As the OTR market starts to rebound, dealers need to focus on the value they bring to these demanding customers.
"A lot of our dealers think we’re in the tire business. We’re not," says Manny Cicero, vice president, North American OTR sales for Bridgestone/Firestone North American Tire (BFNAT).
That’s an interesting sentiment for someone who works for a tire manufacturer. But, when it comes to OTR tires, he makes his point clearly: "We’re servicing production plants. We’re in the productivity enhancement business."
End users of OTR tires ®“ those in the mining, heavy construction and quarry industries ®“ are businesses. And they need to be treated as such by the dealers who sell and service these tires.
"Dealers need to have a business mindset," says Cicero. "They need to understand what drives their customers ®“ what causes them pain. When dealers can address that, they add a lot of value and can be proud of what they charge."
Nowhere to Go But Up
Has the OTR market bottomed out yet? According to Cicero, it has ®“ and it hit rock bottom in 2002.
Ups and downs are easily recognizable in an industry as cyclical as the OTR business, he says. "Everyone knows when there is an up cycle and a down cycle. The last four to five years have been a down cycle. Our data, now, is starting to suggest that 2002 may have been the bottom. We believe we’re in an upturn ®“ a pretty strong upturn."
When Tire Review last took an in-depth look at the OTR market (February 2002), mine and quarry operations were declining in number as consolidation swept over the industries. At the time, copper, lead and zinc prices had reached record lows, and the call for limestone and other rock products was steady but showing no signs of growth.
Since then, the rocky OTR landscape has become smoother by some estimates. In surface mining, for example, gold and copper are stronger, says Tom Walker, general manager of global OTR tires at Goodyear.
"Underground coal is still weak, but we may have a rebound," he says. "Trace minerals are still strong, and we’re seeing resurgence in commercial construction, which has been down for about three years." Walker also notes that the economy appears to be turning, especially in the quarry and construction areas. Port and container OTR tire business has remained static, however, most likely due to global unrest and the war in Iraq, he explains.
Overall, reports of an improving economy, still-lingering record-low interest rates and increased export activity due to a weak dollar have brought the OTR market back to life ®“ for now.
"The weak dollar is causing a lot of export activity, and OEMs are anxious for product in a way we haven’t seen in three to five years," says BFNAT’s Cicero. "And, construction machine manufacturers have significant export businesses. Because of the weak dollar, their products are more competitive on a global basis."
Increases in OE demand for these tires can be perceived as a negative for tire dealers, says Chris Rogers, general marketing manager for OTR tires at BFNAT. Why? It’s mainly because demand spikes are putting pressure on manufacturer inventories. These somewhat unpredictable spikes make production planning a lot harder, he says.
"In general, there has not been a lot of capital expenditure on OTR tires for the last several years, so I think it’s logical to assume the industry is eating up inventories that had been building up," continues Rogers.
The Value Proposition
Though the economic landscape is changing, one trend seems unlikely to disappear ®“ customer consolidation. As your OTR customers continue to get bigger and fewer, they become more powerful. They pursue direct relationships with manufacturers, and the supply chain contracts. The dealer, as the middleman, shudders.
Nevertheless, Cicero encourages dealers to view this trend not as a threat but an opportunity. "End users are getting more sophisticated," he says. "They want to see every step of the value chain. Dealers have the opportunity to add additional value."
This value comes in the form of personalized service and expertise. "The customer needs someone to deliver it, follow it and maintain it. That’s where the dealer adds value to the process," Cicero says. "The dealer’s role in that equation is important: recommending, maintaining, retreading, and repairing tires, and keeping the customer’s expensive equipment rolling," Cicero insists.
To this end, BFNAT makes available its TreadStat tire management system, software dealers can use to sell, recommend and monitor OTR tires. Using the software, a dealer can access and analyze a customer’s tire information and produce reports detailing the best way to save money and increase productivity.
Goodyear offers a similar software product ®“ EM Track 3 ®“ which also allows dealers or end users to monitor tire endurance in varying conditions. "Dealers can use EM Track 3 as a vehicle to educate the customer about proper tire rotation and inflation," says Walker. "It’s a way for them to differentiate themselves from other dealers in that they can offer a tire support agreement that will reduce customers’ overall tire costs."
OTR is a technical sale, according to Walker. "Dealers have to sell the right tire to fit the service conditions. For example, it might be a loader in hard rock, susceptible to cuts in the sidewall. It’s a difficult sale because it has to be driven by the customer’s application."
Radials Pick Up
Another trend making OTR tire sales more challenging is radialization, according to Cicero. "OTR tires are about 50% radial," he says. "Ten years ago, it was around 30%. It’s been slow, but the trend clearly is towards radialization."
Sophisticated end users are selecting radial products over bias, and OEMs are putting radials on new machines, Cicero says. Dealers need to understand this trend so they can be properly inventoried. And, because radials tend to cost twice as much as their bias counterparts, dealers have to push long-term value and cost savings over price. "Value means following, measuring and reporting as opposed to just quoting a price and running," says Cicero.
His final words to dealers: "Broaden your contacts and your customers. Talk to plant operators. Don’t just call on your tire shop buddy. Remember that we are not in the tire business. If our customers could find a different way to mine, we’d be out of business."
Intelligent Tire Technology Still Lags
The tire industry has been talking about intelligent tire chips and sensors since the mid-1990s. Since then, there has been much R&D but still no commercially available technology to monitor and report inflation pressure and temperature.
"There has been a lot of activity on the part of both tire and wheel manufacturers," says Manny Cicero, vice president, North American OTR sales for Bridgestone/Firestone North American Tire. For the most part, "the high-tech issues have been resolved. It’s the low tech that’s killing everybody."
Though tiremakers have solved the radio-frequency and information collection parts of the puzzle, they have lagged on battery life and endurance issues. "Until we have something that is robust enough to withstand temperature extremes common to OTR tires, we can’t make it commercially available. We’re all aggressively pursuing it," says Cicero.
Tom Walker, general manager of global OTR tires at Goodyear, adds that the concept of a tire chip has been active mostly in the consumer and truck markets. Questions remain unanswered. "From an OTR standpoint, where does that information go? Is it transmitted beyond the individual truck to a central repository? These things still need to be sorted out." And, Walker says, as for cost issues and market acceptance, the jury is still out.