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Sweating It Out: Continuing Tire Shortage Opens Supplier Doors, Puts Strain on Servicing Dealers

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It’s been the best of times and the worst of times for OTR tire dealers. Over the past three years, mining, quarry and construction customers have been crying out for new tires.

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But all the orders in the world mean nothing without tires. As dealers know all too well, the real result of all that unfulfilled demand has been frustrated customers, missed opportunities and lost profits.

And, with record-setting mineral prices, unprecedented original equipment sales, escalating surface-mining and heavy-construction activities, the ongoing war in the Middle East and continuing demand from China, India and Russia, dealers shouldn’t expect significant relief anytime soon. Many experts predict the OTR tire shortage to continue through 2010 or 2011.

“On some smaller-size tires, there is more product available in bias tires, but radials are still somewhat difficult to obtain, especially for certain sectors of the business, like mobile cranes and port equipment,” says Tim Good, manager of global customer accounts for OTR tires at Goodyear.

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Shawn Rasey, executive director of North American sales for Bridgestone/Firestone Off-Road Tire Co., predicts “minimal relief” this year. “But, we do expect better supply to start in 2008 and beyond based on additional supply coming on line.”

Capacity Chase

Rasey is referring to the recent launch of large-scale capacity improvements by nearly every major OTR tire producer. Bridgestone, for example, announced plans to build a $270 million plant in Kitakyushu, Japan, devoted strictly to giant radial OTR tires. The plant is expected to open in 2009 and produce 30 tons per day by 2010. The company is also expanding OTR tire capacity at its existing plant in Shiminoseki, Japan.

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Michelin poured $85 million into its Lexington, S.C., OTR tire plant to increase capacity there by 50% and expects its brand-new OTR tire plant in Brazil to start producing an annual output of 40,000 tons for the North and South American markets by the end of this year.

“From Michelin, there will be additional capacity starting in late 2007 for small and medium sizes,” says John Funke, marketing director for Michelin North America’s earthmover tire division. The Lexington expansion will address the surface-mining segment, while the Brazil plant will focus on the quarry and construction markets, Funke states.

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Titan International, according to Chairman and CEO Morry Taylor, plans to boost production by April at the Bryan, Ohio, OTR tire plant it purchased from Continental last August. The company will also convert one-third of the capacity at its Freeport, Ill., tire plant from agricultural to OTR tire production and is adding OTR capacity to its Des Moines, Iowa, plant. Titan expects the Freeport plant alone to produce in excess of $60 million in OTR tires this year.

Yokohama Rubber Co., too, aims to lift OTR tire capacity in its Onomichi, Japan, plant by 520 tons per month by 2009. And, Goodyear will continue to explore ways to increase output at all of its plants globally, according to Good.

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Even with all that added capacity, hard-hitting shortages will continue to exist, experts say, especially in the giant OTR tire segment – 45- to 63-inch monsters – and that makes it even more difficult for tiremakers to keep up. Not only does it take 48 to 64 hours to produce a single giant OTR tire, the machinery and material investment is massive. Nevertheless, the profit potential of these beasts is even bigger, and tire companies know it.

Rising in the East

The major tire companies aren’t the only ones mindful of the revenue potential offered by the shortage. Worldwide demand has helped propel lesser-known Asian tire brands, such as those sold by American Pacific Industries (API) and China Manufacturers Alliance (CMA), into the limelight.

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“The robust OTR market of the past few years has catapulted these companies into the mainstream,” says Jack Fenner, vice president of sales and marketing at API. “Many customers were forced to try alternate products due to the shortages, and many have found that these products served their needs at a lower cost.”

API recently added a new line of large bias OTR tires to its offerings to complement the smaller OTR tire sizes it already produces, according to Fenner. And, the company is currently working on radialization. “OTR radialization should be approaching the 60% mark in the civilian market,” says Fenner. “Bias ply had held its own the past two to three years, simply because of the shortage of radial product.”

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CMA, a subsidiary of Shanghai Tire & Rubber Co., recently launched a new giant OTR tire division under its Double Coin brand. The new division focuses on the 25-inch and larger radial tire segment. “The 29.5R25 and larger radial OTR tires are still – and will continue to be – in short supply,” says CMA CEO Larry Williams. “The most demand is for sizes such as 2700R49 and 3300R51. In 25-inch and smaller sizes, there is already a big improvement.”

Williams says CMA and its parent company have built specific production facilities that incorporate “proprietary building equipment and procedures that are the most modern and updated of any radial OTR plant in the world.” CMA has also expanded its expertise to include giant radial OTR tires, he says, which is part of the company’s plan “to be a major player in the world supply of radial OTR tires.”

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“Clearly, we have entered into a new phase in the OTR tire industry,” acknowledges Bridgestone’s Rasey. “China, specifically, has substantial advantages over North American or Japan-based manufacturers from a pure labor-cost perspective.”

Still, Rasey believes caution is in order. “While they may be able to produce tires for less money, they still have some serious ground to make up against other global OTR companies in terms of overall product range and performance consistency,” he explains.

Fenner admits that offshore radial OTR tire producers are still behind the curve in some respects. “They are making headway on the smaller sizes,” he says, “but are still a ways off in development of the more critical-performing large OTR radial segment.”

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Nevertheless, “there will always be a need for a low-cost OTR product, and with quality improvement, many companies, such as API, will become a bigger factor,” says Fenner. “We’ve been successful in introducing these tires to new dealers so they can retain their customers.”

How to Power Through

Of course, retaining customers is really what it’s all about. And, that’s a daunting task for dealers when there are few, if any, tires to sell.

But simply waiting for tires to start rolling in is asking for trouble. Dealers that maintain close relationships with their OTR customers during the shortage will be more able to serve those customers after the shortage. So, to stay in the black now and ensure repeat sales in the future, dealers must help customers squeeze every last dime out of their precious tire investments by offering additional services, such as fleet inspections, emergency service, tire forecasts or application-specific tire recommendations.

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The steady growth of the OTR retread market over the past few years reinforces the conclusion that OTR tire customers are looking for ways to extend tire life and preserve their investment.

“Both retreads and repairs have taken a much more prominent role in helping to keep fleets running and bridge the gap created by spikes in demand,” Rasey says.

Advising end users about when to retread their tires and educating them about casing quality will strengthen valuable customer relationships. “End-user customers have generally run the tires to complete wearout,” says Good. “But, now, many are very focused on removing the tire with about 10% to 20% of tread left to generate a retreadable casing. This is a major mindset change from past years.”

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Good also says that “extensive training programs focused on tires and how everyone plays a part in enhancing tire life has really helped to increase tire performance. Many of the dealers we work with are able to sell maintenance programs to the accounts that are truly interested in helping the tires last longer.”

And, offering “intelligent” tire technologies that monitor tire pressure and temperature will help OTR tire customers improve tire performance, simplify air-pressure maintenance, increase productivity and reduce tire damage. Some of these technologies also help plan future tire purchases by predicting the time when tires will need to be replaced. Goodyear’s EMTrack III and Michelin’s MEMS (Michelin Earthmover Management System) are two examples of the latest intelligent tire-tracking systems.

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Still in the startup phase, MEMS was deployed in 2006 at mine sites in North and South America, Funke says. He adds that Michelin customers have expressed strong interest in the system due to the tire shortage and the prospect of improved tire performance.

When you consider OTR tire buyers’ growing interest in technology, tire maintenance and retreading, one message becomes clear: Dealers that act as partners and educators are more likely to succeed than those that just act as tire suppliers.

“The smart OTR tire dealer is getting back to the basics of OTR 101,” Fenner concludes. “Pulling a tire for retread at the right time and properly retreading or repairing these tires is a big part of a maintenance program in prolonging the use of that tire and getting the most out of the original investment. Complete tire maintenance is more important today than ever before.”

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