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Euro Tire Mart Is On the Up

Despite wide disparities, recent economic upturn is a ray of light to manufacturers

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A huge amount has taken place in the European tire market during the last five years. Much of this came in the wake of the financial crisis precipitated by the sub-prime mortgage disaster and culminating in the collapse of Lehman Brothers in September 2008.

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Of course you in the U.S. know far more about its impact on the North American tire markets than we do, but at the same time the ripple effect quickly spread across the Atlantic and played havoc with European tire markets. However, the good news is that numerous indications suggest 2014 will be a turnaround year after the market bottomed-out between 2011 and 2013.

The first thing to remember when we talk about Europe is that it is not a market, but rather a collection of markets. This is hugely significant when trying to learn anything from the tire business in this disparate environment because straightforward parallels can’t always be drawn.

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The differences that manifest themselves between the at least 27 countries in Europe (depending on how you count it) are huge. First, there is the hugely important question of language, which is also a good proxy for expressing the diversity of intra-European culture, as well. While many people in international business speak English, standards vary from market to market and from role to role.

Economies within Europe are also performing wildly differently post-credit crunch. In very broad terms, Northern Europe has fared much better than southern Europe, with countries like Spain, Italy, Portugal, Greece (and correlated island nation, Cyprus) teetering on the brink of oblivion at sev­eral points in the last few years. And this all impacts how people are buying tires.

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Certain “tire stereotypes” help us sum up what this means in real terms. The German market, for example, is known as a two-season, premium-orientated high performance market, while Italy is brand-driven environment, and the U.K. is both a large mature marketplace that also carries a reputation for “stake-em-high, sell-em-cheap” tactics and for selling tires nobody has generally heard of.

Indeed, some figures put the U.K. budget car tire sector at 52%-54% of the roughly 34 million unit annual demand. It is also home to the biggest part worn (you call them “used”) tire market in Europe, with recent figures estimating annual de­mand at 3.6 million units per annum.

Demanding Market

ETRMA-Member-Tire-Sales-Performance-2014

It is important to remember that these figures only account for ETRMA members, and don’t include the millions of tires imported from India, South Korea and, especially, China. (Click to enlarge)

On the whole – including in the U.K. – Europeans are very demanding when it comes to tires, requiring strong multi-weather safety capabilities (braking, wet braking, cornering, aquaplaning, etc.) and good fuel consumption (fuel is much, much more expensive here) and no one would mind having a tire with good wear performance, too.

European legislation continues to add further demands in terms of noise (via the labelling legislation that came in force in 2012). However, few consumers really care about that, which can be seen in the way even premium tiremakers are producing tires that are willing to sacrifice performance in this respect in favor of the other performance criteria.

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The weather across Europe varies massively, too. While the north of Finland, Sweden and Norway is literally in the Arctic Circle, the south of Spain, for example, is just a stone’s throw from North Africa. This ranging weather and the huge spectrum of transitional vari­ations in between (think of Scotland, which is famous for weather literally exhibiting all four seasons in one day) has a massive impact on the per­formance requirements of tires.

For example, there are studded winter, Nordic winter, winter, all-season and summer tires all floating around the various markets – before we start talking about run-flat capabilities, performance requirements, sizes and vehicles types.

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For these reasons, this article talks about either Europe (all 27 states) or individual counties – mostly Germany and the U.K. Why these two countries? Firstly, they are two of the largest in Europe (Germany number one and the U.K. two – although some suggest either France or Italy holds second place, depending on how the math is done).

These two countries also represent innovative environments. For its part, Germany has a strong engineering heritage and excellent connections to some of the world’s leading OEMs – think Volkswagen (group), BMW, Mer­cedes, Porsche, etc. It is also home to many of the European headquarters of global brands. Michelin in its native Clermont-Ferrand, France, and Pirelli in Milan, Italy, are notable exceptions.

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The U.K., on the other hand, is an example of one of the most competitive tire and retail operators in the world, and is also home to a relatively large, strong wholesale sector. Thus it is not unusual for developments pioneered here to then be rolled out to different markets.

Performance Suggests Turnaround

First half 2014 figures published by the European Tyre and Rubber Manu­facturers Association (ETRMA) show that member companies experienced sales increases across all segments, which goes a long way to supporting our “on the up” thesis (see table). However, we have to remember that these figures only account for ETRMA members, which makes an interesting point in itself. Up until Hankook erected its Hungarian factory, South Korea’s largest tiremaker and all the millions of Chinese tires imported to Europe weren’t counted in their figures. A couple of years after its plant opened the doors in June 2007, however, Hankook started being inc­lu­ded in the European numbers.

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So while the numbers need to be taken with a grain of salt, they are also much more representative of the wider market than they once were.

What’s missing is the role played by Chinese brand imports. During the downtimes they prospered enormously, controlled surprisingly large marketshares in budget-friendly environments and are now seeking to extend this growth glob­ally. The most successful are keeping pace with the legislative pressures that continue to make Europe the tech­no­logical demand place, and are even angling for OE fitments, in some cases (but as we all know there is huge variation beneath this).

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With the recovery of the markets comes a push-back from the so-called premium manufacturers – namely Brid­gestone, Michelin, Continental, Pirelli, Goodyear Dunlop (Hankook is the next closest competitor).

And because many of the world’s largest tire manufacturers are still based in Europe and still invest billions into the latest technology, they are still setting the agenda in terms of product stan­dards – a fact that has global implications.

All this is significant because while there are indications that desegmentation took place during the last few years (i.e. consumers traded down to budget-friendly lower-cost products), the pre­- mium pushback against the parts of its share that have been under attack is also underway. This takes the form of either increasing the sales of flag brands or by increasing marketshares of group brands – emblematic is Bridgestone’s recent decision to rejuvenate its Fire­stone moniker in Europe.

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In light of renewed talk of import tariffs in the U.S., there has even been talk of the introduction of such measures in Europe, but these were quickly quashed by representatives of the leading im­ported and Europe tire manufacturer associations (ITMA and ETRMA).

By the Numbers

Back to the figures, the positive Euro­pean market trend that began in the first quarter of 2014 was confirmed by ETRMA data from April to June, which shows an overall stabilization on a positive trend of the market in all segments. In the same way as the first quarter, truck and bus tires remain the most successful segment, reporting 10% growth compared to the first six months of the previous year.

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Germany led growth in this sector with a huge 15% increase, but truck tires were coming from a lower medium-base due to the constricted demands caused by the wider macro-economic environment in recent years. Car and two-wheel tires (scooter, motorcycle) were similarly pos­itive (up 8% each in the period) and agri­cultural tires showed a 4% increase against the first half of 2013 figures.

Forward Considerations

Looking further forward into the next three to five years, product develop­ments are likely to be driven by a comb­­ination of the legislative demands (tire labelling will up its minimum standards and review its progress over the next couple of years) and continued multi-billion dollar investment on the part of the premium tire manufacturers.

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The presence of fast-growing and globally renowned vehicle marques could also push development – think BMW and run-flat tires, but with the added unknown of exactly where electric vehicle technology might take us.

In terms of sales and marketshare, the battle is likely to take place in the mid­dle. Cheap imports that can’t keep up will fall off the bottom, while the best up-and-coming names will fight the more sluggish “heritage” brands in order to escape the word “budget.”

Meanwhile, the truly global names will stay where they have always been.

At the top.

 

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