Select Page

Brutal price war

Brutal price war

TA News Bureau

There are several important dynamics contributing to the price ‘death spiral’ plaguing the tyre industry, says Chris Bloor, Executive Director, International Sales & Marketing of Commercial Tires at Giti Tire. The current tyre market scenario, which is witnessing ‘brutal’ price competition, is not good for the global tyre industry, he says. Such a situation is not conducive to realise the full potential of the global tyre industry, where demand is projected to increase by 4.1 per cent per year to 3.0 billion units in 2019. In value terms, the sales are forecast to grow 7.1 per cent per annum to $258 billion. While economic growth will be pushing vehicle demand, the market for truck and bus radials is set to see a surge in numbers with higher demand triggered by infrastructure development

China, which accounted for a major chunk of the global tyre demand, will remain one of the most rapidly increasing national markets. It is in this context that Chris Bloor, Executive Director, International Sales & Marketing of Commercial Tires at Giti Tire, came out with his own perspective on the market dynamics governing this sector in this interview.
He gave an indication of his analysis at the recently held Asian Retread Conference (ARC2016) in Kuala Lumpur organised by Asian Business Media, publishers of Tyre Asia, Rubber Asia and Auto Parts Asia. At the event he referred to the ‘brutal’ price competition in the global tyre industry.
“There are several important dynamics contributing to the price ‘death spiral’ that I referred to in my recent presentation,” he told Tyre Asia. In the past 60 years of its operation, Giti Tire has become one of the world’s largest tyre manufacturers, serving customers in more than 130 countries, amid the tidal wave of competition.
The significant over capacity for TBR production in China has left a deep impact on the tyre market worldwide. “If we look at the CRIA (China Rubber Industry Association) figures on this, there is a current utilisation rate of 58 per cent of capacity for TBR production. All factory owners and managers will appreciate that volumes are the key to reaching breakeven, as such this has been the overriding goal for many.”
In the race to the bottom, this overcapacity has fuelled the brutal price competition that is seen today, said Bloor, who is an expert in all the business aspects of tyre industry from production to commercial strategy and operational deployment.
A second and slower moving dynamic is the relatively slow pace of technical innovation relating to TBR tyres. As the existing base technology is fairly mature, it is not so difficult to try and replicate it in low cost or poorly managed facilities.

Chronic overcapacity

Bloor, whose expertise include negotiation for setting up joint ventures and strategic partnerships, has specialist knowledge on distribution and operational experience in the Asia Pacific region.
When asked why China is being singled out for blame charging it with flooding the market with low cost tyres prompting tariff barriers, he said that over the years that country has built significant production capacity and needed to clear mounting stocks.
“As I represent a tyre maker with significant production capability in China, I want to respond firstly by framing your question in a more precise way. It is not important where a tyre (or any other manufactured product) is made, the most important factors are who made it, and to what level of quality and design specification.”
The main reason why China is the subject of most of the comments relating to flooding the markets with cheap tyres is linked with his comment about under-utilised capacity.
“China has overinvested in TBR production with the outcome of that being evidenced by many poor quality, very cheap products being made in order to ‘load’ the factories rather than see them idle,” he explained.
“After nearly six years living and working in China, I can tell you there is no floor in the race to the bottom for TBR pricing. Purchase price is a very blunt instrument; today in order to be competitive, price is just one ingredient of the cocktail. Services built around the product form an ever more important aspect,” he elaborated.
When asked to comment on the perception that low cost tyres always meant poor quality, Bloor has this to say: “Low cost is something that needs more definition. Price cost and value have differing meanings.”

Building brands

A common law of business and life is that you are unlikely to pay a little for something and expect a lot from it. Cost divided by performance equals value. The sweet spot is where the combination of design, manufacturing (techniques and location) and marketing give rise to a value proposition that your targeted market segment is ready to pay for.
“I will have to qualify my previous statement by saying that in times of China-centric chronic overcapacity, people can do and do strange things in order to try and survive.”
Bloor emphasised the importance of building powerful brands as an answer to fears of commoditization of tyres. “Building strong communication tools using technically accurate and informative content is the best way to educate the end-users and resellers (or service agents) to build brand acceptance and trust. This is only possible when you have a product that supports the claims made within the communications messages delivered.”
So fancy marketing will not work to build your brand if your product is not what it is claimed to be. The market will ‘find you out’ and trust will be destroyed as a result. Essentially, the foundation of a brand starts with the products’ capability
Referring to tough regulations in Europe and the US with regard to tyres in terms of safety, mileage and tyre labelling etc, Bloor said these are poorly enforced in some places that allowed substandard products to percolate through the intended technical regulations.
“At Giti we strongly support and in some cases contribute to the various projects administered by the industry technical bodies that operate globally,” he affirmed.

About The Author

Leave a reply

Your email address will not be published. Required fields are marked *

Latest Issue

Newsletter Subscription

Recent Tweets

Subscribe To Our Newsletter

Join our mailing list to receive the latest news and updates from our team.

You have Successfully Subscribed!

%d bloggers like this: