The cyclical, unpredictable nature of the OTR tire segment definitely provides a challenge. And because the market is so strongly tied to construction trends and the economy, the past decade has been somewhat of a wild ride.
The extremely high demand seen pre-recession took a nosedive when the economy slumped and construction ground to a halt in most parts of the world. The good news is that as the economy slowly rebounds, construction, mining and other industries that require OTR tires also improve. OE and replacement segments are on the growth track again, and tire dealers need to be prepared to provide customers with products and service.
This month, we’ll take a look at the small OTR tire market – used on a variety of equipment, including backhoes, implements, graders, compactors and more. The giant 57-inch and above OTR market will be covered in detail in the March issue of Tire Review.
Market Patterns
In the small OTR tire market – which generally covers wheel fitments up to 25 inches in diameter – 2010 brought strong demand that continued throughout 2011, according to Aaron Murphy, vice president of China Manufacturers Alliance, the U.S.-based unit of China’s Double Coin Holdings.
“For small radial OTR tires, the market has experienced strong demand across the board on all sizes,” he explains. “This demand, at the OE level and in the replacement market, began to become noticeable in 2010 and continued throughout 2011. With this imbalance in supply and demand, dealers and end-users have scrambled to locate product from multiple sources and manufacturers.”
Murphy chalks this sharp uptick in tire demand to the growing global demand for materials gathered by mining, which means more equipment is being used. “Machinery that had been mothballed during the recent economic downturn is now being used and requires tires and raw material increases,” he says. “With the strong demand for materials comes a strong OE build, and this is also creating shortages in the market.”
CMA predicts steady growth in 2012, which could lead to demand outpacing the supply chain, especially in certain sizes. The market’s high volume sizes include 14.00R24 (G-2), 20.5R25, 23.5R25, 26.5R25 and 29.5R25 (E-3/L-3), Murphy says, adding, “If construction were to be rejuvenated, it could create additional issues in the supply chain.”
Within the U.S., a still-slumping construction market is preventing a serious shortage in small OTR tires, according to Minoo Mehta, director of commercial tire marketing for Hercules Tire & Rubber Co., which entered the OTR segment nearly a year ago with the introduction of its Ironman line. In addition, there are more players from China, India, Indonesia, Thailand, Sri Lanka and Taiwan to supply tires to North America than in years past, further preventing a major shortage, he adds.
“We’re keeping an eye on the building of infrastructures like roads and bridges, the movement of goods and OE sales pick-up. If these industries do not slump, demand of tires will stay positive,” Mehta says, adding that a lot will depend on government policies in this election year. “To put it simply, if the economy stays healthy, tire sales will do the same.”
Looking further ahead, through 2015, market index data points toward continued steady growth in this segment, according to CMA’s Murphy, who also adds, “But as we have seen in the past, the OTR market is very cyclical and can change quickly.”
OTR Tire Trends
Changes in machinery have required shifts in small OTR tire technology.
“With the advent of machines and equipment that push the limits of weight and speed, the requirements of tires are greater and greater,” Murphy says. “Larger engines delivering increased torque place increased demands on tires. Progressive manufacturers must utilize R&D to make sure their tires are addressing these market conditions. Internal tire component materials are always being refined in order to meet these trends.”
Hercules’ Mehta notes the market is shifting from lower cost bias tires to higher cost radials. “Bias still ranges from 30% to 70% marketshare, depending on the segment and category of tires,” he explains. “It also is evident that many tire companies are making the transition to lower aspect ratio tires and bigger sizes as vehicles become more technologically savvy.”
According to Mehta, Hercules products are built with optimum specifications and offered at reasonable prices. “They have good appeal and are backed by our warranties against manufacturing defects, and with a choice of better and best, our customers are better positioned for profitable sales,” he says.
Hercules entered the small OTR segment in April 2011 “as a value-add for our customers,” Mehta notes. “Having Ironman OTR and specialty products enables us to be a ‘one-stop-shop.’
“The number of SKUs in these segments is very large and turns on inventory are less, so we have to carefully tread our way,” he says. “But we expect our business to grow in this segment. We also expect the market to hold steady, as new capacity will balance the growth in demand.”
CMA’s Murphy says that from manufacturing to end-user support, Double Coin and CMA “create a consistent process that focuses on quality.”
“Consistent quality in the manufacturing process by the utilization of modern engineering, equipment and building techniques allows for Double Coin products to perform in every environment,” he adds. “Our North American sales and marketing channel, including our dealers who sell/service radial OTR tires, is deeply ingrained in the business of supporting the market needs. With the engineering and development of large and giant radial OTR products, customers know the technology of all our OTR products are exceedingly high.”
At the Dealer Level
End-users in the small OTR segment seek availability, quality, brand name, credit, price, appearance of the tires and country of manufacture – in that order, according to Hercules’ Mehta.
“Most important is to have stock, because these customers cannot wait when their vehicles are down,” he says. “Dealers should also give the customer a choice of good, better, best quality with a reasonable competitive price.”
“Two items that end-users point to as critical are service and availability,” Murphy adds. “Many end-users tend to purchase replacement tires only when the need is critical, so having the right tire at the right price and being able to install it right now is a major factor in purchasing habits. Reliability of the product is important also, as users expect their investments to last for many trouble-free years.”
He recommends dealers stay on top of inventory control and availability in order to support strong sales.
“Dealers who offer 24-hour service and equipment/fleet surveys always bring added value to the customer,” Murphy says. “Understanding the needs of users and helping them forecast tire purchases allows for dealers to anticipate the need before it arrives.”
Stay tuned for next month’s article on the giant OTR segment, which offers dealers – and manufacturers – even more of a challenge in balancing supply and demand.
