Darren Thomas may be in the midst of his first year as the leader of Sumitomo Rubber North America Inc. (SRNA), but he says that’s not an indication the tiremaker is changing course.
Thomas, who in January assumed the role of president and CEO following the retirement of Richard Smallwood, says “nothing has changed in our leadership.
“Richard is still very connected to us as a board member. And the team that runs the business on a day-to-day basis, which touches our dealers, (consists of) all the same people — it’s Rick (Brennan), Matt (Leeper), myself, (plus) all our sales people and our marketing people. None of us have changed. Our parent company hasn’t changed. So as far as I’m concerned, for the leadership that the market would see, there is no difference.
“The products that we’re in development of, the strategies we have in place — these are all the same people doing the same jobs. We’ve had some titles change, but in terms of who runs the business, who’s making strategic decisions — we’re the exact same company we were 24 months ago.”
Thomas acknowledges dealers might feel like the strategy for SRNA’s Falken brand has changed, but that’s not because of a new vision. “Those changes strategically are 100% a result of two things. One is COVID-19. Second is import tariffs and the impact of COVID-19 on freight.”
Those are forces that all tire manufacturers are managing, he says.
But what’s interesting to Thomas is how the tire industry allows external pressures to dictate pricing.
“We are — as an industry — oddly enough, heavily influenced by outside commercial pressures. Our willingness as an industry to move on price generally isn’t done out of strategic brand movements. (It’s) done from third-party pressures — raw materials, freight rates, tariffs.
“If we didn’t have COVID and we didn’t have high freight rates, the business would have been doing its standard supply chain strategies (and) standard brand strategies.
“We all have price benchmarks that we try to index ourselves against and those would have been the prevailing business basis for decisions. But with COVID, all of the sudden freight rates became the prevailing reason we modify price. With tariffs, those impacts become another prevailing reason we modify mix.
“It’s somewhat sad to me as a marketer that most of the brands we see in the marketplace made their substantial moves because of third-party pressures and not because, as a brand, they wanted to be in a different place in the market. It just illustrates, as an industry, our willingness to be bold marketers is somewhat poor.
“I would say the Falken brand is probably one of the brands that has been willing to move in the industry regardless of outside pressures, but we are not immune to the significance of the last 24 months’ pressures. So we find ourselves — (and) the majority of brands find themselves — in commercially appropriate price positions today, not necessarily strategically appropriate price positions.”
Put another way, the marketplace’s priorities have trumped strategic priorities.
Still, Thomas doesn’t think SRNA’s course would be much different than it is today. Take the company’s domestic tire factory in Tonawanda, N.Y., near Buffalo, as an example. Would SRNA’s strategy in Buffalo be different today if outside forces hadn’t steered the world’s economy during the last two years?
“I don’t believe COVID has made a significant change in our Buffalo strategy,” says Thomas, who adds that SRNA needs that plant to be “a relevant profit center,” especially given its unique mix of production for passenger, light truck, medium truck and motorcycle tires — all under one roof.
“Would we like to have more domestic manufacturing? I would say in theory everybody is probably saying that. But in practice, we can list brands that have started North American factories in the last 10 years and not all have been successful.”
Thomas believes North American production is one solution. He also doesn’t expect sky-high freight rates to stick long-term, which means importing tires to the U.S. “is still a very viable strategy.”
That leaves tariffs and Thomas says SRNA expects it can manage and lower its tariffs down to the range of 2% or 3%. In 2021, the rate for Sumitomo Rubber (Thailand) Co. Ltd. was set at 14.62%.
“My personal opinion is (that) a domestic plant is highly beneficial for OE production. A domestic plant gives you an advantage in supply chain. Does a domestic plant give you cost advantage? Over the long term, I’m not so sure. In the short-term, yeah — after a global pandemic. But if we think global pandemics are going to be a staple of our economic policy, it’s not.”