MTD exclusive: mid-year replacement truck tire market report

At mid-year, the commercial truck tire market remains extremely challenging. Sluggish freight movement, anemic truck tire consumption and excess inventory continue to squeeze both truck tire suppliers and dealers.

In this special www.moderntiredealer.com exclusive, top executives from several medium truck tire manufacturers recently shared their thoughts about the challenges they are facing, as well as what the rest of 2009 will bring.

Participants included Tim Chen, vice president of marketing, Bridgestone Bandag Tire Solutions LLC; Aaron Murphy, vice president, China Manufacturers Alliance LLC; Clif Armstrong, director of marketing, commercial vehicle tires, the Americas, Continental Tire North America Inc.; Bill Hoban, national truck tire sales manager, Cooper Tire & Rubber Co.;  Donn Kramer, marketing director, commercial systems, Goodyear Tire & Rubber Co.; Brian Sheehey, director, commercial tire group, Hankook Tire America Corp.; and Marc Laferriere, vice president of marketing, Michelin Americas Truck Tires. Here’s what they had to say (note: responses are listed in alphabetical order of company):

1. What does the replacement medium truck tire market look like at mid-year?

Chen: Certainly the replacement tire industry is a reflection of the overall economy. Industry numbers show that the replacement market is down by about 23% through May. The OE market also is struggling, as fleets are simply not replacing their equipment at this time.

Murphy: In our estimation, the market is flat. Coupling the demand with reduction in dealer inventories due to the economic crisis, and sales are slower vs. 2008 and 2007.

Armstrong: With U.S. shipments off considerably for both replacement and OE, volume is certainly down. It is important to note that while the overall market is down, trucks are still hauling freight, just not on the same level as years past. The U.S. will have over 12 million tires shipped in 2009, so the business is out there.

Kramer: Industry wide, the 2009 commercial truck tire replacement segment is down about 23% through May year-to-date vs. 2008, and the month of June is estimated to be down a little less than the year-to-date average. The commercial truck tire OE segment is down 48% through May year-to-date, and the month of June is estimated to be equal to the year-to-date rate.

Sheehey: The replacement market has not yet shown signs of recovery. The desired effect of the stimulus package has not yet… (created) more trucking traffic, thus stabilizing the tire market. We will keep a close eye on worldwide container movement and new building construction, which will help us better gauge durable goods activity.

Laferriere: The replacement truck tire market in the U.S. is down by more than 20% compared to the same period last year. This decline is more significant than the “truck ton miles” would indicate and leads us to believe that fleets are depleting their inventories, borrowing from inactive units, and/or dealers have reduced their inventories. All three of these are possible.

 2. What is the biggest challenge facing the market right now?

Chen: In an economic climate like this, manufacturers are all seeking ways to keep their plants running efficiently and keep inventories in line. The biggest challenge right now is to not over-react to market conditions with short-term pricing and marketing decisions that are harmful to the long-term health of the industry.

Murphy: The reduction in freight tonnage leads to a reduction of miles driven by trucks. This in turn creates a slowdown in tire usage and purchases. In addition, credit is very tight in all aspects of business.

Armstrong: From a manufacturing standpoint, it’s managing inventories. We all understand the current economic situation and the impact it’s having on business in general. The key is to manage your cost side without jeopardizing mid- and long-term business opportunities. This requires managing inventory, cash, debt, etc. We see some bright spots starting to show up. The market will recover and there will be pent-up demand for tires.

Hoban: Overcapacity and soft demand.

Kramer: The biggest challenges are consumer confidence remains at relatively low levels, credit markets remain tight, and commercial vehicles available to move goods far exceeds the amount of goods to be carried.

Sheehey: Lack of consumer spending has spiraled down into lack of business spending. Additionally, extremely tight credit markets are not allowing those businesses that want to grow the opportunity to do so.

Laferriere: We continue to seek a delicate balance between three critical factors: fill rate, inventory levels and production schedules. To add to this complex equation, we must also correctly predict the timing of demand to rebuild inventory for our customers – both fleets and dealers. As the entire industry has reduced its activities, it remains critical to maintain competencies in terms of production, sales and service necessary to remain competitive when the market recovers.

3. Do you expect conditions to improve as 2009 winds down?

Chen: We’re optimistic that market conditions will improve by the fourth quarter. Once the economy is stabilized and consumer confidence improves, we’ll see the follow-up increase in equipment and replacement tire demand.

Murphy: The economy seems to show small signs of life and improvement. Most people feel as if the economic bottom has been reached, but the incline back to previous years’ GDP growth and status will be a long, slow-developing recovery. We feel the market will improve in 2009, but the levels are unknown.

Armstrong: We see business picking up through the remainder of 2009, albeit very slowly. The consumer is starting to see things in a more positive light and even home sales are improving. This will translate into more consumer spending, which feeds more freight movement, which feeds increased tire usage. Our government certainly has pumped a tremendous amount of stimulus and liquidity into the market. This will have an impact on the overall economic trending. We do think the remainder of 2009 will get better incrementally, with 2010 being much better.

Hoban: We believe the commercial market will face challenges in the second half of 2009. Consumer spending is a critical component for the overall U.S. market. We expect consumer spending to rise slightly in the fourth quarter, which will modestly improve commercial business.

Kramer: The second half conditions in 2009 are expected to improve slightly over first half numbers, but no significant recovery is seen before the second half of 2010.

Sheehey: I do not see any signs or indications that the last six months of 2009 will show any significant improvement in the replacement truck tire market. The most significant factor at the moment is what little effect the 2010 emissions change has (had) on creating fleet OEM orders. The last two emissions changes created a tidal wave of OE and replacement demand. We have yet to even remotely feel any effect for this year.

Laferriere: The tire market has declined faster than trucking activity seems to justify. While we believe the market probably had an excess of rubber inventory in 2007 and 2008 due to extra OEM supply of trucks, the replacement market should come back into alignment with ton-mile activity around the end of the year.