How is the Retreading Sector Dealing with Recession

Governments rely on statistics to tell them what is happening. In most countries it is fair to say that there is one interpretation of those statistics for public consumption, and another set for internal use. The same story, to an extent, applies to business. The key difference being that when a business misleads its shareholders Directors pay with their jobs (well, sometimes they do).

To the average family, doing its weekly shopping and paying the bills it was rather obvious that the economy was not quite the picture that government was telling us, that was certainly true here in the UK where there were government acknowledgements to up to 8% inflation on a typical basket of groceries, but many families would have said that 25 per cent was closer to the mark.

Businesses too were feeling the pinch long before governments owned up to difficulties, long before the banking system fell into crisis. Truck tyre sales were falling which meant that less transport was being carried out, so fewer goods reaching the end user. Truck sales dropped, car sales dropped, tyre sales collapsed for OE and the replacement market. In short, most people didn't need three months of crisis to tell them that the world was facing a recession.

The economic crisis is biting hard and the signs are all around us. Container ships are laid up, truck fleets are mothballed, but more telling perhaps is the shutdown or reduction of operations at global manufacturers such as Toyota, Nissan, Honda, Ford, General Motors, now being followed by reductions in capacity at Bridgestone and Michelin as supply far outstrips demand for new tyres. Figures vary but there is no arguing with the simple fact that the automotive sector has seen an unprecedented decline in demand over the past 12 months.

So, how then is the retread sector handling this recession?

Retreading Business has picked up varying reports. Regular readers will be aware that the OTR sector in India is booming still, however, with global markets collapsing, even Rio Tinto has had problems, (on the one hand a potential takeover on the other a sale to the Chinese which would hand rights to Australian mining rights to the Chinese government) one wonders which set of statistics the Indian pundits are referring to when they claim booming business? In North America Michelin is cutting back on its new tyre production but Dick Wilkerson, chairman and president of the Greenville-based Michelin NA, said, "In light of the severe and continuing global economic downturn and its impact on the tyre markets, Michelin is taking additional actions to protect cash flow, reduce costs and maintain competitiveness.

"The commercial truck tyre original market sector in North America hit an all-time low because many fleets have recently been updated, and the trucking industry is waiting to see what happens next. The auto sector is down between 27 and 35% depending upon whose figures you access The replacement market experienced a sharp decline, although retreading remained buoyant." At the same time Bridgestone Americas has announced another round of layoffs, this time in its Bridgestone Bandag Tire Solutions unit.

The reductions also mean that Bridgestone Americas will close its mould-cure Oncor retread plant in St. Louis, ending an experiment in mould cure retreading the former Bridgestone/Firestone Inc. undertook in the mid-1990s. Some 60 Bridgestone Bandag Tire Solutions employees will be laid off, according to the company, primarily in response to current market weakness. Nine positions at BBTS headquarters in Muscatine, Iowa, are being eliminated, as are seven positions in Nashville, and 23 field sales positions. So good news and bad news from the big two in North America.

In the mining sector, that big boom niche for retreading in recent years, has that story changed? After all, if demand for the end product has crashed then so too must demand for mined materials. One of Europe's key mining exhibitions, Hillhead, has been postponed due to difficulties in the mining sector (this follows on from the cancellation of a number of commercial vehicle exhibitions across Europe in 2009)

According to Barry Coleman at Bridgestone UK, "There are still shortages in 40t dumper tyres and some loader tyres remain difficult, although everything else is freely available," Goodyear appear to concur with this as their earthmover specialist Kevin Fitzharris says, "The shortages have lasted five years and it's only the last month that the supply of the majority of common sizes has freed up, but it's right that some loader tyres are still in short supply, and demand remains high."

One of the consequences of the high OTR demand was the purchase of cheap new Chinese tyres, which impacted negatively on retreading operations trying to exploit the OTR opportunity. However, Dave Alsop at Vaculug says, "Some of the more popular sizes were just impossible to get hold of, so people were buying Chinese imports but those people aren't buying them now." Bridgestone's Barry Coleman has seen a change in corporate policy since the Bandag take-over, and adds, "retreading has become a much more important sector of the market since the shortages," At Vaculug, Alsop comments, "One of the biggest costs is still downtime, and for people feeling the pinch, retreads are good alternatives to new tyres."

So, at a time when global trade is taking a nosedive with no real signs of an end to the decline it appears that retreading whilst indubitably feeling the pinch, still retains an advantage in that as operators continue to seek cost savings retreading becomes increasingly a key to whole life tyre costs. So, even in a declining market there is still demand for retreads and those offering the best packages and the best quality will win through. The editor of Retreading Business was approached by a local authority fleet manager who has been instructed, after many years of refusal to operate a retread policy, to investigate the options available and to recommend a suitable retread package for the council's whole fleet of vehicles.

It appears that in the UK at least, retreading has overcome its past reputation and become part of established fleet management practice for commercial and utility operations. So whilst the economic outlook overall may be bleak, there remains scope for expansion for retreaders as they build on the increased understanding of whole life tyre costs. This potential market may cushion the trade for some time. It would be foolish to make a long term prediction but it would appear that the mentality of the market towards retreading has changed, with one or two exceptions, and that retreading will remain an integral element of the tyre market for so long as we use conventional tyres. In that situation, there must be opportunities for retreaders to develop business plans to exploit the still growing, relatively speaking, market for retreads.

Just how that long term market will pan out for the retreaders remains to be seen. As a key element in whole life tyre costs, will the retread scene become dominated by new tyre manufacturers operating their own retread operations, or will there always be scope for independent retreaders offering specialist compounds and patterns, or catering for the retread needs of smaller tyre manufacturers who have neither the capital nor the volume to justify their own retread operations in every market?

Issue 2009/2