Tire industry analyst John Healy shares his thoughts on electric vehicles, the impact of the Russia-Ukraine war on the North American tire market, what tire dealers should prepare for and more in the third part of this exclusive interview.
MTD: Over the past few years, we’ve seen the emergence of several new product categories or sub-categories. The all-weather tire category has grown exponentially. The number of last-mile delivery vans continues to increase, leading to greater demand for C-type tires. And more manufacturers are entering the electric vehicle (EV) tire space with products that are specifically designed for these vehicles. What are your thoughts on the above categories and the opportunities they will provide for both tire suppliers and dealers?
Healy: The area I am most excited about is EV. I have come to the conclusion - after numerous conversations with industry operators and dealers - that EVs come back for tire service at a much more frequent and earlier life cycle than internal combustion engine (ICE) vehicles. Given the consumer wealth which is operating EVs, we think the propensity for branded manufacturers that are investing in product specific for these fitments is a big revenue opportunity for at least the next few years.
Simplistically, we believe tire manufacturers have long competed on price and product quality to win share. Product quality has long been marketed to consumers “guaranteed to last X amount of miles.” This investment into how long the tire will last has been a competitive development, but one that has likely worked against the industry’s ultimate revenue and unit size.
We see the proliferation of EV fitments as a catalyst for unit demand in years ahead. Our research suggests that EV tires wear out 20% faster than ICE comps. One could argue the growth in EV fitments creates the biggest catalyst for growth in the replacement tire category in decades.
MTD: The Russia/Ukraine war convinced a number of tire manufacturers to withdraw from Russian operations, including manufacturing. What impact, if any, has this had on the North American market and why?
Healy: We have seen some imports into the U.S. replacement tire market increase in 2022, but my sense is that these units are not coming from facilities out of Russia. Frankly, several manufacturers with Russian operators have pulled out of the region, including Michelin, Bridgestone, Pirelli and Yokohama. We think the impact of exiting these facilities/operations likely creates capacity in years ahead that will allow for new upstarts to operate or potentially other operators to bring capacity into the region.
Ultimately, we see geopolitical factors as deciding how and when these operations will begin to re-contribute to the global tire supply chain and not something we expect to have a meaningful impact in 2023 - especially in the U.S. replacement market.
MTD: Sales of new and used cars are still below historic averages. Meanwhile, the average age of a used car is 12.2 years - an all-time high. What does this mean for tire dealers? And what kind of impact has this had on tire manufacturer shipments into the original equipment (OE) channel? Is having a premium OE tire fitment as important today as it used to be?
Healy: Slumping new car sales relative to previous year levels - 2017 through 2019 - has created natural aging and depletion of the car population in the U.S. market. Given that cars are now older and have more miles, we see this as helping the maintenance category for all things automotive. From our perspective, this aging car population will in 2023 help contribute to the demand picture.
As it relates to the OE side of the business, with new car production in the mid-teens from the low 17-million level ... we believe some manufacturers have shifted manufacturing capacity from OE to replacement to align with the realities of the current market. That said, we are believers that the chip shortage is in decline and will likely be a thing of the past by the second quarter of 2023. Given this, we look for tire manufacturers to have to realign production from replacement to OE at the start of the year to meet manufacturer demand.
MTD: What are the three most important things independent tire dealers should monitor and prepare for as 2023 begins?
Healy: Our top three suggestions to monitor would include technician retention, inventory levels and consumer engagement. A major pain point for dealers over the last year or two has been the ability to find and retain technicians. We do not see the supply of technicians as increasing in a major way of late, so thinking that this area of stress will go away would be naïve. From our perspective, technicians are worth their weight in gold and we believe to provide the type of service that allows for returning customers, good techs are essential.
Managing inventory levels would be an area that we would advise dealers to devote attention to in 2023. We think the consumer is trading down, so having product at a price point that leads to sales conversion is key.
Additionally, with raw materials potentially showing some moderation for manufacturers in months ahead, volatility in pricing and availability might become more favorable. As a result, we suggest dealers be smart and nimble with inventory. Consumer engagement is our final area of recommended emphasis. Having an e-commerce offering, we believe, is essential for the road ahead. The ability to shop, book appointments and provide feedback is all part of a successful “modern tire dealer” game plan.
Click here and here to read the first and second installments of MTD's exclusive interview with John Healy.
And click here to check out MTD Editor Mike Manges' full Q&A with Healy in MTD's 2023 Facts Issue!
