European tire markets in tough second half

The latest industry data and company financial reports indicate some significant challenges ahead for tire makers in Europe. Patrick Raleigh reviews

Cinaralp was commenting on ETRMA’s latest quarterly figures, which showed significant quarter-on-quarter declines in member companies’ sales – reversing a positive trend observed earlier this year.

The data, published 14 July, showed a sharp slowdown compared to the first three months of the year. The trend affected all segments, particularly consumer tires which came in 6% lower year-on-year at 46.6 million units.

Second-quarter sales of truck tires, meanwhile, were down 1% year-on-year – to 2.2 million units and agricultural tire sales fell 4% to 376,000 units.

This was in marked contrast with the performance of the sector in the three months to 31 Mar, where the replacement market saw gains in almost every segment. This included a 4% rise in sales of passenger car tires at 55.4 million units.

Overall, so, first-half sales of consumer tires were down by 1% to around 102 million units. Also, agricultural tire sales fell 2% to 782,000 units, while there was a 7% gain in truck tire sales to around 4.9 million units.

In written comments about the sales trends to ERJ, Cinaralp linked some of the recent weakness to a pick-up in demand ahead of price increases in April.

“This led to a weak performance for the second quarter and we have lost, more or less, all sales increases of the first quarter,” the ETRMA secretary general commented.

But, while waiting with interest for July figures, the ETRMA boss said sales reports from the tire distribution sector pointed to “further weak months and [an] impact on the whole-year expectation.”

As a further concern, Cinaralp reported that resales for winter tires had also started slowly.

Manufacturing challenge

The challenging market trends identified by the ETRMA were reflected in the financial reports from tire makers, as evidenced by soundings from some of the main players in the region.

Goodyear Tire & Rubber Co., for instance, reported a 12% decrease in second quarter sales from last year to $1.1 billion in its Europe, Middle East and Africa region.

The sales decline, said Goodyear, reflected a 16% decrease in tire unit volume, primarily in the consumer tire business, partially offset by improved price/mix.

EMEA replacement tire shipments were down 18%, driven by increased competition and lower summer tire industry demand, while OE unit volumes fell 11%, the US tire maker added.

“Our second quarter results reflect the impact of volatile raw material costs and an increasingly challenging competitive environment, particularly in the US and Europe,” said Richard Kramer, chairman and CEO said of Goodyear overall performance.

Pressures on certain market segments was subsequently underlined by the closure, on 14 July, of Goodyear’s six-million units/year  tire plant in Philippsburg, Germany – part of a global strategy to focus on premium, larger-rim diameter tires.

Overall market views

In its comments on the European tire market overall, Michelin also  noted a slowdown in demand in the three months to 30 June.

After expanding by 6% in the first quarter. demand for OE passenger car and light truck tires cooled in the second quarter, losing 4%, with a decline in vehicle sales in the UK and Germany, the French tire maker reported.

On the other hand, Michelin noted that recovery was underway in eastern Europe, with that region said to be “gaining momentum quarter after quarter.”

In the replacement tire market, demand in western Europe contracted by 2% year-on-year in the second quarter after gaining a very healthy 6% in the first due to early buying ahead of price increases.

This, said Michelin, was against a backdrop of slower sales to end customers and high dealer inventory levels. Sales in the 18-inch and over and all-season segments rose sharply over the period.

By contrast, growth remained firm throughout the first half in eastern Europe, with a 16% increase versus favourable prior-year comparatives. “Budget imports are continuing to pour into both western and eastern Europe at a sustained pace,” added Michelin.

There was better news on the truck tire sector, Michelin linking a 6% rise in western European demand to low interest rates, sustained demand for freight services and renewed truck sales in the recovering construction industry.

And in eastern Europe, the French group said a rebound that began in late 2016 had continued, driving an 11% gain.

In the replacement truck tire market, Michelin reported “a more favourable” western European freight and construction environment. However, it added that “high dealer inventory levels following price increases were weighing on sell-in demand, whose increase is being partially driven by imports.”

In eastern Europe, where markets are led by the intermediate and budget segments, demand bounced back by 7% over the first half, but with a sharp slowdown to 1% in the second quarter, Michelin noted.

For its part, German major Continental pointed to automotive industry data showing an encouraging 5% year-on-year rise in demand for passenger cars in Europe (EU-28 + EFTA) to 8.5 million units in the first half of 2017.

In addition to ongoing economic recovery and low interest rates, the Hanover-based tire maker linked the increase to “continued high demand for replacements in some countries, particularly in southern and eastern Europe.”

On a quarterly basis, Continental said the increase in new passenger-car registrations in Europe was very strong at 8% in the first quarter of 2017. One of the main reasons for this was a shift in working days compared to the previous year due to public holidays.

For 2017 as a whole, Continental said it continued to anticipate a 2% increase in car production.

The company concurred that the European market for replacement tires for passenger cars and light commercial vehicles was impacted by second-quarter price increases by many manufacturers, due to a rise in the costs of raw materials.

The price hikes caused purchases to be brought forward to the first quarter and accordingly led to falling volumes in the second quarter, said Continental.

Overall, sales volumes of replacement tires for passenger cars and light commercial vehicles rose by 2% year-on-year, added Continental, which expects 2% higher sales volumes for 2017 as a whole.

In the replacement market for medium and heavy truck tires, Continental’s report included preliminary figures showing a 6% rise in demand in Europe over the first two quarters of 2017.

This, it said, was again driven mainly by many customers bringing their purchases forward to the first quarter in advance of the price increases announced by various manufacturers.

As a result, demand was down year-on-year in the second quarter, said Continental, which expects a slight decline in volumes in the subsequent quarters.

Nevertheless, the company still anticipates market growth of 2% for Europe’s replacement truck tire market over the year as a whole.

According to Nokian Tyres Group, European sales of new cars increased 5% year-on-year in the six months to 30 June. Car tire sell-in to distributors was down 1% year-over-year, with winter tire demand increasing by 2%.

Overall, tire demand in central Europe is estimated to grow slightly year-over-year in 2017, Nokian’s report continued.

In the Nordic countries, new car sales increased in January–June 2017 by 2% year-over-year. The market volume of car tires decreased by 5% and full-year car tire demand is estimated to remain at the same level year-over-year, said Nokian.

Truck tire demand in 2017 is estimated to increase in all of Nokian’s Western markets; in Russia, demand is estimated to remain at the same level year-over-year.

In the first six months, the sell-in of premium truck tires was up by 7% in Europe, and in the Nordic countries demand was also up by 7%. In Russia, the demand for premium truck tires decreased by 7% compared with the prior-year first half.