Most people rarely give tyres a second thought, but the tyre is actually a highly complex product packed with advanced material engineering. And the industry itself is far from boring. It is an economically important one. Matthew Beecham, author of a new report on the world’s tyre industry produced exclusively for just-auto, reports.
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Industrial concentration increasing
The three largest companies – Bridgestone (based in Japan), Goodyear (based in the US) and Michelin (based in France) – collectively generate annual sales revenues of around $47 billion, employing 325,000 people worldwide. And its structure is ever changing, too. The last 20 years have seen a dramatic concentration in the number of major players in the market – five of the ten largest companies in 1981 have now been taken over by competitors.
This concentration is continuing through in a less dramatic manner, with smaller companies forming alliances or being bought out by larger competitors. As a result, the Big Three tyre makers now dominate the world market with a share of about 60%. These are the only truly multinational companies with manufacturing facilities and sales networks in most of the world regions. Other significant competitors include Continental, Cooper Tire, Pirelli, Toyo, Yokohama, Kumho, Hankook and various regional manufacturers.
The thorny recycling issue
Above all, it is a politically sensitive industry because of its size, its environmental impact and its multinational ownership. France has passed a new law to promote used tyre recycling that will force all tyre producers and importers to pay for the costs of collecting, transporting and recycling car and light-truck tyres from the beginning of 2004. A year later, the same law will apply to truck tyres as well. Seven major tyre makers have already formed an association, Aliapur, to co-ordinate the collective recycling efforts. They estimate that the per-tyre cost will be from €0.60 to €1.50, depending on size.
France wants to get rid of an estimated backlog of 700,000 tonnes of discarded tyres. Some 400,000 tyres are discarded annually but only half are recycled and the rest go into landfills or are just stored or dumped. French garages have welcomed the move, as they will not have to pay for recycling as their counterparts in Sweden do. The EU does not yet have a tyre recycling directive, but tyre manufacturers are getting ready for the day when it does.

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By GlobalDataA mature industry
It is also a mature industry. As a result, we cannot expect annual growth to exceed around 3%, though the sheer size of the Big Three allows them to find economies of scale that the smaller players cannot reach. As a result, companies like Pirelli and Continental have chosen to diversify; Pirelli in cables and telecoms, Continental in braking and chassis systems. However, a mature industry can often be remarkably volatile when the companies within it jostle for position. It is difficult to grow market share in a mature market.
Consequently, increases in productivity and new capital investment both build up the available capacity. As a result, pricing becomes more competitive and the companies face the prospect of static or even declining revenues. The individual firm’s response is often to buy growth by acquiring a competitor, and once one company does this, the others tend to follow, as they cannot afford to be left behind.
As a matter of policy, most vehicle makers dual-source for every model and spread their total purchase of tyres over three or four manufacturers. The type of tyre specified by the vehicles makers differs markedly from one region to the next due to the different vehicle mix sold in each market and the different driving habits.
Not very profitable
The last decade has seen a growing market for tyres but despite this, the industry has not been particularly profitable. It is essentially a commodity industry and although it has high-tech products, the majority of its products are vulnerable to price competition from low-cost manufacturers. An obvious reaction has been the development of brands, but an examination of the accounts of companies in the industry show that there are some distinct advantages in size.
Although the big three manufacturers have a majority of the OE global market, they do not dominate it in Europe, as Continental and Pirelli also have significant shares. Here, the market is very stable, and shares do not change much because of the long-term contracts in place with equity chains and independent dealers. The major brands marketed in the European replacement tyre market include Michelin (including Kleber and BF Goodrich), Continental (including Uniroyal, Semperit and Gislaved), Bridgestone (including Firestone) and Goodyear (including Dunlop).
Although Goodyear ranks third in the world, it is the largest company in the North American OE and replacement tyre market with a 28% share, followed by Michelin (with a 25% share) and Bridgestone/Firestone (with a 16% share). In the North American replacement tyre market, there are three broad groups of brand in the North American market and the major manufacturers are normally associated with all three. Flag brands are the main advertised brands used by each company and these are the ones that receive the marketing support. The same companies make associate brands, but they receive far less support and are sold at a lower price through the normal distribution channels.
Replacement market is much bigger than OE
The world tyre market is essentially a replacement market in terms of volume (71%) and value (75%). Although only one-quarter of road tyres are specified and bought by the vehicle makers, this segment of the market is significant as it drives technical development and has a major influence over the aftermarket.

The tyre market’s value is split evenly between Europe, 29%, North America, 31% and Asia, 28%. High-performance tyres represent 10% of the world market in volume but 25% of the industry’s margin. 60% of this market is in Europe, where it is growing by 15% a year.
Safety first
The Bridgestone/Firestone recall in the summer of 2000 heightened consumer awareness for tyre road-worthiness and safety, stimulating demand for high performance tyres including run-flats. The Transportation Recall Enhancement, Accountability and Documentation Act (or aptly named TREAD Act), which was signed into law in November 2000 by then-President Bill Clinton, called on the National Highway Traffic Safety Administration (NHTSA) to modernise the 30-year-old tyre safety standard and mandate tyre pressure monitors.
The Act demands reforms on a range of tyre-related areas, including tyre pressure monitoring, tyre labelling, tyre testing standards, early warning reporting systems, safety recalls in foreign countries and sale or lease of recalled tyres. For example, tyre labelling requires manufacturers to mark up certain details on both sides (not one as previously required) of the tyre, such as tyre inflation pressure, maximum load rating and tyre identification number.
But US tyre manufacturers are reported to unhappy with the TREAD Act, claiming that the law shifts responsibility for looking after tyres from the consumer to the manufacturer, unlike in the UK for example, where random tyre checks on cars put the responsibility clearly with car owners. The industry is also critical of the recent NHTSA decision on tyre pressure monitoring systems. Both systems allowed under the current law allow the tyres to fall to as much as 25-30% below recommended pressure before triggering an alarm, encouraging the motoring public to habitually drive on under-inflated tyres without checking them, argues the industry.
Tyre makes are also unhappy with the EWRS (Early Warning Report System) that will collect information from tyre and car manufacturers and their customers to create a major database of field reports, customer complaints, and damage claims relating to tyres. The NHTSA is also proposing to make this information widely available in the future, exposing the industry to further embarrassing and potentially costly scrutiny. Proposed changes to the way tyre information and labelling is carried out will also cost manufacturers extra money, and, claims the industry, will slow down the manufacturing process. The result of all this is that customers will see higher tyre prices and fewer warranty adjustments in the future, and will blame an industry which already has a very good safety record.
Run-flat on the rise
The US government’s campaign for safer tyres is also believed to have triggered interest in so-called run-flat tyres. A recent survey by JD Power showed that 7 out of 8 consumers put run-flat near the top of their wish list for their next car. In the event of a flat tyre, the vehicle can travel at speeds of up to 55 mph for up to 150 miles (depending on the vehicle), giving the driver plenty of leeway to reach a repair centre. The advantages are obvious to the driver and there are significant advantages for the manufacturer, as in theory it obviates the need for a spare wheel, thus saving both space and weight.
However, the cost is usually high, as they normally require a special wheel design and, perhaps most important of all, the frequency of punctures is declining.
In Europe, Michelin has supplied its PAX run-flat tyre system to the Renault Scenic and two concept cars, the Renault Ellypse and Citroen C-Airdream. In November 2002, Michelin began fitting the system, as an option, to the new Audi A8. Michelin also supplies its PAX system for the new Rolls Royce Phantom. BMW and Mini also offer run-flat tyres on some models either as standard or optional fitment. In the US, Goodyear pioneered run-flat tyres, developing them the Chevrolet Corvette, Plymouth Prowler since the 1990s.
Michelin believe that there is huge potential for the development of run-flat technology, predicting the market could reach 10 million systems by 2010. Bridgestone produced around 500,000 run-flat systems in 2003, up from just 20,000 in 2001. Bridgestone forecast it will produce some 1.5 million units by 2005. Sumitomo Rubber Industries also anticipates a meteoric market, producing some 500,000 systems in 2005, up from 10,000 in 2002.
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