On the eve of MinExpo, Yokohama executives talk about the OTR tire market
Yokohama Tire Corp. will have a significant presence at the 2008 MinExpo International, which will be held Sept. 22-24 at the Las Vegas Convention Center in Las Vegas, Nev.
The following is an abridged interview with Yokohama Tire Corp.'s Gary Nash, director of OTR sales, and Nelson Richards, national sales manager, on the off-the-road tire industry and marketplace, courtesy of Yokohama. Its parent company, Yokohama Rubber Co. Ltd., entered the OTR tire market in 1973 with its Y67 (which is still its flagship tire for scrapers and loaders).
Q.: What are some of the differences between OTR and commercial and consumer? Is it more competitive? It's obviously a whole different market from advertising to marketing.
Nash: It's more difficult to sell a highly-engineered product because it has to be fitted to the proper environment. It has to be sold where the product will perform to expectations.
A person with limited experience could not be successful in the off-the-road industry. You have to have many years of experience to sell OTR products because they're heavily engineered and require technical skills.
Consumer products could be considered more forgiving. Even the commercial products -- truck tires -- could be more forgiving with a misapplication. But in OTR, they would definitely show up quickly as being a nonperforming product if you misapply it.
As far as the competitive aspect of the business, definitely truck and consumer are all highly competitive, but when you get into off-the-road tires, you'd have to say that they are sold more on the strength of the performance of the product more so than the actual cosmetic appearance of the tire.
OTR tires are not considered to be beautiful. They're considered to be rugged and strong. These tires do a particular job at a particular mine site or a particular construction project.
Q.: Is it easier to sell an OTR tire than a commercial or consumer because it's so specialized? Or does that make it tougher?
Richards: OTR is so application specific. I think you have to be well-versed in what the applications are and what they mean and how it relates to the product that you're selling. So in that regard, yes, it's a little bit more difficult to sell.
It takes years of experience to understand OTR until you're good at it. If you just try to sell it over the telephone, it's not going to work.
Nash: Off-road tires -- particularly a loader tire -- last as long as four to five years. So you're not going to be able to sell the tire as frequently as you would a truck or a passenger tire. Some hauler tires can last maybe three to four years.
But you only get one opportunity to sell the product, and when you get that opportunity, you have to make sure that the product is going to be suitable to that particular mine site or you probably will not get a second chance.
Q.: Is the OTR division one of the more successful, profitable divisions at Yokohama?
Nash: The off-the-road division at the present, on a percentage of sales to net income, would probably be the most profitable of the divisions. However, in the past, it probably was not.
Our success today is due to our products being well engineered and being placed correctly. Everything that we do depends on the expertise of the person who's selling the product.
I would say in the last 10 years Yokohama has been a very successful company because of the strength of the people that we have placing the product.
Q.: Is there still a worldwide OTR tire shortage?
Nash: There's still a shortage of off-the-road products in some sizes. There's still a big backorder for large and extra large tires. And it looks like this will go on for probably several years, maybe as long as five to 10 years.
There's still a shortage of some sizes of small and medium tires. However, it seems to have caught up somewhat other than your niche market tires such as special construction tires. There seems to be a pretty good supply of radial products in the smaller sizes. And there seems to be a decent supply of the small and medium bias tires, with the exception of select sizes.
Q.: Why is it so difficult to make these large and extra large tires?
Nash: It's not that difficult to make the tires. It's just the demand far exceeds the supply. This is driven not only by the (United States) market being strong in the mining industry, but the "BRIC" countries -- Brazil, Russia, India and China. There's still a strong demand and growing every year and increasing each year.
And even with all of the changes and improvements that tire manufacturers are making to their production facilities, they still are not able to supply the demand of the large and extra large tires.
Richards: The production facilities that the manufacturers have as a whole can't adequately meet the demand, and there is a finite number of how many tires they can produce. Once you reach that and you still can't meet demand, there will be a shortage in supply. And the worldwide demand is phenomenal.
Nash: Since 1990, there have been many peaks and valleys in the OTR industry. There's either an oversupply of tires or there's an under-supply of tires.
There have been so many peaks and valleys in the industry that people were not willing to invest to upgrade their facilities or build new ones because of the risk factor. In 2003, the market started to grow so fast and everyone had a short supply of product. No one's ever been able to catch up.
But if you go back historically, in OTR it's very cyclical: five years of good business followed by five years of bad business. So no one would invest in it and prices were eroding. Then all of a sudden everything took off.
Q.: Yokohama's invested in OTR. Hasn't it upgraded and expanded its Onomichi plant in Japan?
Nash: Yes. Yokohama built a new radial factory in November 2006. It started mass producing starting April 2007, with 2,000 additional tires per month, plus increasing monthly.
Richards: And we're actually still adding new building machines to that facility for larger hauler tires, but the focus of that plant was for radial product sizes 17.5 through 29.5R25. The building machines that they're installing now will take us into the future.
Nash: The third Onomichi plant expansion has already been completed. It will begin production in November this year, and the first tires will be received in January 2009. It's right on target, and... we are doing a third expansion of underground mine and individual factory.
And then Phase 4 will be the continued radial products, the 27/49s and sizes 24/35, 18/33s that will continue into November 2009.
Q.: Any idea how many OTR tires Yokohama produces a year?
Richards: That's a hard number to estimate because it’s all about rubber tonnages, not so much about units. For an example, if we produce 10 4000-57s, then with that same amount of rubber we could have produced 200 20-25s. So it's really relative to the production schedule for that month.
Nash: I think we start at 1,100 rubber tons per month. And that equates to about 7,500 units per month. Now we would be at probably 1,600 rubber tons per month with the new factory. Then the plan will be to go to around 3,000 rubber tons per month over the next three years.
Q.: Does Yokohama have any original equipment OTR tire fitments?
Richards: We're OE on Caterpillar. Our OEM sales manager, Tim Easter, worked very diligently with Caterpillar to get a position there. And we have achieved that.
We're OE with Taylor Machine Works, too. We have a good bit of that business now. Same with Kawasaki, and we are OE on Komatsu Japan. It's just the OE fitment here in the U.S. that we haven’t achieved yet, but we are working on it.
Q.: What do the OEMs look for?
Nash: All OEMs have basically the same requirements. To secure a fitment you have to test and evaluate. You have to be approved by the OE fitment engineers to be listed in their catalogs. It's a long, drawn-out process. It can take up to a year to evaluate your product and get placed on their approved list.
Richards: They want very stringent engineering data, and we need to be very cognizant of their questions about engineering and how it fits their product.
Nash: Most OEMs will tell you in advance what their demands will be in the future. Sometimes that's years away. Having a position with OE would also give you an idea of what the market may look like five years from now as far as what their plans are. Is it going to go bigger? Is it smaller? This is what their idea is on the future of the construction and mining industry.
So there are a lot of things to be gained by being OE fitment. Plus, the product recognition you get after it's in the field is very important for replacement sales.
Q.: Any new OTR sizes or any new OTR tires on the horizon?
Richards: The mass production of the 2400R35s and 1800R33s.
Nash: And then we've got all those metric sizes that are coming for radials.
Richards: In September, the new building machine for the 2400R35s and 1800R33s will be online, and we'll have two different tread designs.
Nash: In the last 10 years, we have introduced more than 50 new products and specification changes. In the last two years, we've probably introduced as many as 10 new radial sizes and types... there are as many as eight to 10 new radial sizes that will be introduced in the next year.
And there are a lot of tires that we're working on for niche markets. They're specialty tires. Right now, we have two that we're planning: the 1800x33 and the 2100x25, plus several underground mine sizes. Next year, we'll have as many as five more new products that could be either bias or radial.
We build tires based on the requirements of our particular customers. If they go bigger, like Taylor Machinery, with bigger container stackers, then we have to build a bigger tire.
Q.: Are there any new OTR tire technologies?
Richards: Yokohama is known for the compounds that we put on the tires -- that's one of the things that we're best at. At our new factory, each one of our radial tires that comes out of the plant is X-rayed for the quality of the tire. Nothing gets out of there that has a substandard quality.
We're always making improvements in the new building machines and how they cure the tires. Our new radial factory has all the latest equipment.
Q.: How do you go about increasing your market share? Do you produce more tires? Chase more accounts? What's your game plan?
Nash: The ideal way to increase your market share is through existing business with your dealers, national accounts and OEMs. Signing new dealers in weak markets will help, as will new OEM accounts. We like to go after OEM's that have special requirements.
Yokohama is a niche market player. If a customer wants the tires built especially for him, Yokohama is willing to work and build special tires for the special application.
We haven't really attacked the underground mine market. We plan on increasing the share in underground mine tires thanks to the new factory, which produces those tires.
We're adding to our line of underground mine tires so we can offer a complete lineup of tires to a specific dealer so he won't have to go out and buy other products. We're always looking to improve the in-house share with our dealers.
Unfortunately, during the last four years we haven't been able to do that because of the short supply of products, so we've been restricted (in trying) to grow our existing dealers. Our idea has been -- since the short supply -- to maintain those existing dealers and offer them products similar to what they've had in the past without sacrificing any of their business by going after new dealers.
Q.: Does a soft economy like we're in now affect the OTR market at all?
Richards: The construction side of the business is definitely down. The housing slowdown that we're experiencing now has dramatically impacted site preparation jobs, which typically take very large earthmover equipment. On the mining side, though, I don’t think it has been much affected.
Nash: The demand of gold, copper, coal, silver and nickel today continues to make the mining industry boom. When the construction industry slows down, everyone feels it. When it sneezes, everyone catches a cold. So right now, the mining industry is extremely strong, but it's strong in the market where we have the shortest supply of product.
The homebuilding, on the other hand, is slowed down and we have an oversupply of product.
Q.: Is price an issue in the OTR tire market?
Nash: Not in the market today. Our dealers are very savvy as to the product quality. They will not succumb to the cheap prices offered by other companies.
They know that if one tire is going to deliver 8,000 hours and another one is going to deliver 5,000 and they're paying pretty close to the same price, they're not going to be swayed by the lower price.
Q.: As far as the market goes, what countries are being targeted by Yokohama to sell OTR tires to?
Nash: Brazil, Russia, India and China -- very high demand. Infrastructure is being built now in all those big countries. There, the demand is going to be great. And it's going to take a lot of product away from the U.S., production-wise.
Yokohama (YTC) just expanded into Mexico, and we are looking forward to working with our neighboring country.
Richards: And don't forget Australia, which has a tremendous amount of construction going on right now.
Both Nash and Richards will be manning the Yokohama Tire Corp. booth, number 8785, at MinExpo.