Business environment

Business logic for tyre industry

Global sales of passenger car tyres were around USD 152 billion in 2010. The global market has been growing at an annual rate of 7%. The strongest growth has been registered in winter tyres, high-speed summer tyres and SUV tyres. Winter tyre regulations, according to the example set by the Nordic countries, have spread to many new geographical areas during the last few years.

Consumer sales of passenger car tyres are mainly affected by the sales volumes of new cars and by general consumer confidence. As for winter tyres, the weather also plays a role: the wintrier and slipperier the conditions, the greater the need for new winter tyres. Tyre manufacturers’ sales to distributors are also influenced by the distributors’ carry-over tyre stocks and by the price of financing.

The demand for heavy tyres and truck tyres is cyclical, mirroring the business trends in machinery manufacture and the general interest of companies to make investments.

Distinct seasonality a challenge for logistics

Nokian Tyres’ core markets are characterised by strongly seasonal passenger car tyre sales. Most consumers buy their summer tyres during the few weeks around Easter. Winter tyre consumer sales take place from September to November, depending on the winter, and some 30% of winter tyres are sold in the ten days after the first snowfall. This poses big challenges to the production and delivery capacity, underlining the key part played by an extensive distribution network and efficient logistics and IT systems.

Tyre manufacturers aim to presell products with long payment terms to the delivery chain to ensure as high availability as possible for their own products at the beginning of the season and to be able to focus on replenishment deliveries during the season. What makes this challenging is forecasting sales and production months in advance, with typically over a thousand different combinations of tyre models and sizes.
Dealers typically sell more than one tyre brand. In order to succeed, tyre manufacturers must ensure regional scope but also guide dealers’ product policies, since the nature of the industry is that
retailers can greatly influence end users’ tyre choices.

Productivity and pricing power – keys to success

Since the fixed costs of tyre manufacture are high, the relevant task to secure profitability is to make optimal use of the entire production capacity with as few interruptions as possible. Continued
profitability growth, achieved through investments and process development, is also critical to the success of tyre makers. While wage and energy expenses vary depending on the country, raw material prices are nearly the same around the world.

In the tyre industry, the country’s market leader is usually the price leader as well. Pricing power is boosted by the strong brand, reputation of the products and the distribution, as well as good results in impartial tyre tests conducted by the car magazines.