By Peter Taylor :
Tyre majors are buying up wholesalers / retailers in a big way in a bid to defend own market positions and stifle the avalanche of Chinese brands into Europe
I reported recently on the renewed interest on the part of tyre manufacturers to re-invest in wholesaling and retailing. It was a big thing back in the 1970’s and even earlier as manufacturers sought to broaden market presence. For the most, this very expensive exercise ended in tears and huge losses; but that will not be good enough reason to desist this time around. Michelin and Continental have already snapped up European wholesalers in the past year or so and now Bridgestone is stepping into purchase the owners of Ayme Group, France’s largest independent retailer which trades under the name Côté Route. Sumitomo, now released from its co-operation agreement with Goodyear, is also on the move recently buying up major British wholesaler / retailer Micheldever Tyre Services Ltd who is a major distributor of Sumitomo Falken marque. Already, it is possible to identify two sorts of acquisition strategy — offensive and defensive.
History shows that manufacturers make poor retailers. Even more surprising is that Michelin has announced it will sell tyres directly over the internet. This at least makes some sense as presumably it will use its retail networks to fit them, so there is potentially an element of win-win here.
Why is this happening? Well, the growth of imports from non-European sources and near stagnant domestic markets makes it essential to stop the rot. Michelin, Bridgestone and others recognise the need to protect the routes to market their products; so their actions are not illogical. Whether or not they will succeed is another matter. Other lesser brands will follow especially in the area of internet sales; so this action may simply hasten an already obvious trend.
This is not the end of the story, but it may just be the beginning of the end of a long process of market re-adjustment. An equation where far too many brands chase virtual stagnant demand in a cycle of ever declining prices could have only one outcome and these acquisitive moves by the stronger players are designed as much to protect their own market positions as to stifle the avalanche of Chinese brands into Europe.
British-based Kwik Fit, founded by the legendary Sir Tom Farmer, is also on the move. After getting a bit of a bloody nose on the European mainland some years ago it was left just retaining a toe hold in Holland. Sir Tom is long gone from Kwik Fit which, together with the UK’s largest wholesaler Stapleton’s, is now owned by Japanese conglomerate Itochu which clearly senses the way things are going. In an initial foray, the group has announced plans to form franchise alliance of up to 200 centres across Italy with the Italian partner CDG-ONE. Significantly, CDG-ONE is a major distributor of GITI and Yokohama brands. More such arrangements are being sought in Eastern and Southern Europe; so this is just the start.
Tyre-derived infill: No end to debates
Scare stories about the so-called dangers of tyre-derived infill commonly used in sports surfaces have abounded of late as some of you will already know. Allegations that residual polycyclic aromatic hydrocarbons (PAH’s) found in tyre-derived material were carcinogenic have caught the attention of the media on both sides of the Atlantic causing concern and uncertainty. Such stories were often given ‘legs’ by distressing features on individuals with cancer who claim their illness had been contracted from contact with tyre rubber. As a result, the use of tyre-derived infill has reduced noticeably, especially in the US. This is a pity; the material is highly cost-effective and well established as a play-surface medium. What is more, in Europe REACH requirements mandate lower levels of PAH’s in the tyre manufacturing process than anywhere else in the world.
Numerous studies have already vouchsafed its safety. Nevertheless, this latest debate again stirred passions throughout 2016 to the point when clearly something more is needed to be done. It stepped the Dutch Government to carry out its own tests and the outcome was clear. “Athletic events played on artificial turf mixed with rubber granulate in the Netherlands do not significantly increase exposure to carcinogenic chemicals,” says a new report on this vexed matter by RIVM, the Dutch health authority, after an exhaustive study of 100 different facilities in the Netherlands. Fortuitously, a new study from the US confirms this. The Washington State Department of Health surveyed several dozen soccer players belonging to teams exposed to rubber infill pitches over several years and concluded that there was no additional cancer risk among soccer players in general and goalkeepers in particular. This US study is particularly significant since REACH norms do not apply outside Europe so it is natural to assume that the content of PAH’s and other cited chemicals would actually be higher there than in Europe.
It must now be hoped that these quite natural but erroneous human concerns will now be laid to rest, but I am not entirely sure. This is a recurring scare story which must be in someone’s interest to promote and there are always those sadly afflicted with cancers and other diseases all to ready to add two and two and get five in an attempt to make some sense of the origins of their condition.
The good news and the…
Tyre prices in Europe are at last set to rise with the big name brands all starting to announce increases this Spring. Well, perhaps not Spring but hopefully by Summer time as the inevitable ‘price protection’ offers relief to us the tyre people working through the system. A strong dollar and weak euro make these increases essential. Rubber and many other ingredients of tyres are priced in dollars. For China, this may come as some small relief after months of relentless pressure to continually revise downward its dollar-denominated tyre prices and, of course, it too needs dollars to purchase certain raw materials such as natural rubber.
Rising prices in Europe will offer some small respite to all tyre makers if these increases hold, remember through, shipping rates are also on the rise. But then there is the ‘Trump factor’ and that could change everything, how is just not clear yet. The new US President has promised to re-negotiate NAFTA and the North Atlantic Free Trade Area which includes Mexico; so tyres made there and sold in the US may soon be a lot more expensive. China too is in the Trump line of fire; so countervailing duties on the Chinese tyres exported to the US may be with us for some time to come. What is more, the new US Administration is contemplating massive changes to its tax structure as a means of reducing costs to American manufacturers, so boosting manufacturing at home. This is, it seems, for making all parts of America great again which is his often-heard promise.
Paradoxically, China’s tax structure also imposes quite heavy burdens on its businesses and industries; so do not be surprised to learn that it too is looking to see where it could lighten the burden of the State on its producers.
This could be a race to the bottom with tyres, like many other products caught up in the economic forces likely to be released.