OTR tires in 2011: Nash says look for...
In 2010, the OTR tire market rebounded quite well, thank you very much. And Yokohama Tire Corp. (YTC) was one of the beneficiaries.
Gary Nash, Yokohama's vice president of OTR tires, isn't about to gloat, however. The 45-year tire industry veteran has not forgotten about the bad times, what he refers to as the market crash of 2009.
In this question and answer interview, provided to Modern Tire Dealer by Yokohama, Nash goes into detail about the OTR market in 2009, 2010 and -- by looking into his crystal ball -- 2011. And in case you want to know about his credentials first, know this: He was elected to the Tire Industry Association’s Hall of Fame earlier this year.
Q.: What were some of the factors that led to the OTR market crash in 2009?
Nash: The off-road market historically has seen five years of growth and then three to four years decline. In the past, it has been impossible for major manufacturers to increase their production because of the instability of the market. It doesn’t allow them to build new factories, for example, because the recovery for OTR products has never been great and the investment is quite heavy.
Starting in 2006 and into 2008, tire manufacturers started investing again in new OTR manufacturing facilities. Bridgestone spent a fortune, as did Michelin and Goodyear. Yokohama spent a lot of money on a new radial factory that produces X-Large Bias tires, and then on another one as part of a joint venture with a major corporation involved in gold mining.
During this strong period, manufacturers finally went out and increased their production. Unfortunately in 2009, the economy just stopped. The OTR market went down 38%. A lot of people were caught with heavy inventories of merchandise they couldn’t move. There weren’t a lot of tires bought in 2009. People even went so far as to cannibalize their equipment, taking tires off machines that were parked and putting them on machines that were operating.
Manufacturers and dealers were caught with big inventories, but they worked out from under it. They moved the tires and placed them on machines. Warehouses started to thin out, and in 2010, the market suddenly turned around to a boom period again.
This year, we’ve seen 18% growth in the RMA (Rubber Manufacturers Association) market. When you add in the non-RMA members, the OTR business has gone up as much as 28% in 2010.
Guess what? Now the industry is once again faced with a short supply. That’s because in 2009, a lot of the companies, including Yokohama, temporarily stopped production. Now we’re seeing the demand is greater than ever. Yokohama’s business is back to 2008 levels, but the market is still not back to 2007 levels.
Q.: That certainly doesn’t follow the usual five-year OTR cycle. What do you think is causing it to fluctuate so much?
Nash: Driving the economy today for the mining industry are the BRIC countries: Brazil, Russia, India and China. All OTR manufacturers are exporting tires in great number to these countries. At the same time, the economy in the U.S. and other countries has dropped because of the fear there’s a big recession on the horizon. People were frightened because they just witnessed a near global economic collapse in 2009. In the 45 years I’ve been in the tire business, we’ve never seen anything impact the market like that.
Some markets are strong, like gold, and others are weak, like housing. These elements help cause the OTR market to fluctuate. Another market that’s been fair has been underground mining, such as coal. You can mine much cheaper underground than you can above ground because there are not as many environmental issues. The reclamation is not as demanding underground as it is for a surface mining.
Another struggling segment is the port authority business, which falls off when there’s not a lot of merchandise coming in from other countries. And, as mentioned, another segment that’s been very, very weak is the new-home market -- it’s collapsed. There are no new homes being built, therefore no scrapers are out there for grading site preparation. There are very few commercial projects being started because there’s an oversupply of large commercial buildings. The small construction market and the public utilities have been stagnant because the funds have been slow to be appropriated by the state and local governments.
All these fluctuating market factors play a role when trying to project market growth and how many OTR tires to produce. At Yokohama we anticipated three- to five-percent growth in 2010, and it went to 18 to 30%. Our supply went from severe overstock in 2009 to the lowest inventory in the history of Yokohama.
Q.: How do you forecast for production and sales?
Nash: At Yokohama, we have 253 different types of products, supplies and tread patterns, and we look at previous demand based on our loyal dealers. They’re going to buy from us if there’s business going on. Historically, they buy a lot of the same products so we can look at one size tire and say, "We’re going to sell 200 of that size." And we won’t miss it by more than 10%.
It’s more difficult to forecast for companies that are diversified and have everything -- bias, radial, etc. In this case our production is very close. The only thing that hurts is when we underestimate the growth of the market. All of our production comes from our factory in Japan. The global demand can impact us greatly because YTC’s parent company, The Yokohama Rubber Co. Ltd. (YRC) has to take care of its customers worldwide. However, the U.S. is the largest market for YRC, so a large percentage of our products is given to us based on our projected budget.
Q.: So, how does Yokohama handle these industry fluctuations?
Nash: If one segment of the business happens to be down, the other one may be up, which offsets it unit-wise. We operate by concentrating on niche markets, which are specialty products. Normally, the demand for specialty products continues even though there may be a recession in place. The demand for heavy ID or industrial products continues. When I say heavy ID, that could be underground mine, oil drilling rigs or steel mills. It could be many different segments in the OTR business.
Yokohama is so diversified that a slowdown in some areas may hurt us, but it doesn’t put us completely in trouble. We just look at the units by size each month that are being sold, and then we order back, accordingly. Then, if we have a demand that exceeds our supply, we ask our customer, "Can we give these to you over a period of time? Can we give you maybe 90 or 120 days shipping?" Most of them, with a large order, have that much flexibility to say "yes."
Q.: What’s your view on the 2011 OTR market from Yokohama’s perspective?
Nash: 2011 is going to be quite good because we’re introducing some new products, including more radial tires. That’s definitely going to help us because the market demand is 70 % radial and 30% bias.
Yokohama, on the other hand, is about 30% radial and 70% bias. We can actually take some radial market share by introducing new products. We’re going to maintain the bias business, but we’re also going to grow the radial segment.
Q.: Do you see any particular markets, like the housing market, that are going to jump up in 2011?
Nash: We don’t see the housing market recovering at all in 2011. There may be a small improvement, but there are so many foreclosures. Interest rates are at an all-time low and it still has not boosted the housing market that much.
We see that interest rates could decline a little bit more. We actually anticipate that it could go back up, which could further hinder the sale of new homes. And with all the foreclosures on the market, new home developers will not overbuild again and catch themselves with units they can’t move.
Q.: Do you think OTR sales can predict the future of the economy? For example, if commercial truck tire sales goes up, that means more trucks on the road carrying more goods, which is a good sign for the economy. Do you see the same thing with OTR?
Nash: In 2009, many companies sold their equipment and shipped it out of the country. Now, the regional equipment business is booming for OTR. Caterpillar and Komatsu are starting to produce new equipment and the demand for product is strong at the OE level.
That’s good for the economy and OTR industry because when they’re replacing equipment, they’re also improving their business and the need for replacement tires. They’re getting new equipment that will eventually have to be replaced, which means they’re buying more machines for each project we have.
Q.: You’ve seen it all when it comes to OTR. Were there any surprises in 2010?
Nash: The biggest surprise in 2010 was that the phones started ringing immediately in January and never stopped, whereas in December 2009, they were not ringing at all. Business really started to grow in 2010 and it caught us by surprise. Even though we had an oversupply of inventory coming out from 2009, the inventory turned over very quickly, and we moved with caution because we thought, "Is this just a blip on the screen or is it for real?"
What’s happened in 2010 is sales have remained steady all year long. There hasn’t been any sign that the market was slowing down. The other thing that has helped the U.S. manufacturers like Yokohama is the foreign companies -- like Eurotires, Belshina from Russia and the Chinese tires -- vacated the market. Now, there are fewer manufacturers and less competition.
Q.: Any overall market predictions for 2011?
Nash: Everyone will still have to be cautious when they forecast for 2011 because the supply’s still critical. If you can’t get the merchandise, you can’t set a heavy forecast. We’re budgeting with caution and anticipating the cost of raw materials is going to go up due to the problems in Indonesia and other countries furnishing raw rubber.
The prices will escalate based on the cost of raw materials going up. I can’t see much of an improvement as far as recovery coming from the ability to sell the product higher. I see the pricing increase only taking care of raw material costs.
Q.: Besides the BRIC countries, what other countries are buying OTR tires now?
Nash: The U.S. market is very strong in the large, extra-large and all OTR tire types right now. The market in Mexico is very strong, too, and Yokohama is starting the process to open a new office there. We currently have a sales staff in place.
We’ve signed several new dealers in Mexico, but we’re moving with caution because of the supply. We’re also doing business in Puerto Rico, which is another market that we’ve never sold to before, and the business in Vancouver, Canada, is starting to grow.
Q.: It seems like when you say "OTR," the next word is "caution" because there’s either too much or not enough supply. How do you handle that?
Nash: You get used to it, although not to the severity in 2009. If you know the market historically grows for five years and it declines for three to five years, then you know there will be peaks and valleys. You let that be your guide.
You forecast with optimism. In Yokohama’s case, we can be more positive because we’re entering a radial market that’s really mature and the quality of our products helps us grow because they exceed expectations.
Q.: Would you say Yokohama’s a nimble manufacturer? If there’s a shortage and suddenly a great demand, can Yokohama move fast enough?
Nash: It takes time because the quality of our products does not allow us to cut any corners. Everything has to be produced with the highest integrity and technology, like making sure the curing time for the product runs its full length.
There are ways to reduce the cost of a product by reducing the curing time. It helps your overall production, but it cuts the quality of your product. We don’t do that at Yokohama.
We always utilize our technology, making the right products for the right application, like customizing products for a particular mine site. We ship products that will give the best cost-per-hour.
Q.: Let’s talk about your recent induction into the Tire Industry Association (TIA) Hall of Fame. What does it mean to you personally and professionally?
Nash: On a personal level, the Hall of Fame induction means I’ve accomplished what I set out to do when I started in the tire industry. This award validates effort and achievement, but it’s really all about the people I’ve met along the way. All the friends I’ve made. The people who look at me and know I’ll always tell them the truth. In all honesty, the many friends I’ve made over the years deserve the credit for this great honor.
I’ve been able to mentor younger guys who are coming along, advising them to do the right thing within the company. I’ve been in the rubber industry since 1965 and I still use the same sales practices I was taught in college. You’ve got to be a salesman and treat people well. I’ve always prided myself that whoever I worked for, including some of the finest rubber companies in the industry -- Goodyear, Bridgestone and, especially, Yokohama -- I try to make people feel good about themselves.
On a professional level, this award really means a lot, too. I’d like to thank Yokohama, where I’ve been since 1998. They gave me an opportunity to take the experience I gained over the years and apply it to a company that has the technology and production facilities to keep growing, plus they have some excellent engineers as well.
They let me go out and hire the best sales group in the industry. I’m successful because every team member I have has been handpicked, and they’ve got loads of experience. My job is probably the easiest job in the country, other than the typical short supply.
Q.: As a Hall of Famer, how do they treat you now at Yokohama?
Nash: I didn’t get a new car, but I did get a much better parking space.
(For more information on Yokohama’s extensive product line, visit www.yokohamatire.com.)