Pirelli Forecasts 18% Drop in Global Replacement Tire Market
Pirelli & Cie SpA expects the coronavirus will cause an 18% drop in the replacement tire market globally. The numbers are slightly worse for the original equipment market. Overall, Pirelli says it expects the coronavirus to decrease its 2020 revenues by about 1 billion euro. New guidance is for total revenues to total between 4.3 and 4.4 billion euro, down from the previous expectation of 5.4 billion euro.
Pirelli updated its forecast on April 3, and said it expects gross domestic product to fall 2.8% in 2020. As a point of comparison, on Feb. 19, the company had issued a plan that predicted GDP to increase 2.7% this year.
But now with COVID-19 ravaging the world economy, Pirelli says it forecasts the overall global tire market will decrease by 19% in 2020. The OE tire market will be hurt by 21% (originally the company expected OE to be down 2.4%) due to the slowdown in production of vehicle makers.
The 18% drop in replacement tires is compared to a previously predicted slight gain of 0.5% for 2020.
Pirelli says it expects the premium tire segment of 18-inch and larger tires to decline by 14%, compared to a 20% drop for tires in the "standard segment" of 17 inches and smaller.
As a result of the new market picture, Pirelli has implemented these steps:
- Temporary slowdown, and then stoppage of production. Since March 20 Pirelli has suspended production in all of its facilities with the exception of China. "In China, following the suspension of activities for about a month in two factories, activity is gradually returning to normal."
- Additional cost containment actions;
- Revised investment plans;
- Reduced compensation of top management, and cancelled short-term 2020 incentive plan;
- Cancelled 2019 dividend payment; and
- Reinforcement of the financial structure through refinancing actions already implemented in the first quarter.