After the 1980s, Chinese tires experienced a period of rapid development, and many Chinese tire companies "made a fortune" by taking advantage of the increase in global car ownership and road transportation. As the global tire industry gradually enters a plateau, how to seize more sales opportunities and layout tire business has become a key concern for many tire companies.
The first step is to exit this road. No one will deny that exports will remain an important support for tire companies' profits for at least the next decade. The financial report of tire enterprises in 2022 shows that while the Gross margin of domestic tire sales is generally lower than 8%, the profit margin of overseas sales is as high as 14%. At least according to US customs statistics, the price of Thai tires is often more than twice the average price of Chinese tires. And most top tire companies have production capacity layout in Southeast Asia, and their products are mostly oriented towards export markets. Therefore, it is not difficult to understand why many tire companies achieved profit turning around at the end of 2022 and the first quarter of 2023- export business has greatly helped.
In addition, the increase in export orders is also a bit of comfort for tire companies in the face of a chaotic domestic market. The reason why many tire companies were able to maintain operating rates above 80% despite a sudden decline in tire market sales in April 2023 is also related to their strong export orders. Although many overseas markets have launched a "dual anti" campaign against Chinese tire products, the demand for cost-effective tires in the overseas market is still high, and the share of Chinese tires in the overseas market is still high.
In addition, in the past two years, Chinese tire companies have actively expanded their overseas production capacity, making Thailand, Vietnam, Cambodia and other places China's export order producing areas. This has also helped tire companies avoid the trouble of being troubled by high double anti tax rates - selling tires on a curve, which has greatly helped Chinese tire companies break through the multiple difficulties of export business.
Another business option that tire companies cannot stop is tire OEM. This is a business path that many leading tire companies have followed today, but it has been disliked by many tire companies at the moment.
Many tire companies, after scaling up, have started to avoid mentioning their OEM business, believing that branding is far more important than OEM. However, there are still many leading companies that openly mention their OEM business. Overall, the profit margins of these enterprises are not considered low.
After Sen Qilin joined hands with Nuoji in high-end snow tire Original equipment manufacturer production, in the first quarter of 2023, Sen Qilin's profit was 7.33% higher than that of 2022, and its Gross margin was 22.34%, still better than most "players" in the tire industry.
In fact, even the top companies in the current global top 75 have collaborated with other tire companies in their early development period. By helping other tire companies contract tire production, the tire company has gradually improved its tire manufacturing technology in the following nearly thirty years of contract manufacturing cooperation, and will gradually enter the ranks of the world's top tire companies in the future. It's not a business that people look down on, in fact, improving manufacturing processes and technological levels, and OEM tire production is also an important part of it.
Indeed, the reason why many tire companies are unwilling to mention OEM is also because they are more inclined to operate their own brands. Indeed, top companies have told tire enthusiasts about the importance of brand marketing for market share, but with the shift in tire consumption concepts, the path of tire brand management is not entirely risk-free.
Taking the truck and bus tire market as an example, even if foreign investment strengthens the brand influence, it still cannot reverse the reality of gradually being liquidated from the Chinese truck and bus tire market. In fact, the brand influence in this market segment is relatively weak due to the relatively low Brand loyalty of the truck and bus tire consumers.
At present, this trend is gradually emerging in the small and medium-sized passenger car tire market. In an interview with the tire industry on the market, it was found that some car owners who choose to change tires in the auto parts city have significantly changed their brand choices compared to before 2019. The consumption concept of cost-effectiveness is also spreading in the passenger car tire market, at least in the mid-range market, foreign tire brands are starting to struggle.
However, it cannot be denied that operating a brand can bring profit space to tire companies. At least in the more profitable 18 inch and above markets, foreign tire companies with better brand marketing have established a foothold. The profit margin covered by the 18 inch and above tire market is often larger. In addition, in the high-end tire market, the loyalty of car owners is often higher, and their sensitivity to price is relatively low. This also makes it possible for tire companies to inject more profits into their products through price increases in the current era of constantly increasing manufacturing costs. And the reason why car owners are loyal to the brand is more because they feel the performance of the tires during driving, so it is easier for them to continue using their own matching products when changing tires.
Therefore, if tire companies want to take the path of branding, they must at least put in enough effort in the original parts market. However, the strict selection of original parts by car companies has also become another major challenge for tire companies to take the path of branding.
The strict selection of partners by car companies has led many companies to choose to acquire brands in order to carry their supporting market. Of course, this type of acquisition and merger also includes the strong alliance of tire companies. Goodyear Tire and Rubber Company undertook the products, production capacity and market share of Goodyear through the acquisition of Goodyear; Ukohaoma has achieved expansion in the special tire market by acquiring Treburg wheel systems. In fact, earlier in the last century, Michelin and Bridgestone also realized the expansion of scale and market share through acquisition.
However, it should be noted that these acquisition cases that ultimately provide positive market feedback often involve tens of billions of dollars, so they are only suitable for large top tire companies to implement. And who will be acquired? How to leverage the industrial advantages of the acquired company to support its own development? These are all factors that tire companies need to pay special attention to. Otherwise, these investments can range from "floating in the water" (some tire companies have almost lost their lives due to serious recall issues with acquired brands) to "no chance of turning around" at all.
In addition to irrational acquisition investments, there is also a "negative textbook" path that companies need to pay special attention to. For example, some tire companies, who are looking at the top of the mountain, are suddenly attracted by higher profit industries when they are developing well, and gradually reduce their tire business proportion in the total business. However, currently, no tire company has truly been able to take this path. Whether it's dealers or tire companies, there are almost no good outcomes after switching careers and starting other businesses. Although the tire business of 'selling by weight' may not have as much profit as pork at times, its inherent risks are much lower compared to cross bank operations.
In fact, successful tire companies have been more focused on their own tire business in recent years. Bridgestone has adopted the "downsizing plan" since 2020- focusing more on tire business development. After stripping off many non main businesses, from 2021 to 2022, Bridgestone will not only increase its tire sales, but also its profit performance.
Bridgestone's latest sales forecast shows that in 2023, Bridgestone plans to achieve sales of about 4100 billion yen (205 billion yuan), and strives to achieve an adjusted operating profit of 510 billion yen (25.5 billion yuan) to achieve an adjusted operating interest rate of 12.3%. In addition, Bridgestone has also adjusted its previous goal of return on investment capital from 10.0% to 10.5%, and has completed "the most important management KPI in the medium-term business plan".
Disclaimer: The image materials and articles on this platform come from the internet, so the copyright belongs to the original author. If any infringement is caused to your copyright and interests, please contact us. We apologize deeply and promptly delete it. Article source: Tire Business
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