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Playing to Strengths: Yokohama Looks to Technology to Bolster Its Global Position

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As the man ultimately in charge of Yokohama Rubber Co. (YRC) tire efforts, Hisao Suzuki is in a unique position to see the global tire industry from multiple perspectives. Suzuki has been instrumental in Yokohama’s recent worldwide successes and growth, and in the recovery of Yokohama Tire Corp. here in the U.S.

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Suzuki, 63, was recently promoted to vice president of YRC, and is president of it’s worldwide tire group. A graduate of Waseda University with a bachelor’s degree in commercial science, Suzuki has spent virtually his entire career with YRC’s tire group, most recently serving as director of tire product planning (1995-97), director of tire marketing (1997-98), director of the Japanese domestic tire sales division (1999), and as an executive director on the company’s board.

Suzuki was initially interviewed in January at Yokohama’s headquarters in Tokyo. Because of the timing of 2002 financial results, a follow-up interview was conducted via e-mail in early May.

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Q: YRC recently announced plans for a new highly automated UHP tire plant at YRC’s Shinshiro Minami facility. Tell us more about this new technology. Will this new system be installed at other Yokohama plants and/or at the Salem, Va., facility?

A: The purpose of the Shinshiro Minami plant is to be a specialized plant manufacturing high performance tires with rim diameters larger than 18 inches. This plant has been designed for small-lot production of diverse models, utilizing space-saving techniques based on our New Manufacturing System and Tomorrow Concept Tire. In addition, we incorporated the most-current engineering technologies into our production and processing technology. We are studying the possibilities to install this production system at our current and new plants based on each plant’s targeted production mix. We may install this new production system at the Salem plant when the additional capabilities are required.

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Q: Can you give us more definitive details of YRC and Yokohama Tire Corp.’s (YTC) financial results for 2002?

A: For 2002, YRC sales increased only 0.2% to $3.34 billion, but net income increased to $84.6 million, a 37.8% increase over 2001. Tire division results were satisfactory both in the OE and exports segments, and grew 1% over 2001 to $2.4 billion worldwide. Our multi-business division results were down 1.8%, primarily because of lower industry capital investment. In 2001, YTC posted a $19 million loss, but towards the end of fiscal year 2002 it was nearly in the black by virtue of its improvement efforts. We anticipate that those improvement efforts will continue to show positive results.

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Q: YTC posted an $80 million loss for 2000, and a loss of $19 million in 2001. What are its sales and profit goals for the next three years? How will it reach those goals?

A: YTC’s sales for 2005 are planned to increase 17% vs. 2002. The measures we are taking to meet that goal include increasing Yokohama brand sales in the performance, ultra-high performance and light truck/SUV segments, increase radial truck/bus tire sales through new high-quality and innovative products, and increase our sales through independent tire dealers.

Q: You mentioned the need for YRC to develop new tire products, specifically in the UHP and medium truck tire segments. Tell us about some of these new products and the technology advances they will feature.

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A: We plan to introduce not just improved products, but one-step-ahead products which open the way to the highest quality level tires. The process is not limited to production engineering techniques but also includes design, materials, compounding and all other areas of tire development. We are unable to disclose our technical details right now, however, we plan to introduce some of these products in the year 2005. In fact, we are trying to launch some as early as 2004.

Q: Raw material and other operational costs continue to plague all tiremakers. How is Yokohama responding to those cost issues?

A: Raw material supply is a concern. As a result, we will source materials from the world’s most competitive suppliers, regardless of their country of origin. We must do this in order to cope with global mega-competition we face in the tire industry, as well as achieve production cost reductions. We also have to keep our eyes on how China will affect our raw material supply. We will source our raw materials carefully, closely watching American, Asian and European economic trends. In terms of internal improvements, we will increase our productivity and revise product specifications in our plants. We will increase our sales turnover, improve our sales mix and implement price increases as needed.

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Q: The tuner market segment had its start in Japan. Talk about how the tuner market in Japan is influencing the North American market right now, and where you see the North American market going in the next few years.

A: The majority of the Japanese tuner market over the last five or six years has been occupied by true performance enthusiasts who drive sporty cars and equip their vehicles with larger inner diameter tires in order to maximize performance. Over the last four or five years, however, a new type of customer has emerged. These drivers’ interests are different; they drive on larger inner diameter tires but for cosmetic purposes, not so much for performance. This segment has been increasing, as well.

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Auto manufacturer involvement in these market trends has pushed their popularity, and, as a result, tire and car companies have experienced revitalized business. We have seen the heavy involvement of the OEMs in the Tokyo Auto Salon. We feel the popularity of high inner diameter tires at OE will increase continuously, and the popularity of enthusiasts who care about driving performance will also increase.

In the U.S., we see the tuner market more closely following the Japanese market. This is a good trend for YTC as these activities are more performance-based rather than appearance-based. Our products have a strong performance image and following in Japan, and we expect this to grow in the U.S."

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Q: Will YRC’s new plant in Hangzhon, China, supply tires to the North American market? What are YRC’s plans in the China market?

A: The Hangzhon plant was to start the mass production in late May. The second stage construction planned in 2006 will be moved up one year to 2005. Until second stage production – a total of 1.5 million tires per year ®€“ begins, we plan to supply only the Chinese OE and replacement market. We do not have any export plans to North America. Chinese tire market demand is expected to grow very rapidly, and to satisfy this demand we will increase the Hangzhon plant’s production capacity or built another new plant in China.

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Q: How is YTC’s participation in the GTY tire plant in Mt. Vernon, Ill., progressing?

A: The GTY operation has been very successful in all aspects. We receive 460,000 truck tires from GTY per year out of a total truck tire production capacity of more than one million units. The quality level is good and well accepted by our customers. In the case of increased truck tire demand, we will supply product from Japan or Asia. We have no plans to build a new truck tire plant in North America.

Q: You mentioned that Yokohama wants to be a bigger player in the North American medium truck tire market. What are your plans to increase market share here?

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A: To be a bigger player in the North America truck tire market, we will introduce new products, produced in Japan and at GTY, and increase sales through our independent tire dealers.

Q: YRC recently joined Continental and Bridgestone to co-develop and market a singular run-flat tire concept. What is the status of that alliance?

A: We are participating to co-develop a singular run-flat tire, and we anticipate completing this development project by 2005, if everything is on schedule. In addition, our Side Strengthened Run-flat tires will continue to be developed solely by YRC. Going forward, we will expand our business through the cooperation of Japanese car manufacturers. We believe the home market for run-flat tires will be the American market, not necessarily the Japanese market.

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Q: Some tiremakers have been developing tire pressure monitoring systems (TPMS). What are YRC’s plans regarding TPMS?

A: We just announced our air pressure monitoring system – HiTES, which stands for High Tech Engineering System ®€“ for trucks and buses in April, and we plan to market HiTES beginning this July. This is the first announced tire pressure monitoring system technology in Japan. This system provides air pressure and inside tire temperature information to the driver through indicator panels and proprietary sensors mounted inside the wheels. We are developing a version of the system for passenger cars, which will be announced when it’s ready for market.

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