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PANAMA SHOW
likely to continue to do so.
In addition to these outside influences, Shaw pointed out that Chinese tyre prices are inherently more volatile than the top brands. This is primarily because the Chinese manufacturers tend to work on cost plus basis, whereas premium brands work on a brand basis giving themselves a much higher profit margin with which to play with. Typically, raw materials as a percentage of sales is between 20-35% for a top brand whereas for Chinese and Indian manufacturers it can be as much as 50-70 per cent.
This means that the Chinese have to react immediately to raw materials price increases, whereas the brands can delay the rise as they have more margin to play with. As a result, the premium tyre manufacturers between September and the early part of 2017 saw increases in sales while they simply prepared for rises at a time when the Chinese had been forced to raise their prices.
All of this, of course, in the opinion of Retreading Business, is bad news for the retreading industry because it means that tyre prices will continue to fluctuate in line with NR prices, making it difficult for retreaders to formulate a cohesive strategy if the industry remains over-reliant on maintaining an ongoing and stable price differential between the price of retreads and cheap new tyres.
In the longer term, though, the situation is perhaps not so critical. Shaw, like many commentators, pointed out the developing split in
China between the top 10-12 Chinese manufacturers and the rest. A gradual change of culture, he pointed out, was making it easier for smaller factories to close without their managers suffering a loss of face. Consolidation, he argued, was already underway but being held back by inter-personal rivalries. There was
also a deep
resentment against
US Government in
China due to the
perceived
unfairness of anti-
dumping actions.
At the same time,
he added, China
was now beginning
to focus on better
marketing, brand
management and a
more international
approach to
management, which
would also
eventually bear
dividends.
This, of course,
does not help
retreaders in the
short and medium
term, and reinforces
the argument put
forward by this
magazine that the retreading industry must do more that throw its hands in the air in despair and expect governments to sort the situation out for it, for it may be whistling in the wind. If the industr y associations can truly persuade governments to intervene on behalf of retreaders and sidestep
all the various alternative interests that are at play here, then all power to them, but in the opinion of this magazine, the situation is far from irretrievable and depends on the industry coming together and marketing itself properly, something which the industry over the years, with very few exceptions
industry, but he is also a friend of the retreading industry, and he gave an impassioned defence of the industry in his presentation on “Chinese Tyres and Retreading – Facts and Fiction”. The nub of his argument was that the Chinese tyre industry and the retreading industry were not incompatible – indeed that the US tyre industry, including the retreading sector, could no longer do without Chinese manufacturers.
Weller began by pointing out that the retread industry in North America was currently flat, but was actually running at similar volumes to thirty years ago. He alluded to the widespread consolidation of plants across North America, which has continued into recent times (between 2013-15 the number of plants in the USA fell from 725 to 650 plants) and the degree to which the market is controlled by the Big Three – Bridgestone, Goodyear and Michelin.
He also spent some time trying to counter some of the anti-Chinese tyre arguments prevalent in the US (and around the rest of the world) – for example: Are Chinese tyres unretreadable? Weller showed a chart analysing the retreadability of a plethora of brands – both premium Western and Chinese, pointing out that Double Coin had the highest retreadability amongst all those listed. “Many good casings come out of China,” he
David Shaw of Tire Industry Research, states that rubber consumption in tyres is increasing but revenues are dropping. Moreover, influences on the markets are fluctuating and prices are rising and falling all the time
42 Retreading Business
and for many different reasons, has manifestly failed to do.
This leads us on to the second key presentation in Panama, made by Walt Weller, Vice President of CMA, LLC, a wholly owned subsidiary of Double Coin Holdings Ltd. Weller is therefore a representative of the Chinese tyre
argued.
Then there was the question of whether Chinese tyres are unfairly subsidised. “Subsidies exist in China,” he said, “but they also exist locally in the USA. There is also a Federal Excise Tax on all new truck tyres in the USA from which retreads are exempt.”