Outlook: Major Trends of the Tire Industry in Coming Years

1. Industrialization of “green tires”

Energy-efficient, environmentally friendly, low-carbon – the three phrases now constitute the main trend of today’s tire industry both home and abroad. The industry has reached consensus on promoting “green” development and expects to realize the industrialization of “green tires” by the end of the country’s 12th five-year program (2011-2015). To be specific, around half of the radial tire manufacturers will gain the capacity to produce environmentally friendly tires by 2015, and a quarter of tire makers will have their “green” tire output outnumber that of conventional tires by then.

2.China to issue rules on tire labeling

In theUnited States,Japan, and the European Union, tire products must list a slew of specifications like fuel consumption, wet grip and noise classification before being eligible for sale on the markets, andBrazilis also mulling over introducing similar rules. Go back toChina: a set of self-discipline rules drafted by China Rubber Industry Association is expected to be published in early 2013. The self-discipline standards constitute only a small part ofChina’s efforts to boost “greener development”, andChina’s own tire labeling regulation is expected to come out soon.

3. Higher automation capacity

In common with other manufacturing industries, the tire making industry also has an urgent task to improve its automation efficiency. At present, a few tire manufacturers have already realized full automatic operation, while for the rest, many are still operating on a low automation capacity. With market competition in the tire industry ever intensifying, high automatic operation shall be pursued to optimize product quality and hence boost an enterprise’s profitability.

4. Domestic M&A to accelerate

The recent mergers and acquisitions (M&A) cases inChinamostly happened between a domestic tire maker and a stronger transnational company, rather than between two homegrown firms. But Sailun Tyre is an exception: on July 10, 2012, the company announced a plan to acquire the 100% equity of Shenyang Heping Radial Tire Co. and another 49% stake in Shandong Jinyu Co. The move was the first M&A case between two domestic tire makers inChina. Analysts say overcapacity of low-end products has severely hindered the development of the domestic tire industry, and a new wave of M&A is expected in the industry.

5. Retailing prices to be clearly marked

Different from automakers, tire manufacturers have been reluctant to publicize their product prices. But this industry pattern might change in the future. Recently, theNorth Americabranch of Bridgestone began to publicize its recommended tire retail prices on the website of Bridgestone and Firestone. Michelin, one the Bridgestone’s major rivals, pledged to clearly mark the recommended retail prices of tire products for passenger cars and light trucks sold in theUSby the end of 2012. Continental Tire North America Inc said that the company was also evaluating this situation, adding to signs that clearly-marked retail prices would become a trend in the future.

6. Production localization in rubber producing countries

TheUStariffs on Chinese exports of tires for passenger cars and light trucks had expired, but trade fractions are still popping up every now and then. In order to avoid trade barriers and draw closer to raw materials, a few domestic tire makers, including Hangzhou Zhongce Rubber Co., Sailun Tyre and Linglong Rubber have built up tire plants in theSoutheast Asiaregion one after another. For the tire industry, setting up a production base in Southeast Asia, the world’s largest rubber producing region, could help add to an enterprise’ price and geological advantages, and more and more enterprises have included it into their core strategy.

7. Shifting away from price war

Most domestic tire manufacturers are small business and weak in competitiveness. For most of them, they still have a long way to go to catch up with the leading ones around the globe. For years, price war has often been resorted as a major instrument for them to win market share, but a growing number of enterprises have begun to realize its serious consequences to both the enterprises and the whole industry, and many have turned to brand building and put more efforts in improving the expertise and product quality. Several entrepreneurs have made urgent calls for the industry to focus on the brand image and drop the price war, in this sence, the vicious circle brought by price wars is expected to come to an end in the coming years.

8. Rising demand for tire replacement

Passenger cars and light-duty vehicles account for more than 80 percent of car ownership inChina, which also indicates huge potential for the tire replacement market to boom. In 2011, 56% of tire products for passenger cars and light-duty vehicles in Asia went to the after-sale market, far lower than the 79 percent in the US and Europe; as for heavy-duty trucks, which accounted for only a small part of China’s auto ownership, the rate was similar: 78% for Asia and 76% for Europe and the United States. The high profitability potential of tire replacement in the after-sale market is getting more and more recognized by domestic tire makers and it is expected to grow into a new driving force to stimulate market growth.

9. Tire market globalization

Market competition in the tire industry is ever intensifying. On one hand, domestic tire makers manage to deliver huge volume of tire products to more than 60 countries or regions including Europe, the United States, and Japan, on the other hand, transnational tire enterprises are vigorously and constantly expanding their investment in China and eyeing even bigger shares by way of technology and capital advantages. Doubtlessly, the trend of internationalization is taking form, from production to management concepts and to every link of the supply chain.

10. Snow tire market warms up

In theUnited Statesand many European countries, drivers are required to use snow tires (or winter tires) in winder conditions, such as snow,