Yokohama's King addresses pricing, the economy, and a new tire: the Avid Ascend

Feb. 9, 2012

Price increases, raw material shortages and supply problems were major issues that confronted retail tire dealers in 2011, according to Dan King, senior vice president of sales and marketing for Yokohama Tire Corp. (YTC).

In this Q&A interview provided by Yokohama, King, a 24-year tire industry veteran, addresses these issues and other concerns -- and how they will play out in 2012.

Q.: How would you summarize 2011 for Yokohama?

King: It was a very challenging year. The overall market was basically flat, and we are pleased to have seen growth in all segments of our business.

We weren’t, however, as good of a supplier as we wanted to be for our customers. Our demand was very strong, but we were not able to fully supply our dealer partners and allocate product as efficiently as we should.

Q.: Did the Japanese earthquake and tsunami cause some of the fill-rate problems?

King: To some degree. We had damages in our testing facilities, and we had to move some new product testing, but, overall, we feel very lucky that the impact to our U.S. operations was not as dramatic as it could have been.

Q.: What contributed to Yokohama Tire Corp.'s growth in 2011?

King: A lot of our success was predicated on building blocks that have been put in place for years: how we work with and support our dealer base and help them generate business.

We take pride that our dealers like doing business with Yokohama, enjoy selling our product and feel it has tremendous value to their customers; so they opt to talk about Yokohama as a top recommendation. Last year was just one more building block. We want another one in 2012.

Q.: How is Yokohama's consumer tire division positioned for 2012?

King: We will be increasing supply into the U.S. market, so that will help, though it won’t be as dramatic as we’d like. I’d like to really open up and reach our true demand in the U.S., but we will be limited in some areas. At least we will see more product flow into the U.S. that's coming from a combination of offshore and expansion of our Salem, Virginia factory. We'll see the full results of that this year.

We’re also looking forward to doing more promotions with our consumer products, driving even more customers to our dealer base and building our brand power.

We have new products coming out in 2012, including a Grand Touring tire we’re excited about -- the Avid Ascend. This is the latest advancement in the orange oil technology that Yokohama has pioneered. It launches at the end of the first quarter and is going to be the best Grand Touring tire introduced in the market.

The technology we’ve put in the Ascend is remarkable, and we think dealers and consumers are going to be very excited about it. They've probably never ever seen this kind of value in a product before.

The Ascend features Yokohama’s unique orange oil process that we first developed in our racing tires to research traction and manage tire temperatures throughout the life of a race.

Some of the environmental properties derived from the use of orange oil were included in our dB Super E-spec passenger tire that launched in the U.S. in 2009. Yokohama is the first -- and only -- tire manufacturer to utilize orange oil, which is the best environmental tire innovation in the market.

It’s a very intricate process, especially for mass-produced tires, and we want to make sure we're able to be cost-effective. We’ve been able to do that with the Ascend, which will be offered in 45 sizes at launch (T-, H- and V-rated) for a wide variety of vehicles, from performance sedans to crossovers and minivans. And it will be produced here in the U.S. at our Salem factory.

The technology is distinctive because it enables us to blend natural and synthetic rubber to form a new compound that offers better mileage, fuel efficiency and traction without giving up any other benefits.[PAGEBREAK]

Q.: Will the orange oil come from a U.S. supplier or one in Japan?

King: The actual product is a resin-based material taken from the oil of discarded orange peels. As of now, the resin is coming to us from our parent company in Japan because they have an existing relationship with a supplier.

Q.: What are some of the overall challenges the tire industry will face in 2012?

King: I think the industry will be better than what we saw in 2010 or 2011, but still post very moderate growth for replacement. OE should continue to improve.

Raw material will be something we have to watch closely because costs increased dramatically at the beginning of 2011. We’re seeing some tapering off now, but many economists are nervous about where raw material costs are heading. A lot depends on the supply situation and concerns with the rubber plants. Issues in China, such as their own increasing demand for cars -- and thus tires -- can have a dramatic impact on the demand for raw materials.

We’ve had some issues in ’11 that will probably carry over into ’12, like increased shipping and fuel costs. But overall, I would say that the biggest industry challenge is managing supply within growing segments.

Q.: Are you bullish on the U.S. economy?

King: A lot of economic indicators have actually been very positive over the last year. We see manufacturing increases every single month. We watch trucking closely, and it’s been up every month.  Products are flowing on the roads -- always a good sign -- and retail sales were pretty good during the holiday season.

The problem we see in the economy is that consumer confidence remains relatively low, and a big part of that is because unemployment is overriding all other economic indicators. That  could start to turn around in 2012, and we believe the economy will continue to tick up.

It’s an election year, so there are a lot of positive and negative issues that'll have an impact on the consumers’ confidence, but we believe we'll see consumer confidence go up. Therefore, it will be an overall better marketplace for the tire industry. The RMA (Rubber Manufacturers Association) is predicting growth in 2012; not huge, but still a positive trend.

Q.: How much impact does overseas competition have in regard to product shortage? Do they fill what American manufacturers cannot supply to dealers?

King: I think all manufacturers, for the most part, are faced with the same challenge: It’s a global economy and market for tires. The issue is not just that we can’t bring enough into the U.S., it’s that we have demand all over the world.

The U.S. marketplace is extremely important for us at Yokohama and is a very high priority. But we also have to look at issues happening in other parts of the world and the OE demand. So it’s a balance.

Q.: Are dealers getting frustrated with the supply shortages?

King: They understand it’s an industry-wide problem, not just a Yokohama-specific issue. We strive to be their best, most important supplier. Occasionally, they may find products that are less expensive than Yokohama, but we believe they won't find a better value relationship than Yokohama. We’re proud they see us as a very sound business decision.

Q.: There were more than 100 price increases last year issued by tire manufacturers, including many from Yokohama. Can you explain all the price increases?

King: That’s one of the difficult issues to understand in our industry because all of us manufacturers tend to cite "raw material costs." That’s only part of the issue with how we price our product. Yes, we saw raw material costs escalate dramatically, and even though they’ve decreased recently, they're still way up from where they were.

The other factor, of course, is the global economy and dealing with exchange rates and the importance of the American dollar overseas. When you're a global company, and you're looking at how the yen is valued versus the euro, or the yen is valued versus the dollar, there are issues we have to take into account. That leads back to allocation of product and how much should be allocated to the U.S. based on all of the economic factors.

All of them come into play with a price increase. Manufacturers also will base where they value their brand and where it should be positioned in the market. Sometimes it’s not aligned appropriately and you have to bring it back into check with either price decreases or increases.[PAGEBREAK]

Q.: Do you see any legislation issues in 2012 that could hurt the industry?

King: NHTSA has been delaying their final ruling on the Tire Fuel Efficiency Consumer Information Program in the U.S. We’ve had discussions with them regarding legislations as well as with the RMA, being an active member and on the board of that organization. We’ve been successful getting NHTSA to step back and make sure they feel it is the right direction. While it’s on hold, it could be implemented this year and become a major issue in 2013-14.

We’re not against labeling -- we like that idea. We want to educate the consumer as much as possible. It is how NHTSA is focusing on certain aspects of the tire that we think could be confusing to the consumer, whom we’d like to understand more about tires. After all, tires are the most technologically-advanced products they buy for their vehicle.

Another issue is in California. They still have legislation on their books about fuel-efficiency grading, which is different than NHTSA’s. It’s possible for California to say, "We understand NHTSA’s rule, but we're going to go with our own legislation."  They have that right. NHTSA’s trying to talk to state officials, but it’s on hold. This would create a huge dilemma for our industry -- having different rules in place at the state and federal level.

Q.: Is Yokohama using social media to reach and educate consumers about tire safety and care in 2012?

King: Absolutely. We’re posting a lot more educational videos that explain the importance of tires. We're also trying to work with and support our dealers through social media in their local markets.

I'm very proud of our industry and the products we produce, and I would love for consumers to understand more about their tires. It's difficult to try explaining the importance and technical aspects of tires to consumers at the counter, and social media channels have been very good at bridging this. The channels allow consumers to directly ask us questions or post their questions to other consumers to get the information they need.

Q.: What feedback have you received from YTCs’ social media push and interaction with consumers?

King: As a company, we’re very interested in hearing what consumers have to say. It’s amazing how they utilize the digital space for their communication and how they talk to their friends via social media. They now link live with other consumers who are vehicle enthusiasts and talk to each other and create a forum for others to join.

It's astounding how much conversation is about our brand. When these consumers ask where they can buy Yokohama tires, we have a place for them to come to our website and find the exact information. It definitely links together.

Between the tweets and Facebook, we are pleasantly surprised at the number of people taking the time to say they are Yokohama fans. These enthusiasts eat, drink and sleep car stuff, including tires.

We tied our social media program with the 2011 L.A. Auto Show, producing YouTube videos, tweet contests and Facebook posts. It was a great example of how digital supported the brand and we were able to learn more about what consumers think about Yokohama.[PAGEBREAK]

Q.: How effective have Yokohama’s advertising, sports marketing and motorsports programs been for reaching consumers?

King: We're going to continue our sports marketing campaign. We think it's worked very well to build our brand and drive traffic to our dealers. The dealers seem very excited about it, often piggybacking on what we're doing by running different promotions and contests. It's been extremely successful.

We did programs recently with the NFL’s Baltimore Ravens, Dallas Cowboys and Denver Broncos. We also signed with the New England Patriots as the latest addition to our campaign. During the season, we were able to tap into the Patriots’ strong fan loyalty base and ran our most successful “Home Team Pride” promotion yet with our New England dealers.

Moreover, we have the NBA’s Houston Rockets and Major League Baseball’s Philadelphia Phillies and Los Angeles Angels. We will stay focused on the brand advertising we're doing in those markets, as well as with enthusiasts.

Likewise, motorsports is a huge part of our branding efforts with the enthusiasts. We've seen it drive them right to dealers to ask for Yokohama, and we will continue the program in 2012.

We’re tying all our motorsports, sports marketing and other branding initiatives into our digital and social media programs. We’re doing this through all channels in the digital space: blogs, forums, Facebook, Twitter and so on. The digital space is now another world where consumers live, so it's a new frontier for us to reach and connect with them.

Q.: Do you see any new industry trends in consumer tires?

King: Run-flat tires were once perceived as a quickly passing trend, but in 2011 more than 400,000 new vehicles in the USA and Canada came with run-flat tires. That number is expected to grow to almost 700,000 by 2015. Yokohama’s new Avid ENVigor ZPS was designed to offer our customers an excellent alternative to original equipment by expanding our successful AVID ENVigor line to include key run-flat fitments.

Another growing trend has been higher speed ratings in the all-season touring market. Since 2007, V speed ratings and above have increased approximately 50% in all-season touring tires. Our new Avid Ascend will have T, H and V speed ratings to meet these needs.

The trend in the all-season touring segment, which has grown and features many vehicle applications, draws various types of consumers with different buying needs. And that’s one of the reasons we consider the new Avid Ascend a Grand Touring tire. That category is going to continue to develop in 2012 because some consumers want all-around performance, good traction and mileage, while others want mileage and smooth ride.

In short, you need a tire that does it all, and we have that with the Ascend, as well as the Avid ENVigor.... With both having slightly different size line-ups and speed ratings, we'll be able to attack each segment, which will help our dealer base satisfy those consumers.

Q.: Are there any new dealer programs for 2012?

King: One of the things we are focusing on this year is our Advantage Associate Dealer Program, adding some enhancements to make it even better for our dealers. We helped create this type of dealer program, and it's considered one of the top programs in the market.

We want to support all of our dealers with ways they can promote our brand, and definitely want to help link them to what we're doing in the marketplace, including the sports and digital marketing. This is how we can connect them to what we are doing to help them build their business and our brand together.

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