OTR Market: Highs and Lows - Tire Review Magazine

OTR Market: Highs and Lows

The off-the-road (OTR) tire business is cyclical, highly specialized and greatly impacted by global economic factors. This may not be groundbreaking news, however the extent and speed of change for these cycles has taken on a new level over the past few years. This will present several new industry challenges over the short-term, with much of the industry’s focus centered on how and when the market will rebound.

Taking a long-term industry view, it’s exciting to think that we’re entering a transformative era within the OTR industry that will be driven by trends like big data, predictive analytics and automation – shifting from a transactional-focused model to a solutions-oriented approach to business. Much of this will be driven by two key segments: mining and construction.

Mining Stays Under

The global demand boom of the early 2000s continued for more than a decade, increasing production to record levels; however, productivity declined during this same time period.

There is an old saying in the mining industry, “Good mining conditions make for bad miners.” The productivity numbers during the past market run have proven this to be true.

According to the MineLens Productivity Index, there has been a 3.5% per year reduction in mine productivity. The OTR tire segment in North America will continue to be directly affected by this decline.

Commodities in general are trending downward due to normal supply-and-demand imbalance, but some commodities (coal, for instance) are experiencing a greater decrease in global consumption under increasing environmental and regulatory pressures. This trend is likely to continue in both the short- and long-term considering that, among other factors, the world’s two largest coal consumers – the U.S. and China – have continued efforts to curtail coal use for electric-power generation during the last few years.

In market conditions such as these, OTR tire manufacturers and their dealer networks need to work harder than ever to provide customers with an exceptional level of service, particularly now as more tire suppliers enter the marketplace. That starts first and foremost with having a solid understanding of the mining industry, including market conditions – both locally and globally – as well as the mine’s business operations.

Mining customers work in dangerous conditions and expect high-quality, durable tires they can trust to deliver optimal performance and withstand the demands and stresses of the job. Understanding how factors like heat, cut resistance, load capacity and tire wear impact a mine site’s day-to-day productivity and profitability are critical to providing them with the optimal solutions.

Taking a long-term industry view, it’s exciting to think that we’re entering a transformative era within the OTR industry that will be driven by trends like big data, predictive analytics and automation – shifting from a transactional-focused model to a solutions-oriented approach to business.

Furthermore, it’s important for manufacturers and dealers to utilize improved technology to deliver maximum value – lowering operating costs by finding opportunities for greater efficiencies. Technology can be used to reveal fleet-specific opportunities to lower costs, such as capturing data to track and understand drivers of tire cost per mile, ton or hour. This moves the conversation beyond strictly tire purchase price. Having this information on hand allows fleet managers to make tire total cost of ownership and service decisions that maximize uptime and increase profitability.

When looking toward the future of the industry, we must acknowledge that autonomous equipment will eventually reach mass adoption levels. The use of data will move from a reactive post-incident need to a dynamic environment where operational adjustments are made based on a variety of sensory inputs, including tire conditions, which optimize productivity during an operating cycle. The ability to capture and track tire temperature and pressure exists today, but integrating this into the overall production system to allow for immediate operational adjustments will be the future.

Those manufacturers that can combine product, service and technology to drive performance enhancements will be positioned to break the paradigm of price and tire life as the only meaningful criteria used to evaluate tire performance.

It’s important to note, however, that the mining outlook is showing some positives. The aggregates market is robust and healthy. In late 2015, the U.S. House of Representatives approved a bipartisan bill, titled the Surface Transportation Reauthorization and Reform Act of 2015 (STRR), to spend up to $325 billion on transportation over the next six years, $261 billion of which is designated for highways. The bill should keep quarries busy for sand, stone and gravel with the continued resurgence of infrastructure improvements in the U.S.

Similar to the STRR Act, the Fixing America’s Surface Transportation (FAST) Act also will provide a moderate increase for the aggregates market, providing stability to the highway construction private sector by way of spending on infrastructure. The FAST Act (passed in December 2015) funnels $305 billion into the federal transportation budget from fiscal year 2016 through 2020, allowing states to purchase aggregates to build, improve and maintain roads, highways and bridges.

The increased need for supply will likely help bolster this year’s OTR tire segment forecast particularly in the aggregates segment that will likely feel it first, as national supply and demand
for highway construction will provide momentum. Similarly, it
will continue the opportunity for new lower cost entrants to enter
the market.

Construction Builds Up

As road construction increases, so is building construction. Last year was a better year for the construction industry as we saw a 6.1% increase in total construction spend over 2014 levels. Despite some differing opinions on exactly how strong the industry will be in 2016, forecasts are largely positive with Q1 2016 showing an 8.6% improvement versus the same time period in 2015. The Dodge Data & Analytics 2016 Construction Outlook report predicted 6% industry growth for 2016 in total, with the forecast looking positive for demand and business.

The National Association of Homebuilders (NAHB) projections for single-family homes in 2016 shows great improvement nationwide, while multifamily housing – a long-time “shining star” for residential projects – is thriving especially well in the New York metro area due to major developments. Commercial building, while not growing, is predicted to remain fundamentally strong.

When it comes to new equipment sales, many OEMs are facing numbers reflecting the overall commodity trends. New equipment sales have seen a substantial decline in Q1 2016 compared to prior years. Many of these OEMs are following similar patterns as their customers and are expanding their efforts on the controllable aspects of their business, for example, cost, market share, quality and safety. They are not immune to the headwinds their customers are facing.

Meeting Market Needs

With the market staying balanced more than we have seen in the past two years, there are more new entrants into the OTR tire segment.

As new products, suppliers and technologies emerge, choices increase for both dealers and end users. Making the right choices is even more difficult today. For dealers, more brands, sizes and options can be overwhelming to manage from an inventory perspective. For customers, more choices mean the potential for more confusion.

Customers and dealers alike can benefit from receiving trusted products and services that are bundled by one manufacturer. Not only is it important for customers to feel good about the brand they choose, it’s also important to establish a relationship so dealers and manufacturers can work together to develop long-term solutions that benefit a customer’s business.

Ultimately, a successful manufacturer understands how and why it is important to offer good-better-best solutions to meet a variety of needs for end users.

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Dealer Training for a New Marketplace

Twenty years ago, a young non-profit professional was tasked with convincing the truck tire and wheel service industry that they needed to train their employees in order to comply with Occupational Safety and Health Administration (OSHA) regulations. It’s just as absurd as it sounds. Employee training has been required by OSHA for almost 40 years

Twenty years ago, a young non-profit professional was tasked with convincing the truck tire and wheel service industry that they needed to train their employees in order to comply with Occupational Safety and Health Administration (OSHA) regulations. It’s just as absurd as it sounds. Employee training has been required by OSHA for almost 40 years so the objective was to make them compliant with laws they should have already been following. And, it still took some convincing!
Fast-forward to 2016 and OSHA training regulations are at the bottom of the list when it comes to the problems facing most of the commercial tire dealers in the U.S. Compliance is met on the first day and the technician receives additional training in order to become certified in most cases. It’s a crystal clear process and virtually guarantees that every technician is properly trained in the eyes of the law.
For the retail industry, the legal obligation is not so cut and dry. The OSHA regulation that requires technician training for truck tires specifically excludes passenger and light truck tires. As a result, a lot of retailers continue with the ancient and indefensible method of providing education with on-the-job-training, also known as OJT. OJT relies on an experienced technician to show the new employee how to do the job. It’s also called “Old Joe” training because Old Joe passes his bad habits to New Joe who eventually becomes the next Old Joe and passes two generations of bad habits to the next New Joe and so on.
While truck tires and wheels haven’t changed much over the past two decades, the passenger and light truck tire industry has experienced a revolution. Between size proliferation, low profile sidewalls, tire pressure monitoring systems (TPMS) and online sales, the technological impact by itself is a lot to digest. However, there are millions of millennials who need tires now or in the future, and the retailer that finds the sweet spot for this generation of tire buyers will be in a very good position.
The best place to start is with technicians. Future tire buyers know virtually nothing about their automobiles, but they are not going to tolerate mistakes. If they get bad service or think something isn’t fixed correctly, they are going to absolutely bomb you on social media. From ratings pages to your own Web page, isolated instances can appear to be standard business practices for the next generation. If the employees who are responsible for mounting and installing the tires are not properly trained, they are going to keep making the same mistakes, putting your reputation at risk.
I find myself using the online rating service occasionally, but I don’t believe everything I read online. However, the next generation of a tire buyer does.
Another unfortunate truth about the new marketplace is the sudden increase in the number of OSHA inspections that appear to be targeting retail tire dealers. Compliance with all of the applicable OSHA regulations is not something that happens overnight. The truck-tire dealers figured it out a while ago and many are compliant across the board. Retailers aren’t familiar with OSHA so it’s easy for little things – like fire extinguishers past the expiration date, dirty floors or a ground plug that is missing from an extension cord – to slip by and go unnoticed.
One lay-up for the OSHA inspector is hazard communication. By Dec. 1, 2013, every employer in the U.S. was required to train all of their employees on the new label elements and safety data sheets for hazardous materials in the workplace. This means every chemical used in the shop (oil, fluids, aerosol sprays, etc.) must have specific information on the label and correspond to a safety data sheet (SDS) at a designated location. The objective, and a good one, is to make sure that any accidental ingestion, inhalation, exposure or absorption is met with the appropriate medical attention immediately. It’s “Workplace Safety 101,” yet I’m willing to bet that an embarrassing number of tire dealers (both retail and commercial) will have difficulty producing records that show training, and even more difficulty producing an SDS for every chemical in the shop.
For a complete copy of the OSHA Hazard Communication Standard, visit osha.gov.
Next, it’s time to look at training for the sales counter. For the small percentage of people in general who pick up the phone and call a business to speak with a salesperson, that call has to be on the money every time. The phone sales consultants and trainers make some serious claims about how many sales are lost because people don’t know how to sell over the phone. When the phone rings, the person answering it – who either transfers the call or helps the caller – had better be trained to do it correctly or the phone might stop ringing altogether.
In the new passenger and light-truck tire marketplace, getting the customer in the door is the greatest challenge. That explains why our members are telling us that sales training is becoming more important. On the retail side, there is unlimited competition and it’s only growing, so the knowledge and ability of the sales associate has to make a tremendous impact on the tire buyer. Again, it doesn’t happen overnight, so sales training and coaching will become more important as the number of people who actually want to interact with a real person decreases.

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