Kraiburg Holding Tight

Thorsten Schmidt, Managing Director of Kraiburg Retreading, openly discussed the state of the European market with Retreading Business at Essen. "In 23 years in this business I have never seen anything like this. The market is down right across Europe. We estimate by 20%." He offered this to set the picture.

"Figures from new tyre manufacturers show an alarming drop in sales. The total market for new tyres is down 27%; passenger car tyres being down by as much as 50%. As for the retread market, according to the BRV there are 85-90 retreaders in Germany, but a maximum of 50 of those are actually retreading tyres in any meaningful number this year.

"Part of this is a change in the market dynamics; many of the older family businesses are changing, they either, get bigger and grow, or they simply vanish as the owners retire. "However, Kraiburg is coping better than we expected in this harsh market. We are performing well in the UK and Germany in particular. Nonetheless, industry has a lower output, so less transport is required and ultimately tyre wear drops so demand for new and retread tyres fades at times like these."

It is interesting to note the frank comments we received from Kraiburg matched those from their main competitors who reported the same downturn in the market. However, what could Kraiburg do to improve its position? "Well, with the market as it stands, there is no real opportunity to make headway. We just have to sit tight and wait and see what will happen. This does follow some changes in the market; we saw a move towards hot cure with an increase of 10% in hot cure products last year whilst the pre-cure production remained stable with 4 shifts plus weekend working. Any increase in production for Kraiburg would require a considerable investment," adds Schmidt, "and at a time of overcapacity in the market that is just not viable for anyone. All we can do right now is maintain our level of sales and try to improve our earnings."

So, how can Kraiburg improve earnings at this time? "That is not an easy task to improve earnings and remain competitive. Raw material prices have increased since the start of the year and we have seen price increases of 10% in hot cure and 5% in pre-cure, with more price increases to come. At the moment we can only hold prices for three months at a time. The relieving factor in this is that raw materials costs are increasing for our competitors too, so when transport is accounted for, and labour, which is a small cost in the bigger picture, is dialled in, there is little room for even competitors from the far east to play with prices and remain competitive."

Other issues facing Kraiburg, and all of the European suppliers and retreaders are the continuing flow of cheap Chinese tyres and the inertia of the Eastern European and Russian markets. Although the door is open, there is a different mentality. They are not used to tyre management, nor the quality procedures that are required to make a modern retread - they will deal with whichever product gives them the most short term profit - Hungary, Romania, Bulgaria are all slow markets. Russia is developing its retreading sector but the majority of retreads in Russia are still manufactured in Germany as casings are in short supply in Russia. This shortage is due to the poor condition of their roads and the lack of tyre management in the Russian trucking fleets. We are aware of perhaps 30 retreaders in Russia, but most of them also import finished retreads."

The one booming sector in the market remains OTR and Kraiburg is pleased to report that its earthmover pre-cure market share is growing. The company recently developed a 4million Euro retread project in Siberia, and signed a smaller 1.5million Euro contract in the same area, with a third project on the cards for Kazakhstan. One of the biggest changes in Kraiburg's strategy has been in its approach to supplying product to all levels of the market. Whilst the company continues with three product ranges, it will no longer chase the lower end of the market. Since Retreading Business last visited Kraiburg this represents a major change in policy. Back then Kraiburg was steadfast in delivering to all sectors of the market, now the base level is being left to low-priced, low tech, low support imports and Kraiburg is concentrating on the added value, higher quality sectors of the market. As Thorsten Schmidt concluded, "Things have changed, sometimes the theory is better than the practice and we have to go with the reality."

Issue 2008/3