Sumitomo's Snapshot of the Tire Industry Amid COVID-19
The U.S. tire industry was already off to a rough start in 2020 before the coronavirus. That's one takeaway from Sumitomo Rubber North America Inc.'s first virtual dealer forum. We've compiled five takeaways, covering the original equipment and replacement tire markets in both the consumer and truck tire businesses.
The company hosted the first of what it says will be bi-monthly online seminars for dealers. They're designed to give dealers a bigger view of the market with both data and commentary from the company's experts.
Rick Brennan, vice president of strategic planning for Sumitomo, says U.S. Tire Manufacturers Association (USTMA) data shows an across-the-board decrease in shipments by USTMA members in January and February. In March, the only bright spot was in medium truck tires, and that’s likely the result of large fleets starting to panic about the uncertainty ahead and their need for tires. They bought up more supplies in late March as tiremakers announced plant shutdowns.
“In the last two weeks of March the TBR market grew by 22%, so we ended up 10% (for the month.)"
Here’s a look at USTMA shipments by category in the first three months of 2020. Non-USTMA numbers are noted for January and February, but weren’t available as of the date of Sumitomo Rubber’s forum.
Disintegrating OE demand
One of the many effects of stay at home orders around the U.S. is the steep drop in demand for new cars, which of course results in less demand for tires for those new vehicles.
Brennan says the demand “dropped dramatically.
“We actually had pretty good sales and growth through February, but just like vehicle sales, it dropped off the map to -27%,” Brennan says. “When we look at vehicle sales it follow that same view.”
Brennan says the overall OE tire volume in North America calls for about 4.5 million passenger and light truck units a month, plus another half million units for truck and bus applications. “So shutting down those (OEM) factories puts about a tire factory worth of volume out of the marketplace for that month.”
David Colletti, vice president of OE and tech services for Sumitomo, says the closure of OEM plants is expected to result in lost production of about 1.8 million vehicles – or a 20% drop in 2020 vehicle production.
The expectation is that vehicle manufacturers “will slowly ramp back up in May and June, getting back to 100% output around July.”
Already some new vehicle introductions are being delayed by a few months, Colletti says.
The replacement picture isn’t much better
Those shelter-in-place orders around the country are also having a big effect on the driving routines of ordinary consumers. Brennan used data compiled by Inrix to show that consumer miles driven dropped 47% in the first week of April. (The figure has stabilized around the 47-50% mark.) That’s nearly an identical match to what Sumitomo’s tire dealers have reported on the sales front – that sales down about 50%.
The picture is a little different on the commercial side. Truck mileage hasn’t been affected as severely, though the less-than-truckload carriers have been hit hard, Brennan says. “Line haul has stayed pretty strong, but now we’re seeing the impact of factories being shut down on line haul. There’s no sheet metal being shipped around, or all of the things that make cars. You can see about the time carmakers shut down their factories it had an effect on long haul trucking. We see it’s down about 15-20% in April, and may reach as high as 30%.”
What’s happening with price?
Sumitomo regularly scrapes the posted online prices for “basically the whole market.” From what Brennan can see so far in 2020, the virus so far hasn’t had a big effect on price.
“A lot of manufacturers did price increases at the end of December, and in the first quarter we see those coming into affect at minimum advertised price. We don’t see a lot of price fluctuation. We’re hearing of some activity brand by brand and retailer by retailer, and of course there are consumer rebates out there and some other promotions, but so far we haven’t seen a big change on retail pricing in the marketplace.”
Retail business is suffering
Matt Leeper, director of sales for the consumer business, says the company’s consumer business “began to trail off significantly in the last week (of March) when it became very apparent that the COVID-19 impact was going to be really significant and could last for a while.
“We survived the first quarter with pretty good numbers. As we look at the daily orders for shipments in April we’re looking at about a 50% reduction in what we sell to our direct dealer base, which is obviously pretty significant, but in line with what most of our dealers are telling us is happening to their business.”
The pain in the retail business is two pronged.
- Dealers are only buying the tires they’re selling.
- Tire dealers are reducing their inventories.
Leeper expects Sumitomo’s April consumer sales to be at about 50% of its 13-month average.
Of course, there are extremes among the company’s consumer tire customers. Leeper says the car dealership national account business is doing “quite well,” citing FCA and Ford specifically. “We’ve found that business has maintained itself fairly well in this environment.”
Online tire retailers are offering mixed reviews. One reports to be doing well, and says it hasn’t pulled back any of its marketing dollars. Other online sellers say they’ve cut their marketing in half and “they’re down significantly.” Leeper says the takeaway, at least from that one online seller, is that “maintaining promotional investments has paid off.”
Some regional dealers have canceled all orders and aren’t taking any shipments. Others are maintaining operations but at a reduced rate. Leeper says purchases by the the 6,000 Falken Fanatics dealers (members of the tiremaker’s dealer associate program) are down about 40% as of mid-April.
“We’re seeing dealers are reluctant to placing container orders, and it’s now winter product order time. There’s a lot of consternation with dealers of what to do with containers and winters.”
Falken beats the industry in TBR
Bob Klimm leads commercial tire sales for the Falken brand in North America. He says while USTMA numbers showed a drop in medium truck shipments for January and February, Falken “enjoyed sizeable increases” in January, February and March.
The brand was up 31.2% in January; up 20.9% in February, and up 11.6% in March, beating USTMA figures each month. “We finished the quarter 21% up compared to last year, and most of the dealers we do business with were faring pretty well and had a decent first quarter. And then of course came April.”
Klimm says April orders are tracking 30% below average, which he says is in line with what he’s hearing from the company’s commercial dealers.
He says inventory is in good shape, and the company plans to launch two new truck tires for the 19.5 market – the RI151+ and RI191.