Tires really do help the world go ’round. From automobiles to bicycles to lawn mowers, tires are the cornerstone of how we live and move. This makes it a formidable global market.
The global market for tires is projected to reach 2.5 billion units by 2020, driven by a projected rise in automobile production in developing markets and an expansion of commercial vehicle fleets. [Global Industry Analysts, Inc.]
As the US and world governments demand vehicles which are more fuel efficient, a drive within the tire industry to innovate new designs has helped to push sales higher. As tires are designed with less rolling resistance, tire wear typically increases and this may lead to even more sales. The only problem for US manufacturers is that those sales may come from imports instead of domestic production.
China and the U.S. Tire Problem
- Since Section 421 of the Trade Act ended in September 2012, imported passenger tires from China to the United States hit a record 46 million units in 2013.
- Today in the US, Chinese tires exceed 20% of the American consumer tire replacement market.
- According David Zielasko of Tire Business, the US tire industry has been materially injured by the influx of Chinese passenger and light-truck tire imports.
- In the last 5 years, annual growth within the retail tire industry has averaged 0.9%. In the manufacturing section, there has been an annualized average decline of 2.9%. [IBIS World]
- 84% of tire-related insurance claims involve tires that are at least 6 years old. [National Highway Traffic Safety Administration]
- Higher temperatures on tires equates to a higher rate of degradation, which requires a higher level of consumer care for the tire. The NHTSA estimates that under-inflated tires contribute to 600 fatalities and 33,000 injuries every year.
- 55% of vehicles on US roadways have at least one tire that is under-inflated. 20% had a tire under-inflated by at least 6 psi.
- Over the next three years, the global tire market is expected to grow at 4% in volume terms and 8% in value terms, with the next 3 years achieving the highest levels of profitability.
- Premium tires are expected to have a demand increase of 50% through 2020.
- To counter the China issue in regards to sales, global brands like Continental, Bridgestone are investing approximately 4.5 % of their total sales into product and marketing expansion efforts.
- Look for all tire manufacturers, including Chinese-based manufacturers, to expand more into the European market as it expands its production of vehicles.
- From 2011-2016, input price volatility forced some companies to close plants and offshore operations in an effort to save money [IBIS World]. Look for that trend to reverse itself as the automotive industry continues its recovery from the recession years of 2007-2009.
There is high growth potential for the tire industry, especially for manufacturers outside the United States. These trends are based on the idea that high tariffs or restrictions won’t be reinstated by the US government on Chinese imports, which is currently under investigation. If that happens, there may be fewer sales in volume, though the actual revenue produced may be about the same. The China problem is this: imported tires are cheaper, but they may not last as long, provide as many fuel economy benefits, or have consistent wear. Consumers might save money now, but pay more later on, which is not something that is not generally associated with domestic manufacturing in the United States.
Popularity and the Tire Industry
- In an analysis of social media conversations about tires, there is at least one brand from the industry mentioned every 10 seconds. This means there are an average of 8,500+ posts made every day.
- 3 out of every 4 social media posts about tires are made by men, with 55% of the activity happening in relation to blog posts.
- Although Pirelli is the brand mentioned most often on social media and has had the most new content online since 2007, Continental has the highest levels of online positive sentiment and Bridgestone has the highest levels of brand loyalty.
- 78% of social media content that is related to the tire industry comes from individuals who are in the under 34 age demographic.
- Hybrid tires, or “tweeners,” are one of the hottest products in the tire industry today. These tires combine the speed rating and handling of an ultra-high performance [UHP] touring tire with the snow traction of an all-weather tire.
- Tire manufacturers are also backing new tires with limited tread-wear warranties and making them available in several popular sizes.
- Jim Smith, editor of Tire Review magazine, said that tire makers need to “spend time educating their customers about the benefits of such higher-end tires.” Many consumers base their tire purchasing decisions based on price instead of technological or performance value.
- Expansion of hybrid tires into the light-truck segment is expected, fitting between all-terrain tires and standard passenger-like tires.
Look for tire manufacturers to continue innovating within the single-solution market for consumers with additional hybrid options in the future. Also look for changes in the way that rubber is created for the tires as the industry looks to move beyond the “use it once” attitude that is often directed toward tires. A majority of states in the US have a complete ban on landfilling tires, with some laws more than a decade old. To counter this, tire recycling has created new products, but manufacturers like Bridgestone are going to the next step. Instead of creating rubber from fossil fuel sources, they are looking at rubber from the guayule shrub and synthetic sources.
The Tire Industry and the Small Business
- Over the last decade, new car dealerships have begun making a push to become a major part of the tire industry. The car dealer market share grew from 8% in 2012 to 11% in 2013, while in the same time period, mass merchants saw their market share fall from 13% to 10%. [Tire Review]
- The annual amount of revenue for the US tire industry is $40 billion annually. Discount Tire and Sumitomo Corporation lead the industry in terms of market share for sales, while Bridgestone, Cooper Tire, Michelin, and Goodyear continue to dominate in terms of manufacturing. [IBIS World]
- The average retail employer in the tire industry has 8 employees. [IBIS World]
- Look for tire dealers to expand their maintenance and repair business in order to stay competitive with car dealerships which have more advertising revenues at their disposal.
- Depending on duties that are placed on Chinese tires, the greatest opportunities within the US tire industry especially will come in the area of economy tires.
- Age-group balance in new vehicle sales and declining numbers of teens 15-18 getting a driver’s license will also affect the industry, especially with long-term futures.
- According to reporting from SEMA, the best thing the tire industry can do as a future trend is to make sure that customers select the best products that fit their vehicles, values, and lives instead of trying to maximize incoming revenues with every customer.
- Approaching tires as a “wheel” instead of a “tire” may also help the small business owner in the industry. Most consumers can’t tell if a tire is a performance tire or an all-terrain tire. What they can do is tell the differences between wheels. The complexity of a design and different available finishes can change the look of a car.
- Hank Feldman, President of Performance Plus Tire and Automotive Superstore, reports that his company sells several thousand wheels per month in addition to their core tire products. “That part of the market has also come back from the recession years.”
- It is also becoming more difficult for consumers to find niche products, especially in the 15 inch and 16 inch areas of demand. Almost everything is made for 17 inch or 18 inch applications, especially for off-road applications.
- There are no licensing requirements, government regulations, or resources constraints that limit entry into the tire industry, but significant capital is required to start-up a business, so look for mergers and acquisitions to be more common through 2020 and beyond instead of new business entries.
In a quest to create tires that can work for the mass market and meet government and vehicle manufacturer standards, a niche market for tires has developed. As the largest retailers and dealerships fight for the mass market dollars that are available, small businesses can survive by adapting to the local niche markets that are available for tires and wheels. Demand is high in these niche areas because there just isn’t any market availability for the products that consumers need. Include economy tires in this scenario depending on the tariffs and duties that may be placed on imports in the US and everyone in this industry will have the opportunity to experience sales growth in the next decade.