Replacement tire market dips as OE sales recover

Brussels: The European replacement tire market declined during the third quarter of 2022, signalling a “probable market reversal” after a period of recovery seen since last year.

Over the three months to 30 Sept, replacement consumer tire volumes fell 9% year-on-year to 58 million units, according to new data from the European Tyre & Rubber Manufacturers’ Association (ETRMA).

Within the consumer tire segment, summer tire sales saw the biggest decline at 19%, followed by winter tires at 7% and all-season tires at 5%, noted ETRMA’s quarterly report.

In the first nine months of 2022, volumes remained positive at 1% with 175 million units sold, helped by a 14% overall improvement in all-season tires.

Similar to consumer tires, the truck and bus tire market declined 9% year-on-year to 3.2 million units during the third quarter.

Year-to-date, however, the truck and bus segment remained positive at 4% with 10.5 million units sold over the first nine months.

The farm tire segment saw the sharpest decline during the three months to end of September, registering a 28% drop to 191,000 units.

Overall, the farm tire segment saw a 9% year-on-year decline for the first nine months of the year with 790,000 units sold.

The two-wheeler tires market, meanwhile, declined 6% year-on-year at 2.0 million units in the third quarter. Year-to-date figures were up 2% at 8.4 million units.

Commenting on the figures, ETRMA secretary general Fazilet Cinaralp said the industry had observed a “slowdown in demand” over the recent months. This, she said, added to existing challenges around a “massive increase of costs,” as well as strains on the supply of raw materials, energy, logistics and labour.

“If the inflationary trend and supply tensions persist, we can fear a very difficult year-end 2022 and year 2023,” the ETRMA leader concluded.

Interim results

These trends were reflected in the interim results of major tire makers, though Michelin reported strong growth in sales for the first nine months, despite a decline in volumes due to weak demand in China and a plant closure in Russia.

The French group saw a 20.5% year-on-year increase in sales to Ä20.7 billion during the first three quarters, driven mainly by a 14% positive effect of price mix. Volumes were down 2.4% year-on-year with a Ä408 million negative effect on sales.

Michelin linked the decline in volumes to the shutdown of operations in Russia since March and weak demand in China, particularly during the country’s lockdowns in the second quarter.

Non-tire sales were up 22% year-on-year led by “robust gains in Fenner and fleet management businesses.” Overall, the non-tire unit contributed Ä185 million to group said.

Also feeling the impact of the Russian war on Ukraine, Nokian Tyres reported a 76% decline in third-quarter operating profit to Ä56 million.

The Finnish tire maker linked the earnings decline to lower passenger car volumes and changed factory mix due to lower production in Russia.

Sales for the period grew 5.1% to Ä466 million, said Nokian, noting that with comparable currencies, net sales fell by 6.4% due mainly to lower volumes.

In the US, Goodyear reported flat earnings in the third quarter of 2022, due mainly to the negative impact of strong US dollar and increased raw materials.

The Akron-based group reported segment operating income of $373 million (Ä375 million) for the quarter, on a par with last year’s $372 million. Net sales grew 7.6% year-on-year to $5.3 billion, driven by strong price/mix

During the quarter, Goodyear said its price/mix record of $742 million exceeded raw material costs by $204 million. Tire unit volume in the third quarter totalled 46.7 million, down 3% year-on-year, said Goodyear, adding that the strong dollar reduced sales by nearly 7%.

“Following strong earnings and revenue growth in the first half, third quarter results moderated, reflecting overall weaker industry volumes and increasing pressure from cost inflation,” added the US tire maker.

South Korea’s Hankook Tire posted a 6.4% year-on-year increase in operating profit to Ä142 million, on 26% higher sales of KRW2,300 billion.

Sales in OE and 18-inch and larger tire sectors contributed to strong financial performance, while the replacement tire sector saw  a “slight downturn in demand,” the company reported.

Hankook recorded the largest growth in high-rim-sized car tires in China, up ‘8.9pp to 52.3%’ year-on-year compared to increases of: ‘4.4pp to 30%’ in Europe, ‘4.2pp to 51.4%’ in Korea, and ‘3.6pp to 51%’ in the US.

OE pick-up

Global passenger car tire sales increased by 1% year-on-year over the first nine months of 2022, reflecting stable demand in the replacement segment and a 7% gain in OE demand.

The figures from Michelin’s interim report also show that worldwide OE demand rose particularly sharply during the third quarter at 26%, to reverse a negative trend registered in the first half of the year,

The third-quarter increase, said the French group, was driven by “very favourable” prior-year comparatives and by improvements in the semiconductor and other supply-chains.

OE demand in Europe climbed 26% during the quarter, after contracting by around 8% in the first half, primarily due to the disruptions in automotive supply-chains brought about by the Ukraine war. Sales, though, remained 19% below third-quarter 2019 levels.

The European replacement market saw a “1% slippage” in the third quarter, partially offsetting a 7% increase registered in the first half. Over the nine months, replacement figures were up 5% year-on-year.

Michelin noted two positive summer months in July and August in Europe, but demand fell 7% year-on-year in September on “unfavourable comparison bases due to price increases implemented on October 1st, 2021.”

In China, a resurgence of Covid-19 in April and May caused OE demand to hit new lows before rebounding sharply in June as health restrictions were lifted. Demand remained robust in the third quarter, with a 29% year-on-year gain.

Increased demand, said Michelin, was also driven by new Chinese government car-purchase incentives and fast-growing EV sales. These factors helped to push the market up 19% on third-quarter 2019.

Gradual recovery

Over the first nine months, Chinese demand was 12% below 2021 levels, continued Michelin. OE demand fell 16% in China in the first half, due to mobility restrictions in the wake of the spring lockdowns. Demand in the country is “gradually recovering” amid a 3% contraction in the third quarter.

After delivering 5% growth in the first half, the North and Central American market ended the first nine months up 11%, amid “persistently low new vehicle inventory”. Compared to third quarter 2019, OE demand in the Americas was down 7%.

The North and Central American market slipped 2% over the first nine months, reflecting a 7% decline in the third quarter, after gaining a slight 1% in the first half.

According to Michelin, the sell-in market mix in Americas has been temporarily impacted by rising Asian import volumes as global supply-chain constrictions eased.

Other regions saw “sustained growth” in demand, with increases of 10% in Asia excluding China and of 5% in South America over the first nine months of the year.