FIGHTING THE SLOWDOWN FIRE

FIGHTING THE SLOWDOWN FIRE

TA News Bureau
The global tyre industry is once again fighting headwinds of another economic slowdown, which is impacting its laid-out strategies. This is not a new phenomenon; neither will this be the last. It is simply the latest. Slowdowns are periodic upheavals that challenge manufacturing industries, including automobile and tyre sectors, to do reality checks on boardroom plans. They better be ready with alternative strategies or simply make way for those who do it. Those who have been consistently achieving success in tyre industry are aware that slowdowns are most often temporary hiccups and they are already turning the key to get out of the mess by redefining their strategies.
What makes the current market slowdown different is that it is the worst in a decade and also comes at a time when tyre and automotive industries are witnessing rapidly changing futuristic technological changes that call for huge financial investments. The International Monitory Fund (IMF) warns that it can affect 90 per cent of the world. Kristalina Georgieva, the new IMF managing director, said in her first address after taking office that “in 2019, we expect slower growth in nearly 90 per cent of the world. The global economy is now in a synchronised slowdown.” She was quoted as saying that “this widespread deceleration means that growth this year will fall to its lowest rate since the beginning of the decade.”

The impact has been hard on industries, especially automobile industry worldwide, to which tyre industry is integrally tagged with. The sales have been dipping through several quarters. The downturn that started in 2018 is expected to continue through 2019-2020. This comes after a boom time that lasted over eight years. Naturally, when automobiles slow down, the first that feels it are the tyres that they run on.

While the main blame for auto industry slowdown is the overall economic situation, there are several other factors that supplement it. In an industry where technological innovations – and, they do not come cheap – aim at bringing down fuel consumption and anything that harms the environment, manufacturing norms keep on changing. New emission regulations, new safety rules worldwide, European ban on diesel cars, emergence of Electric Vehicles in a big way, the consumer confusion on choice – all these impact sales. Vehicle manufacturers are investing more on alternative components. Simply put, it’s tough doing business. When these challenge automobile sector hard, the knock-on effect is felt equally hard by the tyre sector as well.

Media reports quoted a study done by Center for Automotive Research (CAR) that said world car sales in 2019 will fall to 79.5 million from 83.7 million in 2018, and that this dip will continue until 2022. According the report, China will be the hardest hit, where sales has fallen by 13 per cent (1.61 million) in May, 2019. The Chinese market has been sliding continuously over past 12 months.
India, the other Asian mega market, is also in the grip of bad business both for automobiles as well as passenger cars and commercial vehicle tyres. The Society of Indian Automobile Manufacturers (SIAM) puts the fall in domestic automobiles sales in 2019 at a record 23.55 per cent. The sales in August 2019 was 18,21,490 units, while the same period last year saw 23,82,436 units sold.
The Indian tyre industry is fighting the impact hard. The tyre sector depends on the replacement market by 50 per cent for passenger car tyres. It is even higher for commercial vehicle tyres.
Globally, tyre makers are as much tested for their sustainability capabilities as automotive companies. Strategic changes in the inventory, re-organising production and storage operations as well as restructuring contractual workforces are in place.
Mergers and acquisitions in the recent past have also helped many companies achieving extended market and product coverage, which lessen the impact of regional instabilities.
According to reports, Continental AG has tied up with the Australian retailer Kmart Tyre and Auto, which operates from 258 locations. Continental’s Australian distribution and service footprint is thus spreading Down Under.

Bridgestone announced in September 2018 its acquisition of ETB Exhaust, Tires & Batteries based in UK, which has 32 locations in the country. This is part of Bridgestone’s plans to expand its European retail network. The global tyre leader has been in an acquisitions run in Europe France, Germany, Spain, and Slovakia.
Last year South Korea-based Hankook Tire also announced its acquisition of Reifen-Mueller, Germany-based wholesale and retail tyre distributor. That gives the Asian tyre maker 44 more retail points, including a 430,000-square-foot distribution center in central Germany, according to a report.
Obviously, market slowdowns have made the companies more guarded and cautious in strategizing their moves. Every slowdown is a testing time, which shows that lessons never end. The better ones learn fast.

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