other currencies. Indonesia had its Rupiah value halved practically overnight to a low of about Rupiah 12,000 per American dollar. Opportunists and we did see many, descended into Indonesia and practically clean out all tyres from Indonesia- selling them into countries with stronger currencies.

5. Those who do not align well with the conditions of this down trend may be in for some serious awakening. Realign products, product lines, product categories. Already as we speak, tyre manufacturers of Chinese and Korean origin are reacting with aggressive price reductions. SRI in the mid 90s launched the LeMans range of product, which transcended the budget and tuning range, and the launch coincided with the bad times. Consumers took to it immediately and this product in my memory, sold extraordinarily- not because it was a great product, but because it was a product which came in when times were bad, and was a product consumers feel was fairly priced.

6. Be ready to capitalize when the good times are here again, and if past trends serve us right, could be in three to five years time. We witness how Goodyear has done exceptionally well in this aspect based on the patterns launched during the “good times”. From a product planning stand point- I think Goodyear has done exceptionally well.

Ler will discuss key issues to address in the near future in his final segment on Trends of the tyre industry. Ler Hwee Tiong is Managing Director at Tyrepac Pte Ltd .