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Tyre industry in a nutshell

The global value of tyre sales was nearly USD 190 billion in 2012, slightly less than in 2011. On average the market has grown 7% per year. The strongest growth is registered in winter tyres, high-speed summer tyres and SUV tyres. The Nordic countries’ model, in which winter tyres are required by law, has lately been adopted in several other regions as well.

Consumer sales of passenger car tyres are mainly affected by new car sales rates, purchasing power development and the general level of consumer confidence. With winter tyres weather is also a factor: the more wintery and slippery the conditions, the bigger the demand for new winter tyres. In addition, the tyre manufacturer’s sell-in to distributors is also influenced by the distributors’ stock levels and the market prices of financing.

Heavy tyres’ and truck tyres’ demand follow the cycles and trends of machine manufacture and companies’ general willingness to invest.

Season management in a key role

Heavy season fluctuation in passenger car tyre sales is a specific feature in Nokian Tyres’ core markets. Most consumers buy their summer tyres during a 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. Seasonity poses big challenges to production and delivery capacity, underlining the key part played by an extensive distribution network and efficient logistics and IT systems.

Tyre manufacturers strive to offer the distribution chain advance deliveries with long terms of payment in order to ensure optimal availability from the very beginning of the season; during the peak season, the main focus is on supplement deliveries. The challenge lies in predicting sales and production needs several months ahead, given the fact that a typical tyre manufacturer’s product range comprises of more than one thousand different tyre model and size combinations.

Distributors usually represent several tyre brands. Distributors’ product policies, along with regional coverage, play an essential role in tyre manufacturers’ success, because it is another specific feature of the industry that retail sales people can strongly influence the end user’s tyre choice. This is why some tyre manufacturers – like Nokian Tyres – develop also their own distribution chains.

Pricing power and productivity drive profitability

The fixed costs of tyre manufacturing are high, and therefore it is essential to fully utilize the entire production capacity and to minimize production shutdowns in order to ensure profitability. The continuous growth of productivity through investments and process development is also a key success factor. Salary and energy costs vary between countries, but raw material prices are relatively equal all around the world.

In the tyre industry, the local market leader is usually also the price leader. Pricing power is supported by a strong brand, good reputation, reliable distribution and success in impartial tests arranged by car-industry media.