It's going to get worse before it gets better too. I know when I am ready, I am going to get my tires way before I need them, then store them in the basement. Waiting till the last min. could cause a delay problem on special sizes and types.
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Tire makers hit hard by declining demand
By Bruce Meyer, Crain News Service©
AKRON (Nov. 17, 2008) — There’s a storm brewing in the U.S. tire industry, and the result is a cutback in the nation’s tire production by most of the major manufacturers.
The tempest is the dual decline of both original equipment (OE) and aftermarket tire sales, an uncommon occurrence in the industry. Typically, when OE volume is down, the replacement market picks up, and vice versa.
Not this time. The Rubber Manufacturers Association’s (RMA) Tire Market Analysis Committee expects declines for 2008 in both OE and aftermarket shipments across passenger, light truck and truck/bus tire sectors, with little hope for much improvement in 2009. Shipments are forecast to drop 13 million units in 2008.
That has caused most of the nation’s tire makers to “align production with demand.” In other words, they’re not making as many tires.
Those cutbacks have taken various forms, including everything from simple adjustments in the daily production ticket, to prolonged shutdowns for certain lines, to a capacity study by Cooper Tire & Rubber Co. that probably will result in its closing one of its U.S. tire factories.
“You don’t want to build inventory, which will consume cash,” said Saul Ludwig, an analyst with KeyBanc Capital Markets Inc. “There’s no reason to produce tires that aren’t being sold.”
Mr. Ludwig said it’s clear there is currently too much capacity in the tire industry, both in the U.S. and globally. New facilities in Mexico, South America, Eastern Europe and Asia came on stream the past couple of years at a time when demand has weakened.
A recent study of global tire capacity indicated that capability rose almost 6 percent this year and is projected to grow 2.6 percent in 2009 and 2 percent in 2010, he wrote in an Oct. 28 report on Goodyear. “With the rapid deterioration in the global economic outlook, including new car and truck production, it is clear capacity is growing far more rapidly than demand,” he wrote.
Mr. Ludwig said market conditions—including dropping raw material prices—may put downward pressure on tire pricing.
“If raw materials are coming down and demand is coming down, and there’s too much capacity, that’s not an environment where one can be firm with their pricing,” he said. The Cleveland-based analyst noted, however, that he has not yet seen evidence that any tire firms have “cracked” in their pricing.
Company initiatives
While each of the Big 3 tire makers—Bridgestone/Firestone, Michelin North America Inc. and Goodyear—have taken steps to cut tire output in the U.S., so far only Cooper has publicly given any indication that a full plant closure is an option.
Cooper began a 90-day capacity study of its U.S. tire plants after which the company said it is likely one of the factories will close. “It’s going to help us fulfill our strategic plan to improve our cost structure and allow us to be more competitive in the U.S. market,” said Pat Brown, vice president of global branding and communications.
Cooper makes about 75 percent of its tires in the U.S.—that’s higher than other competitors in the market—but it has made moves recently to boost production in low-cost locations such as Mexico and China. “We just know that we’re unique among the major manufacturers, having that much of our production in the U.S.,” Ms. Brown said. “For competitive reasons, we need to broaden that footprint.”
For its part, Michelin said the downturn in OE and replacement tire sales caused it to curb its passenger and light truck tire production, effective Nov. 1, for up to eight weeks at its BFGoodrich tire plants in Opelika and Tuscaloosa, Ala., and Fort Wayne, Ind. The cutbacks will bring temporary layoffs to about 40 percent of the work force—or 1,500 employees—at those factories.
“The purpose of this approach is to continue to provide a high level of service to our customers to ensure they have continued access to the products that remain in strong demand,” said Scott Clark, chief operating officer of Michelin Americas Small Tires.
He said the plants that make Michelin-brand tires haven’t been impacted to this degree because the actions to align production with demand differ significantly by factory based on the brands, products and sizes made there.
“The methods we use to curtail production are different based on the level and duration of required production reductions,” Mr. Clark said. “In general, the fact that the Michelin brand and our total passenger car business in North America has gained market share in 2008 has likely resulted in Michelin feeling less of an impact of the market downturn than our competitors.”
And while Michelin doesn’t have plans to shutter any of its existing tire facilities, the firm’s projection of a downturn in the North American market prompted its decision in August to scrap plans to build a tire factory in Mexico, he said.
Bridgestone Firestone North American Tire L.L.C. has taken steps to keep its North American tire production where it needs to be, a company spokesman said. The firm extended shutdown dates at some factories, reduced daily production and curbed or eliminated overtime.
“It’s not a one-size-fits-all proposition,” he said. “There are not a lot of alternatives aside from reducing your production so you’re not producing tires that are going to sit.”
Bridgestone expects to keep the reduced production levels in place through the end of the year, though the tire maker said it will continually evaluate the marketplace and make further adjustments as necessary.
Goodyear said all of its domestic tire plants have been impacted in one way or another. After having a variety of shutdowns the last two months, the firm idled three of its consumer tire plants the last week of October, a company spokeswoman said. In addition, a fourth plant will not operate for four consecutive Sundays.
On the truck tire side, two other Goodyear plants temporarily will idle production two weeks each the remainder of the year.
Even the bustling Toyo Tire North America Manufacturing Inc. plant in White, Ga., has been impacted by the economic downturn, as well as the hurricane season. It first had to curtail several days of production in late October because of a shortage of butadiene rubber and SBR in the aftermath of Hurricane Ike, according to James Hawk, president and plant manager of Toyo’s U.S. manufacturing operation.
Other than that, Toyo has tapered back on daily production volume but has had no layoffs. “We will analyze October sales, inventory and customer forecasts before we make any further decisions,” Mr. Hawk said. “Unless there is some jump in consumer spending, it is foreseen that we may need to schedule some days out of production to adjust for inventory.”
Toyo Tire (U.S.A.) Corp. also is delaying the completion of an expansion that was to double the White plant’s capacity by the end of 2010.
“We will now install the equipment over a longer term with the same start-up date but extend the completion date by six to 12 months,” he said. “We do not plan to stop construction unless current economics get much worse.”
**************************************** ****
Tire makers hit hard by declining demand
By Bruce Meyer, Crain News Service©
AKRON (Nov. 17, 2008) — There’s a storm brewing in the U.S. tire industry, and the result is a cutback in the nation’s tire production by most of the major manufacturers.
The tempest is the dual decline of both original equipment (OE) and aftermarket tire sales, an uncommon occurrence in the industry. Typically, when OE volume is down, the replacement market picks up, and vice versa.
Not this time. The Rubber Manufacturers Association’s (RMA) Tire Market Analysis Committee expects declines for 2008 in both OE and aftermarket shipments across passenger, light truck and truck/bus tire sectors, with little hope for much improvement in 2009. Shipments are forecast to drop 13 million units in 2008.
That has caused most of the nation’s tire makers to “align production with demand.” In other words, they’re not making as many tires.
Those cutbacks have taken various forms, including everything from simple adjustments in the daily production ticket, to prolonged shutdowns for certain lines, to a capacity study by Cooper Tire & Rubber Co. that probably will result in its closing one of its U.S. tire factories.
“You don’t want to build inventory, which will consume cash,” said Saul Ludwig, an analyst with KeyBanc Capital Markets Inc. “There’s no reason to produce tires that aren’t being sold.”
Mr. Ludwig said it’s clear there is currently too much capacity in the tire industry, both in the U.S. and globally. New facilities in Mexico, South America, Eastern Europe and Asia came on stream the past couple of years at a time when demand has weakened.
A recent study of global tire capacity indicated that capability rose almost 6 percent this year and is projected to grow 2.6 percent in 2009 and 2 percent in 2010, he wrote in an Oct. 28 report on Goodyear. “With the rapid deterioration in the global economic outlook, including new car and truck production, it is clear capacity is growing far more rapidly than demand,” he wrote.
Mr. Ludwig said market conditions—including dropping raw material prices—may put downward pressure on tire pricing.
“If raw materials are coming down and demand is coming down, and there’s too much capacity, that’s not an environment where one can be firm with their pricing,” he said. The Cleveland-based analyst noted, however, that he has not yet seen evidence that any tire firms have “cracked” in their pricing.
Company initiatives
While each of the Big 3 tire makers—Bridgestone/Firestone, Michelin North America Inc. and Goodyear—have taken steps to cut tire output in the U.S., so far only Cooper has publicly given any indication that a full plant closure is an option.
Cooper began a 90-day capacity study of its U.S. tire plants after which the company said it is likely one of the factories will close. “It’s going to help us fulfill our strategic plan to improve our cost structure and allow us to be more competitive in the U.S. market,” said Pat Brown, vice president of global branding and communications.
Cooper makes about 75 percent of its tires in the U.S.—that’s higher than other competitors in the market—but it has made moves recently to boost production in low-cost locations such as Mexico and China. “We just know that we’re unique among the major manufacturers, having that much of our production in the U.S.,” Ms. Brown said. “For competitive reasons, we need to broaden that footprint.”
For its part, Michelin said the downturn in OE and replacement tire sales caused it to curb its passenger and light truck tire production, effective Nov. 1, for up to eight weeks at its BFGoodrich tire plants in Opelika and Tuscaloosa, Ala., and Fort Wayne, Ind. The cutbacks will bring temporary layoffs to about 40 percent of the work force—or 1,500 employees—at those factories.
“The purpose of this approach is to continue to provide a high level of service to our customers to ensure they have continued access to the products that remain in strong demand,” said Scott Clark, chief operating officer of Michelin Americas Small Tires.
He said the plants that make Michelin-brand tires haven’t been impacted to this degree because the actions to align production with demand differ significantly by factory based on the brands, products and sizes made there.
“The methods we use to curtail production are different based on the level and duration of required production reductions,” Mr. Clark said. “In general, the fact that the Michelin brand and our total passenger car business in North America has gained market share in 2008 has likely resulted in Michelin feeling less of an impact of the market downturn than our competitors.”
And while Michelin doesn’t have plans to shutter any of its existing tire facilities, the firm’s projection of a downturn in the North American market prompted its decision in August to scrap plans to build a tire factory in Mexico, he said.
Bridgestone Firestone North American Tire L.L.C. has taken steps to keep its North American tire production where it needs to be, a company spokesman said. The firm extended shutdown dates at some factories, reduced daily production and curbed or eliminated overtime.
“It’s not a one-size-fits-all proposition,” he said. “There are not a lot of alternatives aside from reducing your production so you’re not producing tires that are going to sit.”
Bridgestone expects to keep the reduced production levels in place through the end of the year, though the tire maker said it will continually evaluate the marketplace and make further adjustments as necessary.
Goodyear said all of its domestic tire plants have been impacted in one way or another. After having a variety of shutdowns the last two months, the firm idled three of its consumer tire plants the last week of October, a company spokeswoman said. In addition, a fourth plant will not operate for four consecutive Sundays.
On the truck tire side, two other Goodyear plants temporarily will idle production two weeks each the remainder of the year.
Even the bustling Toyo Tire North America Manufacturing Inc. plant in White, Ga., has been impacted by the economic downturn, as well as the hurricane season. It first had to curtail several days of production in late October because of a shortage of butadiene rubber and SBR in the aftermath of Hurricane Ike, according to James Hawk, president and plant manager of Toyo’s U.S. manufacturing operation.
Other than that, Toyo has tapered back on daily production volume but has had no layoffs. “We will analyze October sales, inventory and customer forecasts before we make any further decisions,” Mr. Hawk said. “Unless there is some jump in consumer spending, it is foreseen that we may need to schedule some days out of production to adjust for inventory.”
Toyo Tire (U.S.A.) Corp. also is delaying the completion of an expansion that was to double the White plant’s capacity by the end of 2010.
“We will now install the equipment over a longer term with the same start-up date but extend the completion date by six to 12 months,” he said. “We do not plan to stop construction unless current economics get much worse.”
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