Light

Vehicle
Tyres

Market Report

by

Neil Mullineux

Light Vehicle Tyres

A Rapra Market Report

by

Neil Mullineux

September 2004

Rapra Technology Limited

Shawbury, Shrewsbury, Shropshire, SY4 4NR, UK
Tel: +44 (0)1939 250383
Fax: +44 (0)1939 251118
http://www.rapra.net

The right of Neil Mullineux to be identified as the author of this work has been asserted by him in
accordance with Sections 77 and 78 of the Copyright, Designs and Patents Act 1988.

2004, Rapra Technology Limited

ISBN: 1-85957-484-X
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted in any form or by any meanselectronic, mechanical, photocopying, recording or
otherwisewithout the prior permission of the publisher, Rapra Technology Limited, Shawbury,
Shrewsbury, Shropshire, SY4 4NR, UK.
Typeset, printed and bound by Rapra Technology Limited.

Contents
1 Introduction ..................................................................................................................................... 1
1.1 Background..............................................................................................................................................1
1.2 The Report ...............................................................................................................................................1
1.3 Methodology............................................................................................................................................1
1.4 About the Author .....................................................................................................................................2

2 Executive Summary ...................................................................................................................... 3

2.1 Industry Economics .................................................................................................................................3
2.2 Manufacturing .........................................................................................................................................4
2.2.1 Materials...........................................................................................................................................4
2.2.2 Current Manufacturing .....................................................................................................................4
2.2.3 New Manufacturing Methods...........................................................................................................4
2.3 Marketing ................................................................................................................................................4
2.3.1 Brands ..............................................................................................................................................4
2.3.2 Distribution ......................................................................................................................................5
2.3.3 Market Niches ..................................................................................................................................5
2.4 Technical Developments .........................................................................................................................5
2.4.1 Legislative Environment ..................................................................................................................5
2.4.2 Research and Development ..............................................................................................................6
2.5 Recycling.................................................................................................................................................6
2.6 North American Market...........................................................................................................................6
2.7 European Market .....................................................................................................................................7
2.7.1 West and Central Europe..................................................................................................................7
2.7.2 Russia ...............................................................................................................................................9
2.8 Asian Market ...........................................................................................................................................9
2.8.1 Japan.................................................................................................................................................9
2.8.2 South Korea....................................................................................................................................10
2.8.3 India ............................................................................................................................................... 10
2.8.4 China ..............................................................................................................................................11
3 Industry Economics ........................................................................................................................ 13
3.1 Introduction ...........................................................................................................................................13
3.2 World Market ........................................................................................................................................ 13
3.3 Industry Structure ..................................................................................................................................13
3.4 Markets by Product Sector..................................................................................................................... 15
3.5 Sector Markets....................................................................................................................................... 15
3.5.1 Original Equipment (OE) Market...................................................................................................16
3.5.2 Replacement Market ......................................................................................................................17
3.6 Market Characteristics ........................................................................................................................... 18
3.6.1 Market Maturity .............................................................................................................................19
3.6.2 Tyres as a Commodity....................................................................................................................20
3.7 Cost Structure ........................................................................................................................................ 21
3.8 Productivity Increases............................................................................................................................22
3.9 Capacity Changes ..................................................................................................................................23
3.10 Production Relocation .........................................................................................................................24
3.11 Consolidation.......................................................................................................................................26
4 Manufacturing ............................................................................................................................... 31
4.1 Introduction ...........................................................................................................................................31
4.2 Materials ................................................................................................................................................31
4.2.1 Rubber ............................................................................................................................................32
4.2.2 Carbon Black..................................................................................................................................34
4.2.3 Silica............................................................................................................................................... 35
4.2.4 Steel Cord.......................................................................................................................................36
4.2.5 Fibres..............................................................................................................................................37
4.3 Current Manufacturing ......................................................................................................................38
4.4 New Manufacturing Methods ................................................................................................................40
4.4.1 Michelin ......................................................................................................................................... 41
4.4.2 Goodyear ........................................................................................................................................ 42

4.4.3 Bridgestone .................................................................................................................................... 42

4.4.4 Continental..................................................................................................................................... 43
4.4.5 Pirelli.............................................................................................................................................. 44
4.4.6 Other Developments ...................................................................................................................... 44
4.5 The Future for Manufacturing............................................................................................................... 45
5 Marketing ....................................................................................................................................... 47
5.1 Introduction ........................................................................................................................................... 47
5.2 Distribution ........................................................................................................................................... 47
5.2.1 Wholesaling ................................................................................................................................... 47
5.2.2 Retailing......................................................................................................................................... 48
5.2.3 E-Commerce .................................................................................................................................. 49
5.3 Branding................................................................................................................................................ 50
5.5 Market Niches ....................................................................................................................................... 53
5.5.1 High Performance Tyres ................................................................................................................ 53
5.5.2 SUV Tyres ..................................................................................................................................... 55
5.5.3 Winter Tyres .................................................................................................................................. 55
5.5.4 Tuner Market ................................................................................................................................. 57
6 Technical Developments ................................................................................................................. 59
6.1 Introduction ........................................................................................................................................... 59
6.2 Legislative Environment ....................................................................................................................... 60
6.2.1 Environmental Protection .............................................................................................................. 60
6.2.2 Consumer Safety............................................................................................................................ 61
6.2.3 Health and Safety........................................................................................................................... 61
6.2.4 Impact of Legislation ..................................................................................................................... 62
6.3 Research and Development ................................................................................................................... 63
6.3.1 Research and Development............................................................................................................ 63
6.3.2 Materials Development .................................................................................................................. 63
6.3.3 Tyre Property Improvements ......................................................................................................... 64
6.4 Runflat Tyres......................................................................................................................................... 67
6.5 Pressure Sensing.................................................................................................................................... 68
6.6 Future Development.............................................................................................................................. 69
7 Recycling ........................................................................................................................................ 73
7.1 Introduction ........................................................................................................................................... 73
7.2 Hierarchy of Waste................................................................................................................................ 73
7.2.1 Reduction ....................................................................................................................................... 74
7.2.2 Re-use ............................................................................................................................................ 74
7.2.3 Recycling ....................................................................................................................................... 75
7.2.4 Recovery ........................................................................................................................................ 76
7.2.5 Landfill .......................................................................................................................................... 77
7.3 Regional Solutions ................................................................................................................................ 77
7.3.1 North America ............................................................................................................................... 77
7.3.2 Europe............................................................................................................................................ 78
7.3.3 Asia ................................................................................................................................................ 79
7.3.4 Developing Countries .................................................................................................................... 79
8 North American Market ................................................................................................................. 81
8.1 Introduction ........................................................................................................................................... 81
8.2 Market ................................................................................................................................................... 82
8.3 Supply Structure.................................................................................................................................... 84
8.4 Retailing ................................................................................................................................................ 86
9 European Market ........................................................................................................................... 89
9.1 Introduction ........................................................................................................................................... 89
9.2 Market ................................................................................................................................................... 90
9.3 Supply Structure.................................................................................................................................... 92
9.4 Retailing ................................................................................................................................................ 95
9.5 Russia .................................................................................................................................................... 97
9.5.1 Market............................................................................................................................................ 97
9.5.2 Supply Structure ............................................................................................................................ 98
10 Asian Market .............................................................................................................................. 103

10.1 Overview ...........................................................................................................................................103

10.2 Japan..................................................................................................................................................104
10.2.1 Introduction ................................................................................................................................104
10.2.2 Market ........................................................................................................................................104
10.2.3 Supply Structure.........................................................................................................................105
10.2.4 Retailing .....................................................................................................................................106
10.3 South Korea .......................................................................................................................................108
10.4 India...................................................................................................................................................109
10.4.1 Introduction ................................................................................................................................109
10.4.2 Market ........................................................................................................................................110
10.4.3 Supply Structure.........................................................................................................................112
10.4.4 Retailing .....................................................................................................................................114
10.5 China .................................................................................................................................................114
10.5.1 Introduction ................................................................................................................................114
10.5.2 Market ........................................................................................................................................115
10.5.3 Supply Structure.........................................................................................................................116
10.5.4 Retailing .....................................................................................................................................119
Abbreviations and Acronyms ....................................................................................................................121

Light Vehicle Tyres

1 Introduction
1.1 Background
The tyre industry is the largest part of the rubber manufacturing industry; indeed it is so large that it
is usually classed as an industry in its own right. It dwarfs any other part of the rubber industry and
absorbs well over two-thirds of all natural rubber production and almost as large a proportion of
synthetic rubber manufacture. Consequently much of the innovation in the wider rubber industry,
both in terms of materials and in terms of manufacturing, emanates from the tyre industry.
Rapra Technology is Europes leading independent plastics and rubber specialist, with over 80
years experience of providing technology, information and consultancy on all aspects of plastics,
rubbers and polymer-based composites. An important aspect of this activity is publishing technical
and market information on these materials.
A comprehensive analysis of the economics of the tyre industry was seen as a key component of
the publishing catalogue, both as an important title in its own right and as an essential background
to many of the other reports.
Light vehicle tyres and heavy truck and machinery tyres are both part of the tyre market, but
because they differ dramatically in their composition, manufacture and marketing it was decided to
separate the two and restrict this volume to light vehicle tyres, particularly passenger car tyres.
1.2 The Report
This report is designed as a systematic analysis of the passenger car tyre industry. It starts with a
broad view of the industry, examining first the major markets for tyres and the manufacturers of
tyres. It then goes on to identify the chief characteristics of the industry and the major economic
and commercial pressures impinging upon it. This introduces and brings together themes that will
reappear throughout the rest of the report.
It then examines critical aspects of the world industry manufacturing, marketing, technical
developments and recycling; describing the changes that are taking place and explaining why they
are happening.
The three major markets for tyres North America, Europe and Asia, which together account for
almost 90% of world demand, are analysed in the next three chapters. There are common themes to
all three markets, but they have major differences and these are brought out and contrasted.
Profiles of the largest manufacturers Bridgestone, Goodyear and Michelin are juxtaposed in a
single chapter to facilitate comparison between these three dominant companies. Between them
they command almost 60% of the world market, but six mid-size companies also play key roles in
certain regional markets, and these are also profiled.
Finally, the report looks at the future for the industry, drawing together the various themes that
have been identified and projecting a future scenario for the industry.
1.3 Methodology
The report uses as a foundation extensive desk research based primarily on technical literature and
industry journals published in North America, Europe and Asia. This includes information from the
Rapra Polymer Library (www.polymerlibrary.com). In particular it makes use of two sources of
quantitative data The Michelin Fact Book 2003 and the World Tire Report 2003 published by
Crain Communications as a supplement to their rubber industry publications. All quantitative data
is attributed to its source.

Light Vehicle Tyres

This factual basis for the report has been augmented and filled out with a programme of interviews
with senior management in all the major companies and with other companies and organisations
that deal with the industry suppliers, service companies, trade associations, etc.
Although the report is largely based on a factual data, opinions are expressed throughout the report,
particularly when projecting future trends. These opinions are solely the responsibility of the
author.
1.4 About the Author
Neil Mullineux is a partner in Bowfell Associates, an independent consultancy specialising in
market research and strategy for the automotive industry. He has worked in Europe, North America
and East Asia for both vehicle and components manufacturers and has undertaken several projects
for intergovernmental agencies.
He is a Visiting Research Fellow in the Centre for Automotive Industry Management at
Nottingham Business School. He has written a series of reports on aspects of the international
automotive industry for Financial Times Business and the Economist Intelligence Unit.

Light Vehicle Tyres

2 Executive Summary
The tyre industry is the largest part of the rubber manufacturing industry; indeed it is so large that it
is usually classed as an industry in its own right. Consequently much of the innovation in the wider
rubber industry, both in terms of materials and in terms of manufacturing, emanates from the tyre
industry.
This report is designed as a systematic analysis of the passenger car tyre industry.
2.1 Industry Economics
Three large companies Bridgestone, Goodyear and Michelin now dominate the world tyre
market with a share of about 56%. There then follow four mid-sized companies, which have about
18% of the world market Continental, Sumitomo, Pirelli and Yokohama with a combined share
of 17.6%. In total eleven companies account for 81.6% of the world market.
Even though the largest companies have a turnover well in excess of $10bn, they remain largely
specialist tyre manufacturers. Many of the smaller companies also concentrate almost exclusively
on tyres. However, the medium-sized companies are diversifying away from tyre manufacturing.
Passenger car tyres are the most well-known product of the tyre industry but they are by no means
the only product. World production of tyres ranges from lightweight and relatively unsophisticated
bicycle tyres to very large and very expensive tyres for giant machinery such as earthmovers or
jumbo jets.
Unusually, if not uniquely, in the automotive components industry, the tyre manufacturers only sell
a minority of their output to OEMs. The key factor that distinguishes the tyre market from any
other automotive component is the size of the replacement market or aftermarket three-quarters
of road tyres are sold as replacement tyres and only one-quarter as original equipment.
The big three tyre manufacturers dominate the OE market, but other large regional players also
have a share, particularly in Europe. Worldwide, the replacement tyre market for light vehicles
represents about 714m tyres. The replacement tyre market is certainly more profitable for the tyre
manufacturers but it has distinct problems. The general problems of slow growth and market
maturity are exacerbated by cyclical growth in supply to OEMs. Despite the poor profitability of
sales to OE customers and even though the replacement market represents over 70% of the
passenger car tyre industrys sales, tyre makers profitability is also cyclical. The replacement
market is a relatively profitable sector of the overall tyre market, but it cannot compensate for the
vagaries of the OE market.
A traditional indication of market maturity is continual pricing pressure in the market. Although the
world tyre market appears to be an oligopoly, there are enough small competitors to keep continual
pressure on prices. In broad terms a tyre which cost $69.90 in 1979 sold for $41.02 in 2003.
The major companies within the tyre industry are all constrained by the laws of economics and
subject to similar commercial pressures. In very broad terms the cost of tyre manufacture breaks
into three parts: raw materials; labour; and fixed costs. The tyre industry has high fixed costs,
making it extremely difficult to improve returns unless costs are cut or market share gained. Raw
materials typically represent 25% of the selling price of a car tyre. Labour costs represent about
30% of sales and this has led to a move for manufacture in lower labour cost countries. This has
been helped by relatively low transportation costs for the inter-regional movement of tyres about
$1-2 for a passenger tyre. In the last decade all manufacturers have tried to increase productivity in
existing operations in order to become low-cost producers. The continuing drive for improved
productivity has resulted in excess capacity in many areas and product sectors.

Light Vehicle Tyres

The overall outlook for the tyre industry is dependent upon supply much more than demand. There
is a close relationship between aggregate supply and profitability for individual tyre companies.
As a result there have been gradual moves towards consolidation. Before 1985 a dozen large
companies dominated the world tyre market, but after a rapid series of mergers and acquisitions,
seven companies emerged with three-quarters of the market.
2.2 Manufacturing

2.2.1 Materials
Production of synthetic rubber achieved parity with natural rubber in 1967 and since then more
synthetic rubber has been used in tyre production than natural rubber. Carbon black has been used
as the filler of choice for tyres since the 1920s, although it is now receiving competition from
silica. Silica-filled rubber reduces the rolling resistance of tyres markedly but initially it had a
detrimental effect on other tyre properties such as traction and durability. Steel cord is used in all
radial tyres, both for passenger cars and for trucks, as a reinforcement, and to form the bead which
secures the tyre to the wheel. In addition a wide variety of fibres are used in tyres as reinforcement.

2.2.2 Current Manufacturing

Tyre manufacturing is part of the chemical industry but unlike most processes in the chemical
industry, tyre manufacture is a discontinuous process. A tyre is a composite product of materials
that have widely differing properties. The three main materials used in a tyre polymers, fabric and
steel reinforcement follow separate routes in the preparatory stages of tyre manufacture. The
polymers, various mixes of natural and synthetic rubbers, are mixed with fillers carbon black or
silica and other chemicals to make the rubber component of the tyre. The various subassemblies
are then brought together for the building process. The individual components are pressed into
shape sequentially by automatic rollers, giving a green tyre. This is placed in a curing press and the
curing process changes the rubber permanently by vulcanising it, converting the green tyre to a
finished product.

2.2.3 New Manufacturing Methods

Large-scale plants making enormous quantities of a very few types of tyre are very efficient for the
most popular tyres, but the market has been fragmenting, with both tyre sizes and types
proliferating. All manufacturers have been looking at ways to reduce the inefficiencies in their
production process and at the same time looking to serve the market demand more effectively. The
key to any improvement in manufacturing is to make it more of a continuous process and to reduce
the number of break points which destroy this continuity, eliminating as many of the steps
involving semi-finished components as possible.
The new methods introduced by the major companies are examined in detail. The new
developments have come mainly from the dominant firms in the industry. It would appear that
production advantages are beginning to swing back to the large established companies and away
from the aggressive newcomers.
2.3 Marketing

2.3.1 Brands
About 30% of passenger car tyres are sold to original equipment manufacturers, and these buyers
are extremely sophisticated. The tyre brand means little to them (though it does have some
influence in their choice of tyres, particularly for prestige or high performance vehicles). The other

Light Vehicle Tyres

70% of passenger car tyres are an aftermarket product and it is here that the tyre companies are
attempting to get rid of their commodity reputation by developing brands.
In order to clarify their brand structure most manufacturers have concentrated their efforts on three
main brands, but because they have only recently become true multinationals they have had
considerable difficulty even achieving this simple brand structure. They have chosen a good,
better, best formula.

2.3.2 Distribution
In most of the developed markets distribution is a two-tier operation with both wholesalers and
retailers servicing the market but the balance and function varies between regions. Retailing is
carried out by a wide range of businesses ranging from petrol service stations to large chains of
specialist tyre fitters. In most developed economies independent tyre fitters operating a two or three
bay centre comprise the majority of outlets and the non-specialist outlets are in decline. The
Internet is gaining in importance as more than 60 percent of tyre buyers access the Internet, but
only 16 percent of them use it when they need to buy tyres.

2.3.3 Market Niches

Every manufacturer seeks out market niches areas of the market where it can establish a special
position. Three segments of the passenger car tyre market are particularly buoyant at present,
showing rates of growth which far outstrip the market average. Consequently most manufacturers
are concentrating a lot of their activity on these three sectors ultra-high performance tyres, SUV
tyres and winter tyres. High performance and ultra-high performance tyres used to be limited to a
very small segment of the market, but as cars have improved in performance and specification
these tyres are now commanding an ever larger share of the market. In Europe especially, but also
in North America, there has been a surge in demand for high performance tyres V-, W- and Zrated tyres. Of the 63.6 million replacement tyres shipped to the performance sector, the ultra-highperformance tier accounted for about 34.7 percent. In Europe high performance tyres will increase
from a market share of 18% in 2000 to a forecast share of 31% in 2005. The market for SUV tyres
has grown as rapidly as the market for sports utility vehicles and, until recently, has shown little
sign of slowing down.
The market for winter tyres has built up gradually but it is an erratic market and very seasonal. 80%
of sales are made in the second half of the year and demand can be very fickle, depending on the
date of the first snowfall. The market is likely to grow at a faster rate than the general tyre market
but the growth is unlikely to be consistent. However, over time growth is significant. In 1995
winter tyres accounted for 0.5% of the Dutch market but by 2002 this had risen to 7%.
2.4 Technical Developments
Passenger car tyres provide by far the largest market for tyre manufacturers but at the same time
they demand a high level of research and development. The OE market in particular demands a lot
from the tyre industry as the vehicle designers set very specific requirements for the tyre
manufacturers to reach. Developments tend to be incremental but, in total, tyre technology has
made enormous progress in recent years. A typical tyre has become lighter and longer lasting with
less rolling resistance.

2.4.1 Legislative Environment

The tyre industry has always worked within a framework of legislation but, until recently, the
legislation has been essentially national. There is an increased focus on requiring enhanced
environmental protection in all areas relating to tyres tyre production, tyre usage and tyre

Light Vehicle Tyres

disposal. The most recent environmental measure of specific application to tyres is the EU
Directive on tyre noise, which sets limits on the noise that tyres may make when in contact with the
road. An even more immediate challenge has been established by the End-of-Life Vehicles (ELV)
Directive.
Until recently tyre safety has been of little concern to legislators. However, this situation has now
changed as the TREAD Act in the US is a much more intrusive measure.
The normal health and safety regulations affect the tyre industry but this is a burden shared equally
by all companies. However, there is a growing disparity between the developed regions where
legislation demands roughly equal standards between countries in Europe and North America and
the countries of the developing world where standards are much lower or non-existent.

2.4.2 Research and Development

The tyre industry spends over $2.5bn on research and development each year. Both tyre quality and
roads have improved dramatically over the past century but there is still pressure to improve the life
of tyres. This is being carried out both by improvements in materials and by design modifications.
Reducing tyre weight is particularly important as it reduces the unsprung weight of the vehicle.
Tyre/road noise is one of the major environmental problems of modern society and is not yet under
control. The rolling resistance of tyres was not given much attention until recently; far more
attention was paid to grip and braking capability. However, the increased emphasis on economy
and environmentally friendly equipment has now given it much more importance. Developments in
other tyre characteristics such as wet grip, high performance and winter tyres are also examined.
The innovative PAX tyre developed by Michelin is analysed and its prospects discussed.
New developments, particularly run-flat tyres and the alternative methods of pressure sensing, are
discussed and new technologies which will affect tyre design in the future are examined,
culminating in the objective of the intelligent tyre. Almost every tyre company is keen to
emphasise its ability to develop integrated systems which can optimise braking and steering
performance in cars and the different approaches are discussed.
2.5 Recycling
The disposal of scrap tyres is a problem that has been growing for decades as volumes increase and
because a vulcanised rubber tyre is a difficult recycling challenge. In environmental terms there are
five broad alternatives for disposal demonstrating the relative desirability of each approach. In
descending order of preferment the hierarchy alternatives are:

Reduction reducing the number of tyres that need to be scrapped.

Re-use either retreading to make a new tyre or using scrap tyres for other purposes.
Recycling treating the materials in a tyre so that they can be used in other products.
Recovery essentially burning in order to recover energy.
Disposal landfill

The progress in each of these areas is examined. The chapter then goes on to examine the approach
being taken in the main world regions, North America, Europe and Japan and Korea. Some
disposal schemes are taking place in developing countries but these are isolated schemes rather
than comprehensive disposal plans.
2.6 North American Market
The three countries, Canada, Mexico and the USA, account for almost one-third of the world
demand for OE tyres and well over one-third of the demand for replacement tyres. Of the three
main regions for the world tyre industry North America is the largest, but the other two are

Light Vehicle Tyres

catching up quickly. Because of the relative poverty in Mexico that country only accounts for about
5% of the tyre market, compared with 10% in Canada and 85% in the USA. Not only is North
America the largest world market, it was also the earliest one to develop. However, although this
led to early dominance in world markets the US companies were unwilling to learn from others.
Consequently they were slow to innovate and this left them vulnerable to takeover.
However, it is essential for any large tyre manufacturer to have a presence in North America. Once
a company has a credible presence in this market, it is no longer a French supplier or a Japanese
supplier, but a global one.
The two trends in the North American tyre market are linked with the move towards more powerful
vehicles. Tyres for the mass market still predominate, but there is a steady growth in tyres for
SUVs and also in high performance and ultra-high performance tyres.
A total of 65 plants supply the North American market, the majority being in the USA. The big
three companies Bridgestone, Goodyear and Michelin dominate North American production
with 40 of the 65 plants, 62% of the total in terms of numbers, but about 70% in terms of capacity.
There is a move offshore for the more standard tyres, concentrating North American production on
higher quality tyres with more value added. Total capacity is roughly in line with market demand
but the North American market, like other regional markets, is not self-sufficient. About a quarter
of the demand is satisfied by imports, partly from companies in Korea, India and China but mainly
by the big international companies bringing in tyres from their plants elsewhere in the world.
Goodyear is the leader in the US/Canadian OE light vehicle tyre market, but Firestone takes that
position in Mexico. Goodyear is also the market leader in the region for replacement tyres but
Michelin is also strong in this area.
There are three broad groups of brands in the North American market flag brands, associate
brands and private brands and the major manufacturers are associated with all three. For a long
time private brands were gaining market share, but since 1991 the majors have fought back with
their flag brands for brand conscious motorists and associate brands for the price conscious.
The distribution of tyres has been undergoing a fundamental change, with the emphasis moving
away from independent tyre specialists and towards chains and mass merchandisers. For marketing
purposes the market can be divided into four distinct segments:

Brand conscious about 26%, increasingly slightly.

Value customer about 27% and rising. Customers who would prefer an associate brand.
Store reliant 24% and stable. Would rely on store recommendation.
Price conscious about 22%, declining. Looking for the cheapest suitable product.

This change in consumer preferences has led to a dramatic shift in the channels of distribution.
There has been a rise in the importance of tyre discount chains and of warehouse clubs, and an
upheaval in the position of mass merchandisers. The small independents appear to be a dying
breed, even though single outlets still account for 25% of tyre sales. Manufacturer outlets comprise
about 8% of the total market, and this proportion has declined steadily for some years.
2.7 European Market

2.7.1 West and Central Europe

Europe is second only to North America in importance for the tyre industry, but it is a very
different market. The countries bordering western Europe are now members of the EU and are
rapidly being integrated into the economy of the west. The US companies, Goodyear and Firestone,
were the first to consider western Europe as a single entity rather than individual countries. The
companies acquired in eastern Europe have now been integrated into the wider European

Light Vehicle Tyres

production network of each company and form part of their overall strategy for the region,
particularly with the accession of ten new countries into the EU in May 2004. The strategy for all
the multinationals has been to establish a manufacturing presence in central Europe for three
purposes:

To provide a low cost supply point for western markets;

To establish a presence in developing countries that are likely to grow rapidly;
To act as a bridgehead for penetration into eastern Europe and Russia.

Europe is, in total, a very large market and also probably the most sophisticated and demanding
market in the world though it is mature and only growing slowly. The overall market is forecast to
expand at an average annual rate of 3.3% until 2008, somewhat faster than North America but
much slower than in the high growth areas of Asia. The key to the market is that Europe is the
home to more car manufacturers than anywhere else. The OEMs provide a market in their own
right, but they also set new demands on the tyre industry with every new model that is launched
and this in turn leads to more sophisticated and more knowledgeable tyre buyers in the replacement
market. As in North America, about half of the market buy mass market tyres but a very high 41%
of drivers use high performance tyres compared with 17% in North America. Tyre sizes of 16'' and
17'' are now much more common and low profile tyres are helped by this trend. Although the
winters are no worse than in many parts of America, winter tyres account for almost a quarter of
the market. The market is mainly concentrated in central and northern Europe Scandinavia,
Germany, Austria and Switzerland, but it is beginning to make progress in eastern Europe as well.
The rest of Europe use summer tyres all year round; there is only a very small market for all-season
tyres.
Instead of a national management structure in each country, the tyre manufacturers now use all
factories in the region as a production resource. In recent years overcapacity has been very apparent
but the major players have carried out a programme of plant closures. However, Europe has over
90 plants serving a market similar in size to North America, where there are only 60 plants.
The replacement tyre market is mature and relatively stable because of the long-term contracts in
place with equity chains and independent dealers. Now that Goodyear has taken management
control of Sumitomos Dunlop operations in the region, five multinationals dominate the market in
Europe Michelin, Goodyear, Continental, Bridgestone and Pirelli. Between them they command
83% of the market. Michelin is the market leader in Europe, but in the course of the 1990s it lost a
little of its market share because of its lack of a low price brand. Continental has traditionally been
the second largest tyre supplier to the European market, but Goodyear fought tenaciously for that
position and eventually achieved it when it took control of Sumitomos Dunlop subsidiary. The
independent importers bring in tyres from manufacturers elsewhere in the world, particularly from
the Far East. These companies made dramatic market share gains when they first entered the
market, as the tyres were sold at significant price discounts to existing brands. This progress swiftly
slowed as the multinationals reacted by bringing in their own branded tyres from low cost
countries.
In most European countries the manufacturers sell to wholesalers who, in turn, distribute to retail
outlets. The majority of retail outlets in Europe are specialist tyre fitting centres or tyre and exhaust
centres; only a minority of replacement tyres are sold by independent garages, and an even smaller
proportion by franchised garages. Across the EU, 50% of replacement passenger car/light truck
tyres are sold through tyre specialists (independents, tyre manufacturers controlled chains etc.),
10% through car dealers, 20-30% through fast fit centres and the remainder through a variety of
outlets. Independent tyre dealers dominate the aftermarket in Germany, Italy, Scandinavia and
Spain whereas in the UK, Belgium and the Netherlands chains of tyre centres predominate. The
real growth in the European tyre market is found with independent groups, usually led by an
entrepreneur.

Light Vehicle Tyres

2.7.2 Russia
The break-up of the Soviet Union appeared to promise enormous opportunities for Western tyre
manufacturers. Although the multinational tyre suppliers were very quick to invest in the countries
of eastern Europe, they were much more reluctant to do so in Russia itself. That position is now
changing with investments by Continental, Michelin and Nokian but recent events illustrating the
capricious nature of commercial law could reverse the trend.
The Russian tyre market, including imports, is estimated to be in the region of 35 million tyres at
present. Prices of Russian-made tyres have fallen dramatically in the last two or three years as the
main producers fight for sales. Western tyres are much more expensive as they are better made and
much more durable, but there is also a certain cachet in using them for those Russians that can
afford them. However, the prestige value of western tyres cannot command the premium across all
brands that it has done in the recent past.
There are 12 tyre plants in Russia but many of them are small and all of them have relatively old
equipment. This is beginning to change as new owners are investing significant capital. Michelins
new plant at Davydovo is expected to have a capacity of 2 million tyres when it reaches full
production in 2005.
Imported tyres are significant but their importance is declining as Russian companies improve their
quality levels. In general terms the Japanese and South Korean companies are stronger east of the
Urals, whilst the European brands predominate in Russia west of the Urals. The four biggest selling
brands are Nokian, Continental, Matador and Bridgestone.
2.8 Asian Market
Asia is a geographic term for a wide variety of different cultures, climates and countries. In
economic terms it ranges from the rich but mature market of Japan to some of the poorest countries
on earth. However, it is growing very rapidly as a region and the tyre market is growing with it. All
the major companies must be active in the area or they will miss out on vigorous growth rates in
most of the countries and enormous potential markets. The market for cross-ply tyres is declining
rapidly as radials are becoming available and new investment is almost exclusively for radial tyres.
As in North America and Europe there is a trend towards larger tyre sizes as wheels get bigger and
the demand for high performance tyres is actually higher than in North America.

2.8.1 Japan
The Japanese tyre market is more like the European or North American market than that of any
other Asian country. The maturing market in Japan has provided a growing demand for
replacement tyres, and the tyre industry has become less dependent on OE supply. In 1975 OE
demand accounted for 60% of the Japanese market for tyres but by 2003 this had fallen to 33%.
The total domestic market of about 150 million light vehicle tyres has hardly grown at all in the last
decade because of this decline in OE demand. Four Japanese manufacturers are in the top ten
global companies Bridgestone, Sumitomo, Yokohama and Toyo and these firms dominate the
market in Japan. Bridgestone alone has a market share of 46% and Yokohama and Sumitomo have
shares of 23% and 19% respectively. Until 1986 the Japanese market was essentially closed to
foreign-made tyres, but in that year the vehicle manufacturers instituted voluntary programmes to
import US-made parts. In relation to the domestic market for passenger car tyres, imports have
remained fairly steady at between 11% and 15% over the decade. European sourced tyres have
made little headway into the Japanese market, and South Korea is also finding the market difficult,
but tyres made in Taiwan are gaining market share. Chinese imports are also significant.
Distribution channels for replacement tyres are particularly wide-ranging and complex, with
vehicle distributors which have taken a leading role until recently, having now been overtaken by

Light Vehicle Tyres

speciality stores. The chief distribution channels are roughly divided into two types: direct sales
and indirect sales. In Japan, the attitude toward buying tyres is different than in the west. To the
Japanese, new tyres represent the renewal of a car's life and it's a happy purchase for people who
like to drive. A marked feature of tyre distribution in Japan over the last decade has been the sharp
growth in discount and auto speciality chains.

2.8.2 South Korea

As in Japan, the tyre industry has grown alongside the burgeoning automotive industry, but it is not
reliant upon it. The two indigenous tyre producers, Kumho and Hankook, have established their
brands with some success in Africa and South America as well as the more mature markets. The
replacement market is only a little larger than the OE market. In 2003 passenger car tyre
replacements amounted to just under 10m tyres with light trucks accounting for another 2.5m. The
market for OE tyres was 6m passenger car tyres and 2.5m light truck tyres. Although the nature of
the market is changing the structure is not, as distribution outlets are tightly controlled by the two
largest companies Kumho and Hankook. Each have their own chains of franchised operations and
these are exclusive to the firm, selling only that companys brands. Hankook has a slightly larger
share of the domestic market, whilst Kumho exports more. The importance of Korea for the world
tyre industry is that it is the home of two aggressive and ambitious manufacturers. The domestic
market is significant, both for OE supply and, increasingly, for replacement tyres but it is still
smaller than several European countries. However Korea is no longer a low-cost location for tyre
factories.

2.8.3 India
It is only in the last decade that the Indian economy has begun to open up to the world industry.
Many of the multinational tyre manufacturers have shown a new or renewed interest in the country.
Both the Indian market and the world market are changing rapidly and some companies,
particularly the smaller ones, are finding it difficult to come to terms with the changing
circumstances. In most countries passenger car tyres are the most significant product, but in India
production of these is dwarfed (in value terms) by output of truck and bus tyres. In total the Indian
market for light vehicle tyres is smaller than South Korea, but it is still an attractive market for
international producers because it is a much more varied market than just tyres for light vehicles
and it is growing rapidly. Traditionally, cross-ply tyres have dominated the Indian market but
radials are now growing rapidly, particularly for light vehicles.
The tyre industry in India comprises 40 tyre companies, operating 53 factories. However, 12
companies account for over 85% of total unit production. Capacity utilisation is estimated at 72%
across the industry. At present the largest firm in India is MRF, followed by Apollo and JK Tyres
which are very similar in size. These are followed by Ceat and, some way behind, Birla and Modi.
Goodyear has had a presence in the country for many years and Bridgestone and Michelin now
have a significant presence, the latter in a joint venture with Apollo. India is beginning to see tyres
imported from China as a threat. They are considerably cheaper than home-produced tyres because
the Chinese have access to lower cost rubber and cheaper labour. One of the biggest competitive
advantages, however, is the lower cost of finance in China.
The Indian market is huge in geographical terms but hindered by poor infrastructure. Until recently
it has been very difficult to achieve a truly national presence. Now improvements in the road
network and a realisation by the companies of the value of a national network are changing this
situation rapidly. Most distribution is carried out by wholesalers though MRF, JK, Ceat and
Goodyear have built up chains of exclusive dealers.

10

Light Vehicle Tyres

2.8.4 China
Chinas progress since it first opened to foreign investment and reform in 1978 has been very
impressive. Over the past 25 years, its real gross domestic product has expanded at an average of
9% per year. Most of the big multinational tyre suppliers are now established in joint ventures in
China, but progress has been slow and difficult and it is likely that continued development will take
a considerable time. Passenger car tyre sales are growing rapidly, but they still only account for a
minority of production. Production is spread throughout the whole country, but passenger tyre
production is concentrated in the coastal provinces, particularly in the regions around Beijing and
Shanghai. The large companies account for the bulk of production. This proportion is becoming
greater, as the small companies find it difficult to compete and are gradually exiting the industry.
Currently about 90% of the passenger car tyres produced for the Chinese market are radials, and
that figure should reach 100% by 2005. However, a significant number of cross-ply tyres are still
made for export. The market for tyres is growing rapidly at about 6-7% per year, but there are too
many manufacturers and they are all trying to survive.
Chinese tyre factories fall into three broad groups. The majority are still old, traditional local
factories. The second group is comprised of about a dozen factories that have recognised their
problems and purchased western machinery in order to improve the processes, but these plants are
burdened with so much debt that they are effectively bankrupt, and many have ceased production.
The third group comprises both Chinese and western companies. Large domestic Chinese
companies which have been identified by the Chemical Ministry as key companies and western
companies which have established plants in China. It is this third group which will survive and
comprise the tyre industry of the future. The companies, particularly the western companies, are
investing heavily both in production equipment and, more importantly, in distribution networks.
Most companies are concentrating on the coastal provinces, partly because that is where the
factories are based but, more importantly, because this is the area with the most income. Most have
networks of several hundred distributors and are aiming for several thousand retail outlets.
Bridgestone and a few other companies are establishing a few company owned stores to act as
beacons and exemplars. However, there are still many problems, not just for new businesses but
also for firms that are well-established and which think they know the local market.

11

Light Vehicle Tyres

12

Light Vehicle Tyres

3 Industry Economics
3.1 Introduction
Round, black and boring is a phrase often used about tyres although the industry is quick to point
out that a tyre is a sophisticated product of advanced material engineering. Tyres are the most
complex, important, least appreciated, and least well-maintained component on a car. There are as
many components in a tyre as there are in an engine. But, unlike an engine, you cant take them
apart and rebuild them.
Like everything else connected with the motor car, tyres evolve from carefully evaluated
compromises. They must cope with numerous demands, many conflicting. They must grip, brake
and corner satisfactorily on all surfaces, in all weather conditions. They must have a low rolling
resistance to assist fuel economy. They must not squeal or whine too much. They must not flex
excessively under load, yet they must not detract from ride comfort. They must resist punctures and
must not wear out too quickly but they must not be too expensive. And all this has to be carried out
when the area of contact with the road at any one time is no bigger than a mans palm.
However, the term boring can in no way be applied to the tyre industry. It is a large industry with
a turnover of $69 billion in 2002. It is an economically important industry, employing more than
600,000 people directly and several million indirectly. It is a ubiquitous industry as virtually every
human being on the planet comes into frequent contact with tyres and often regard themselves as
knowledgeable on the subject because of this contact. Above all it is a politically sensitive industry
because of its size, its environmental impact and its multinational ownership.
This chapter examines the structure and chief characteristics of the tyre industry and the major
economic and commercial pressures influencing it.
3.2 World Market
The world tyre market grew from about US$30 billion in 1983 to US$70 billion in 1996, but since
then it has stagnated in dollar terms at around US$70 billion (US$70.55 billion in 2001). However,
these are current local prices translated into dollars at the prevailing exchange rate and in recent
years the high value of the dollar has concealed the underlying volume growth. The recent fall in
the value of the dollar should make the total market value begin to grow once more. In volume
terms growth varies from year to year, but over the last decade it has averaged between 2% and
3%.
3.3 Industry Structure
The last 20 years have seen a dramatic concentration in the number of major players in the market
five of the ten largest companies in 1981 have now been taken over by competitors. This
concentration is continuing, though in a less dramatic manner, with smaller companies forming
alliances or being bought out by larger competitors. The latest major development involves
Michelin acquiring a 10% stake in Hankook and the two companies pursuing links in the
manufacturing, distribution and R&D areas.
As a result, the three largest companies Bridgestone, Goodyear and Michelin now dominate the
world tyre market with a share of about 56%. These are the only truly multinational companies
with manufacturing facilities and sales networks in most of the world regions.
There then follow four mid-sized companies, which have about 18% of the world market
Continental, Sumitomo, Pirelli and Yokohama. These companies usually have a strong presence in
perhaps two or three world regions, but not all. At present Sumitomo Rubber is in this group, but
since its alliance with Goodyear it has transferred assets in both North America and Europe to its
US partner, and consequently it could be argued that it is now a regional rather than a multinational

13

Light Vehicle Tyres

company. The remaining 26% of the market is split between 100 mainly local companies, although
a few of the larger ones have significant export markets (Table 3.1). This applies particularly to
Toyo of Japan and the two South Korean manufacturers, Kumho and Hankook.
Company
Michelin
Bridgestone
Goodyear
Continental
Pirelli
Sumitomo
Yokohama
Approx 100 companies
Source: Tire Business

Table 3.1 Global tyre market share 2003

% Share
19.2
19.1
17.4
6.8
3.8
3.7
3.3
26.7

To put these market shares in perspective, the total world market for tyres is estimated to be over
$70 billion. The big three producers (Bridgestone, Goodyear and Michelin) all have a sales
turnover in the range of $12-14 billion and the next four range between $2.4 billion and $4.8
billion. Cooper, Kumho, Toyo and Hankook all sell over $1 billion each year. Between them, these
eleven companies account for 81.6% of the world market (Table 3.2).
Company
Michelin
Bridgestone
Goodyear
Continental
Pirelli
Sumitomo
Yokohama
Cooper
Kumho
Toyo
Hankook
Cheng Shin
Source: Tire Business

Table 3.2 12 Largest tyre manufacturers 2002/2003

Tyre Sales US$ billion
Tyres as % of total business
13.6
95
13.5
75
12.3
89
4.8
45
2.7
41
2.6
74
2.4
72
1.7
52
1.4
67
1.3
62
1.3
87
0.6
100

Even though the largest companies have a turnover well in excess of $10 billion, they remain
largely specialist tyre manufacturers. Almost all of Michelin's sales are attributable to tyre
manufacture, almost 90% of Goodyear's, and just under 75% of Bridgestones. Many of the smaller
companies also concentrate almost exclusively on tyres. However, the medium-sized companies
are diversifying away from tyre manufacturing. Pirelli has always had extensive interests in cable
manufacturing, Continental has now acquired a large business in automotive chassis systems and
Cooper has also diversified by buying a manufacturer of automotive components, although it now
seems to have decided that this was a mistake as it is trying to sell the non-tyre business.
The three major multinationals dominate world production patterns with 152 plants in all the main
world regions (Table 3.3). The smaller international companies have a further 55 plants worldwide
and these plants are, in general, much larger and more efficient than the around 200 plants
controlled by purely local companies. Indeed many of these latter plants are effectively closed
either through lack of investment or because foreign exchange difficulties prevent them from
importing raw materials.

14

Light Vehicle Tyres

Table 3.3 World tyre production facilities 2003

Region

Bridgestone

Goodyear

Michelin

North America
11
13
South America
5
7
Europe
6
14
Japan
9
1
Other Asia
8
8
Australasia
2
2
Mid east
1
2
Africa
2
2
Total
44
49
Source: Company accounts
Note: This table only includes plants belonging to international
plants owned by firms with plants in only one country.

15
5
31
1
5
0
1
2
60

Other
International
14
8
22
12
25
0
0
10
91

companies. It does not include

3.4 Markets by Product Sector

Passenger car tyres are the most well-known product of the tyre industry but they are by no means
the only product. World production of tyres ranges from lightweight and relatively unsophisticated
bicycle tyres to very large and very expensive tyres for giant machinery such as earthmovers or
jumbo jets. Table 3.4 shows the relative size of these markets in terms of value.
Table 3.4 World tyre market by product sector 2003
Sector
Value US$ billion
% of total
Passenger car and light truck
35.9
50.9
Heavy truck
23.4
33.2
Two-wheeler
4.2
6.0
Earthmover
4.1
5.8
Agricultural
2.4
3.4
Aircraft
0.5
0.7
Total
70.5
100
Source: Bowfell.net
The bulk of the market in volume terms comprises tyres for passenger cars and light trucks, but
heavy truck tyres account for more than a quarter of the market by value, and there are also
significant sectors for earthmoving vehicles, agricultural vehicles and two wheelers (motorcycles,
scooters and bicycles). Some of the smaller sectors such as bicycle tyres are low-tech commodity
products, but others, particularly earth moving and aircraft tyres, have higher margins than the
much larger markets for car and truck tyres.
3.5 Sector Markets
Unusually, if not uniquely, in the automotive components industry, the tyre manufacturers only sell
a minority of their output to original equipment manufacturers (OEMs). The bulk of sales are to
distributors selling to millions of individuals in the replacement market. The key factor that
distinguishes the tyre market from any other automotive component is the size of the replacement
market or aftermarket three quarters of road tyres are sold as replacement tyres and only one
quarter as original equipment (Table 3.5).

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Light Vehicle Tyres

OEM
Replacement
Total
Source: Michelin

Table 3.5 World tyre market by end-use 2003

Passenger car tyres (m)
278
716
994

%
28
72
100

3.5.1 Original Equipment (OE) Market

Although it only represents a minority of sales, the OE market is vitally important to the major
manufacturers even though the tyres are sold at very low prices. The vehicle manufacturers
stimulate and encourage tyre development and the specification of a tyre as original equipment
gives that manufacturer an advantage when the customer comes to replacing it. However, even
ignoring the additional R&D costs incurred, these tyres are sold to OEMs at prices that are barely
profitable. Although the OE market for light vehicle tyres is 30% of the total in terms of volume, it
only represents 19% in terms of revenue.
The continual drive by the OEMs to reduce their component costs has exacerbated this problem in
the last decade. Several tyre manufacturers have now put profitability before either volume or
prestige and have declined to bid for contracts. Most recently Michelin has either not bid for certain
new contracts or has declined to continue with existing contracts because of the very low margins
on these contracts. However, the pendulum will swing back as both the OEMs and the major tyre
manufacturers need each other. The OEMs know that only the largest tyre suppliers can afford the
R&D effort that is necessary when designing tyres for new vehicles. Similarly, the tyre
manufacturers like the credibility that association with well-known vehicle brands gives them.
Although only about a quarter of road tyres are specified and purchased by the vehicle
manufacturers, this segment of the market is very important as it drives technical development and
it has a major influence over the aftermarket. The regional demand is dictated by the location of the
main production centres for vehicles, namely North America, Europe and Japan (Table 3.6).
Table 3.6 Regional demand for OE tyres 2003

North America
Europe
Asia
South America
Middle East/Africa
Total
Source: Michelin

Volume (m units)

% of total

80
89
96
8
7
280

28.5
31.8
34.3
2.9
2.5
100

Forecast annual
growth rate
2003-2008
+0.34
+1.5
+6.2
+1.2
+6.2
+2.9

The big three tyre manufacturers dominate this market, but other large regional players also have a
share, particularly in Europe. The companies that do not play an important role in the OE market
are small local companies which do not have the technical resources to meet the demands of the
OEMs. Thus, even in a country like China or India with a substantial proportion of local tyre
manufacturers, the OEM assemblers in those countries invariably buy tyres from the subsidiaries of
multinationals in that country or from local firms with joint ventures with those multinationals.

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Light Vehicle Tyres

Table 3.7 Market share of major companies in the OE tyre market 2002
North America %
Europe %
Japan %
Big Three
82
58
73
Other major
14
38
27
manufacturers
Other
4
4
0
Total
100
100
100
Source: Michelin
As a matter of policy, most OEMs dual source for every model and spread their total purchase of
tyres over three or four manufacturers. The bad publicity caused by the Firestone recall in North
America has resulted in a significant move away from Firestone as a preferred brand. Bridgestone
is making a virtue out of necessity in this by actively encouraging Firestone OE customers to
switch to Bridgestone. Table 3.8 illustrates the variety of suppliers used by the Big Three car
manufacturers in North America. Toyota is also shown alongside the indigenous companies as it is
now approaching them in market share. Interestingly, it has a similar variety of suppliers with no
marked bias towards Japanese manufacturers.
Table 3.8 Tyre supply to North American OEMs 2003 (%)
General
Tyre Brand
Ford
Chrysler
Motors
Bridgestone
14
0
5
Firestone
17
0
0
Continental
0
15
0
General
17
23
0
Goodyear
34
34
78
Dunlop
0
0
0
Hankook
0
3
0
Michelin
4
15
16
BFGoodrich
10
3
0.5
Uniroyal
4
2
0
Pirelli
0
5
0.5
100
100
100
Source: Modern Tire Dealer
Tyre
Company
Bridgestone
Bridgestone
Continental
Continental
Goodyear
Goodyear
Hankook
Michelin
Michelin
Michelin
Pirelli

Toyota
24
9
0
9
14
27
0
12
5
0
0
100

The type of tyre specified by the OEMs differs quite markedly from region to region because of the
different vehicle mix sold in each market and the different driving habits. This is illustrated by the
contrast between the North American and European OE markets where performance tyres account
for over 50% of specification compared with only 13% in North America. The popularity of sports
utility vehicles (SUVs) in North America shows up with 33% of specification on new vehicles
whereas in Europe this only accounts for less than 5%, partly because there are far less SUVs
purchased and partly because many of these are relatively small and use passenger car tyres.

3.5.2 Replacement Market

Replacement tyre demand for light vehicles is usually less cyclical than OE demand, although
economic factors do influence it. Worldwide, the replacement tyre market for light vehicles
represented about 714m tyres (Table 3.9). As with OE markets the demand is concentrated in North
America and Europe which together account for over two-thirds of the market but the developing
markets, particularly in Asia, are growing rapidly.

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Light Vehicle Tyres

Table 3.9 Regional demand for replacement tyres 2003

Volume (m units)

% of total

249
235
149
33
48
714

34.9
32.9
20.9
4.6
6.7
100

North America
Europe
Asia
South America
Middle East/Africa
Total
Source: Michelin

Forecast annual
growth rate
2003-2008
+2
+3.3
+3.2
+2.2
+2.7
+2.9

Overall there is a healthy balance between mature and emerging markets. In mature markets
North America, Western Europe and Japan there is slow growth of about 1.7% per year but
compensated by the huge volume base giving an increase of about 50m tyres after four years. A
similar total growth is achieved in developing markets but there the high growth rate of about 9%
per year compensates for the much smaller market size. In both Tables 3.9 and 3.10 Asia shows
relatively low growth as the large, slow growing Japanese market offsets the smaller but rapidly
growing Indian and Chinese markets.
The replacement tyre market is certainly more profitable for the tyre manufacturers but it too has its
problems. Most of the large manufacturers have their own chains of retail outlets equity chains
in important markets in order to maintain and develop their market share. However these chains
have to compete with independent outlets, often both owned and managed by the same individual,
and they find it very hard to compete profitably with such outlets. Companies such as Continental,
Goodyear and Michelin have often put up with years of losses from their equity chains and they are
continually exploring new ways to make them consistently profitable. So far no one seems to have
succeeded in this for any length of time and there are signs now that some manufacturers are giving
up the fight. Continental has sold its equity chain in the UK and Bridgestone is concentrating on a
franchise network rather than owning its own outlets. However, Michelin appears to be going
against the trend as it is adding to its Euromaster chain incrementally and is using it to promote
broader marketing policies such as contracts with fleets and its OnWay insurance scheme whereby
motorists are compensated for punctured or damaged tyres.
3.6 Market Characteristics
The industry has long been regarded as a necessary but unexciting producer of commodity
products. The two key characteristics of the market, closely related to each other, are that the
industry is mature and slow growing and that the product is regarded as a commodity.
Faced with this classic problem, the industry has been taking steps slowly to improve its position
with classic solutions reducing costs and increasing the value-added content of sales. The sheer
size and global spread of the industry has militated against any rapid change, but the movement has
been going on for the last decade. However, in the last three or four years the industry has attracted
more attention from analysts and bankers, partly because of the debacle of the Firestone recall in
the US and partly because of an increased interest in the automotive industry and its associated
component suppliers. This focus of attention, particularly investors attention, on the industry has
stimulated more urgent activity in bringing about change. It is arguable that Goodyear would not
have come under such close scrutiny as it did during 2003 if it had not been for this changing
attitude of investors.
This theme of increasing change recurs throughout this report, but it is useful to place it in the
context of what has been happening and why it has been happening. The most dominant feature of
the market is that it is mature with many of the characteristics that typify such an industry.

18

Light Vehicle Tyres

3.6.1 Market Maturity

Although there are cycles of demand, the long-term growth of the industry in volume terms has
averaged just over 2% per year for the last eighteen years. Over the period, growth has been
vigorous in some regions, particularly Eastern Europe and parts of Asia. However, the two largest
regions North America and Western Europe which between them account for two-thirds of
world sales, show the slowest growth as they are mature markets (Table 3.10).
Table 3.10 World tyre industry long-term volume growth 1985-2003
Compound annual growth rate
Region
(CAGR) %
North America
1.1
Latin America
5.3
Western Europe
2.2
Eastern Europe
7.6
Asia
4.0
Total
2.3
Source: Bowfell.net
Growth in terms of value is rather more difficult to assess, as the strength of the dollar against other
currencies in recent years has tended to flatter some companies whilst apparently handicapping
others. However, an estimate by Deutsche Bank suggests that sales of the industry rose at 4.4% per
year between 1991 and 1998. Since then, however, there has been a turndown in the market and
revenues have fallen, partly because volumes are down and partly because intense competition
leads to larger discounts in the marketplace.
The problems of slow growth and market maturity are exacerbated by cyclical growth in one
important sector of the market, supply to OEMs. The OE demand for tyres, not surprisingly,
matches the output of the vehicle industry perfectly, and this is cyclical. Despite the poor
profitability of sales to OE customers because of the purchasing power of the vehicle
manufacturers, and even though the replacement market represents over 70% of the passenger car
tyre industrys sales, tyre makers profitability is also cyclical. This is because tyre makers have to
have sufficient capacity to support cyclical peaks. A decline in OE demand drives down capacity
utilisation rates and this is often compounded by negative pricing trends in the replacement sector
as manufacturers attempt to fill their capacity with extra volume from the replacement tyre market.
In contrast the replacement market is not particularly cyclical. Since 1975 there has only been one
two-year consecutive decline (in the USA in 1979 and 1980). It is also a relatively profitable sector
of the overall tyre market, but it cannot compensate for the vagaries of the OE market.
A traditional indication of market maturity is continual pricing pressure in the market. Although the
world tyre market appears to be an oligopoly, there are enough small competitors to keep continual
pressure on prices. This, together with competition for market share between the multinationals,
has typically meant that it has been very difficult to make price rises stick.
As a result, the prices of popular tyres have fallen consistently over a long period. One of the
largest selling tyre sizes in the USA demonstrates this. Average selling prices fell consistently
between 1979 and 2000, averaging an annual price drop of 2.3% every year. After 2000 the price
edged up by about 10%, probably because it was not being made in the same volume as before but
in the most recent year the price dropped again. In broad terms the tyre which cost $69.90 in 1979
was selling for $41.02 in 2003. This simple comparison is enough to expose the problem that all
tyre manufacturers have but if inflation is taken into account the picture is much worse. $69.90 in
1979 would be the same value as $185.43 in 2003. Electronic goods have declined in cost over that
period but very few other items match the decline of tyre prices. Even cars have increased by 2.5
times over the same period.

19

Light Vehicle Tyres

3.6.2 Tyres as a Commodity

The maturity of the market leads on to the perception of tyres as a commodity. In most markets the
tyre manufacturers try to avoid this perception of their product. because if the consumer can see no
difference between the products on offer, he/she will let price play a greater part in the buying
decision. Unfortunately for the industry, more than half of all consumers regard car and light truck
tyres as a commodity. This is both surprising and disappointing for the industry in view of the
critical role that tyres play in vehicle performance and the significant commitment that has to be
made to R&D.
Perceived differentiation between tyres of an equivalent grade is minimal, and brand substitution is
very common. The lack of brand loyalty is illustrated by the fact that 67% of consumers in the US
and 50% in Europe replace their original equipment tyres with a different brand when the time
comes to replace them.
It is extremely difficult to develop a unique selling proposition (USP) or to sustain product
uniqueness in the tyre industry. Consumers generally lack the information, expertise or ability to
test and evaluate different tyres independently. In addition, with few exceptions, tyre manufacturers
have proven adept at copying and incorporating technological innovations introduced by
competitors. To make payback from innovation even more difficult, when one manufacturer
introduces a truly unique feature or design, the OEMs are reluctant to accept it unless it is available
from at least one other source. A case in point is the Michelin PAX design which requires a new
wheel design for use. This has now been licensed to both Goodyear and Pirelli in order to make it
more acceptable to the vehicle designers.
Together these factors make it extremely difficult for tyre manufacturers to break out of the role of
commodity suppliers with all the implications of that type of business price competition, narrow
margins and a reliance on aggregate balances of supply and demand. The method that many
companies have tried in order to break out of this straitjacket is to develop strong brands, but this
has proved to be extremely difficult in the tyre industry. It can be done in specific regions for a
limited period of time, but it has proved impossible to translate this into higher earnings on a
permanent basis or to develop this brand equity globally. For example, in India, Bridgestone is a
relative newcomer, and it has succeeded in selling its light vehicle tyres at a premium to the
market, much to the chagrin of Goodyear which has had a market presence for many years and
cannot command a premium over tyres made by local Indian companies. In Europe, Pirelli has
established a good reputation for its high performance tyres, but this has not helped sales of its
volume products.
Because differentiation has proved so difficult to achieve, market share has remained relatively
stable over the last decade on a world scale. The leaders had approximately the same market share
in 2003 as was the case ten years before (Table 3.11).
Company
Bridgestone
Goodyear
Michelin
Continental
Cooper
Pirelli
Sumitomo
Total Top 7
Source: Tire Business

20

Table 3.11 World market shares 1991-2003

1991 %
1998 %
2001 %
17.5
18.7
19.8
15.6
15.4
18.3
20.0
18.4
19.0
7.2
6.5
7.1
1.7
2.1
3.6
5.5
4.0
3.7
6.2
7.0
4.0
73.7
72.1
75.5

2003 %
19.1
17.4
19.2
6.8
2.4
3.8
3.7
72.4

Light Vehicle Tyres

There are variations in market share from year to year but these are probably more the result of
variations in the exchange rate between different currencies than relative successes in the market
place.
3.7 Cost Structure
The major companies within the tyre industry are all constrained by the laws of economics and
subject to similar commercial pressures. As a result they react to the business environment in
similar ways at any one time. In very broad terms the cost of tyre manufacture breaks into three
parts: raw materials; labour; and fixed costs (Table 3.12).

Raw materials
Labour
Fixed costs
Source: Industry estimates

Table 3.12 Tyre industry cost structure

% of total costs
25
30
40-45

It is obvious from this simple breakdown of costs that the tyre industry has high fixed costs,
making it extremely difficult to improve returns unless costs are cut or market share gained.
Raw materials typically represent 25% of the selling price of a car tyre. Because of the extreme
difference in selling prices between the OE market and the replacement market (prices for
replacement tyres are typically about 80% higher than OE tyres), raw materials represent a much
higher proportion of the selling price of an OE tyre than of a replacement about 40% compared
with 20%.
The composition of tyres varies greatly so the figures in Table 3.13 can only be a general guide to
cost but some general lessons can be learned. The largest raw material costs are for rubbers both
natural and synthetic as between them they account for over 40% of the cost, but other
components, particularly steel cord, are also significant.

Synthetic rubber
Natural rubber
Carbon black
Steel cord
Chemicals
Fibres
Total
Source: Deutsche Bank

Table 3.13 Raw material cost breakdown

% weight
28
19
24
13
11
5
100

% cost
24
17
15
18
16
11
100

The price of synthetic rubber is directly dependent upon the price of oil and many of the other
materials are also very sensitive to this, so any change in world oil prices has a major effect on the
tyre industry. Goodyear, for example, states that every $1 change in the price of a barrel of oil
affects the operating profit by $25-30m, with the impact being felt within three to six months of the
change.
A certain amount of substitution is possible between natural and synthetic rubber, but even if this
could be done quickly and completely, many of the price advantages would be lost as there is a
correlation between the synthetic and the natural rubber price. When the price of synthetic rubber
goes up, so too does the price of natural rubber, and vice versa.

21

Light Vehicle Tyres

Nevertheless, despite these relatively immutable relationships, the tyre manufacturers can usually
pass on long-term price increases to customers. Over the last five years raw material price
fluctuations have never been an issue to the industry; indeed, there is some evidence that price rises
have been beneficial to overall profitability. However, there is no question that a period of falling
prices makes it easier to improve margins than a period of rising prices. 2003 saw the price of
natural rubber rise by 30% and rises of 10% are predicted for each of the two subsequent years.
Synthetic prices have generally followed suit and this pressure on costs has forced all major
manufacturers to raise tyre prices several times since 2002.
Labour costs represent about 30% of sales. Of these just over half (50-60%) are for direct labour
and the remainder for indirect labour. In North America and Western Europe wages are typically
$20 per hour compared with, say, $4 per hour in low cost countries such as Eastern Europe, Latin
America and especially Asia. It is scarcely surprising that the recent strategy of many companies
has been to focus more on shifting production to low cost countries. This has been helped by
relatively low transportation costs for the inter-regional movement of tyres about $1-2 for a
passenger tyre. Nevertheless, this still represents about 3% or 4% of the finished product, so there
will not be a wholesale transfer of manufacturing to the Far East, as has happened with electronic
goods, for example. A further factor reinforcing the presence of tyre plants in high labour cost
countries is the need to be close to the market and the increased emphasis on flexibility in
manufacturing.
The fixed costs of the industry represent the single biggest element of expense. Left unchallenged,
these expenses tend to grow in line with inflation, so the industry needs to achieve annual revenue
growth of 3-4% just to maintain its existing margins. Any drop in turnover or worsening of
business conditions has a strong negative impact on financial results for companies in the industry.
It is in this area that manufacturers are now questioning assumptions that used to be an article of
faith in the effort to trim costs.
3.8 Productivity Increases
As all companies in the industry have similar cost structures and they are all subject to the same
market forces, they tend to react in similar ways. There is a continual need to drive down costs, and
this is demonstrated in a number of ways. Productivity improvements are essential year on year,
but this in turn leads to a surplus of plant and equipment overcapacity. There can be good reasons
for an individual company to keep surplus capacity, even though it is generally accepted that the
industry as a whole is suffering because of this but eventually individual companies are forced to
bite this particular bullet. For many years the operating companies in both North America and
Western Europe resisted closures but since 2000 there have been a succession of closures,
particularly in Europe.
In the last decade all manufacturers have tried to increase productivity in existing operations in
order to become low-cost producers. Productivity improvements have been mainly the result of
many small incremental improvements, but one major change that virtually all manufacturers have
made is to move over to continuous three-shift, seven-day working. This took a long time to
establish, and not without some long and bitter strikes, particularly in the US. Despite these
problems there are now few plants owned by the multinationals which do not operate on this basis.
Ironically there is now a move away from seven-day working because the market is becoming
more fragmented and the companies now need to improve their flexibility in terms of product
supply. Overall productivity improvements are generally in the range of 3-5% each year and this
has been achieved for several years in succession, but it becomes a more difficult target each year
as all the easy savings and improvements have been made.

22

Light Vehicle Tyres

3.9 Capacity Changes

This continuing drive for improved productivity has resulted in excess capacity in many areas and
product sectors. Some new plants have been opened to exploit new manufacturing technology and
new manufacturing equipment has been installed in some existing plants. This, as well as leading to
more efficient working, has greatly increased capacity, but until recently the major manufacturers
have proved to be very reluctant to close plants, thereby eliminating higher-cost facilities and
reducing overall capacity. This is not so much down to lack of will on the part of the tyre
manufacturers but more because of the political and other consequences. Complete factory closure
is an untidy and costly (in the short term) business, which almost inevitably raises opposition from
local politicians and local and national labour representatives.
One of the first to experience this was Continental in the mid-1990s when it moved production of
car tyres from Traiskirchen in Austria to the Czech Republic. Even though, when the
announcement was made, there was no mention of the factory being shut down completely, there
were strong objections from the local community. They feared, quite rightly, that this would prove
to be the start of a continuing erosion of the facilitys operations. Continental became enmeshed in
long and acrimonious discussions with both the unions and the Austrian government. In late 1998
plans were announced for a doubling of the remaining production at Traiskirchen to 1m tyres per
year in 1999, and undertakings were made for both sides to make their best endeavours to retain
production at that site. However, it proved to be in vain as in December 2001 Continental
announced that it would stop all tyre manufacturing by July 2002. As a sop to local opinion, certain
mixing and calendaring functions have been retained on the site, but the prospects for this operation
can scarcely be regarded as secure.
Despite the problems involved in closing plants, the pressures to do so have remained and all the
main manufacturers have now taken decisive action to make major operational savings (Table
3.14). They were slow to do so at first Continentals tribulations at Traiskirchen served as a
warning to the whole industry but after initial hesitation, a large number of difficult decisions
have been taken. The majority of these were taken in 2001 and early 2002 and since then there
have been a steady trickle of further closures or capacity reductions in Europe as the realities of the
new world order began to be felt. Not only was the real market growth away from Europe but
cheaper labour was also available in abundance.
Supply estimates are not a precise figure as output can be varied to some extent and production can
be switched from one type of tyre to another, but it is possible to make informed estimates of the
overall position in each region. North America is roughly in balance but there has been a
substantial overhang of capacity in both Europe and South America. Asia too has more capacity
than it can justify in terms of its own market but the cheap labour resources in that area mean that
the plants can produce for export to areas with higher labour costs.
The major manufacturers have been acutely aware of the capacity problem, but for reasons already
discussed, have been slow to act. Now, however, a concerted effort is being made to reduce
capacity and to close plants in order to bring supply and demand more nearly into balance. Table
3.14 lists the major decisions taken in recent years by the multinationals to either close or greatly
reduce production. Although the first of these closures took place in 1996, the great majority were
announced in 2001 or the first part of 2002 even though they are only now coming into effect.
Once one company has committed to closures it is easier for all the others to follow suit.
The overall outlook for the tyre industry is dependent upon supply much more than demand.
Demand is relatively predictable and not very volatile, even if cyclical. Above all it is inelastic. If
tyre prices were to decline by, say, 5% from current levels consumers would not be motivated to
replace their tyres any faster. In contrast there is a close relationship between aggregate supply and
profitability for individual tyre companies. Companies will not receive any revenue benefit from
increased demand if prices decline. Nevertheless, because of high fixed costs, tyre manufacturers
with excess capacity are invariably the instigators of downward price movements as they attempt to

23

Light Vehicle Tyres

gain volume by increasing their market share, thereby increasing their own capacity utilisation. The
closures and decommissioning highlighted in Table 3.14 will undoubtedly contribute towards
reducing excess world capacity, as they represent approximately 8% of world capacity, but there is
still a long way to go in order to bring demand and supply into balance
Table 3.14 Major capacity reductions 1995-2003
Decatur, Ill
USA
UK
Newbridge
Ireland
Dublin
Belgium
Herstal
Sweden
Gislaved
Germany
Vergoelst
Austria
Traiskirchen
Mexico
Guadajara
UK
Goodyear
Birmingham
UK
Wolverhampton
France
Montlucon
Philippines
Marikina
Greece
Thessalonika
Argentina
Buenos Aires
Italy
Cisterna
Mexico
Tultitlan
Australia
Thomastown
Australia
Footscray
Mexico
Michelin
Querataro
Mexico
Tacuba
Philippines
Manila
UK
Stoke-on-Trent
Sweden
Kungalev
Greece
Pirelli
Patras
US
Hanford, Cal
Source: Industry announcements
Bridgestone
Continental

3.10 Production Relocation

The capacity problem is complicated, and in many cases exacerbated, by the rapidly growing
markets and the availability of cheap labour in the developing world. This is at its most pronounced
in China and India but other parts of Asia and, to a lesser extent, Eastern Europe also offer
attractions to multinational companies. The movement has been taking place, not just as a simple
closing of plants in one area and opening new plants in another. This is the most obvious
manifestation of the trend but offtake agreements and joint ventures can lead to a real shift in
resources over time.
At first this took the form of making acquisitions in low labour cost countries, particularly Europe.
With the break-up of the Soviet bloc, western manufacturers made major acquisitions in the
countries of Eastern Europe (Table 3.15).
Part of the reason for this was to establish a presence in new markets, but a major factor was the
availability of low-cost labour adjacent to the large market in Western Europe. A similar process
has been happening in South America, with Continental buying Grupo Carso in Mexico and
Michelin buying Icollantas in Colombia, though in both these cases the main attraction was to
develop a presence in the local market. The availability of relatively low-cost labour adjacent to a
major market (USA) was an additional reason for these acquisitions, but by no means the main one.
However, multinational companies have other ways of shifting production to cheaper areas than by

24

Light Vehicle Tyres

the obvious (and expensive) acquisition route. Differential investment in existing low-cost and
high-cost plants can achieve the same result, albeit over a longer period of time. Michelin took a
different approach by buying a shareholding in Hankook. Again, the reason was twofold; to gain an
entry into the protected market of South Korea and to obtain low-cost manufacturing facilities.
Table 3.15 Acquisitions in Eastern Europe 1995-2003
Year
Country
Target
Acquirer
1995
Poland
T C Debica
Goodyear
1995
Poland
Stomil Olsztyn
Michelin
1996
Hungary
Taurus
Michelin
1997
Slovenia
Sava. (part)
Goodyear
1997
Czech Republic
Barum (part)
Continental
1998
Slovakia
Matador (JV)
Continental
1998
Poland
Stomil Poznan (JV)
Bridgestone
2001
Romania
Tofan (part)
Michelin
2002
Russia
Moscow Tyre (JV)
Continental
2002
Serbia
Tigar AD (JV)
Michelin
2004
Slovenia
Sava (part)
Goodyear
Source: Company announcements
Cooper Tire, which has always been very focused on the American market, is now looking to
China for low-cost supplies. In October 2003, it announced an outsourcing agreement with Chinas
Hangzhou Zhongce Rubber Co. Ltd. to make Coopers radial medium truck tyres, which currently
are produced solely by the Albany plant, at Hangzhous plant in China. Cooper will move most of
its equipment from Albany to China. It is now taking this one step further by announcing in
December 2003 that it would establish its own factory in China in a joint venture with Taiwans
Kenda Rubber Industrial Co. Ltd. to build a plant for radial passenger and light truck tyres.
Although both companies have eyes on the growing Chinese market, the initial production is
reserved for export to the USA in the companys various brands. Cooper and Kenda have
cooperated in the past, with Kenda supplying Cooper with bias-ply light truck tyres since 1999 for
North America and radial car tyres since 2000 for Europe. However, the latest moves go far beyond
a simple offtake agreement.
As transport and logistical costs are relatively low, there are very significant savings to be made by
substituting low-cost for high-cost labour. Assuming that half the direct labour production is moved
to low-cost countries, the savings could be as much as 10% of the tyre selling price.
Continental has been the most active in making this move, mainly because the bulk of its
production was located in high-cost areas of Western Europe, particularly Germany. It began by
building up production at its relatively low-cost plant in Portugal and then gradually closing plants
in Ireland, Scotland, Austria and Belgium as well as reducing production at its Hanover, Germany
headquarters. The process was accelerated when it opened a joint-venture plant with Matador in the
Czech Republic for passenger tyres and in Slovakia for truck tyres. The new Romanian plant at
Timisoara, which is now in production will give it an even lower cost base. In 1995 it produced
20% of its passenger car tyres in low-cost countries; by 2003 it had increased this proportion to
50%.
The benefits of this strategy are already becoming apparent for Continental. In 2002 Michelin
began to terminate OE contracts which were particularly unprofitable. It first refused the Peugeot
307 platform, then the new joint small Renault/Nissan (Clio/Micra) platform and then a Saturn
contract. In May 2002 it took the bigger step of dropping all OE business with GM Europe,
(including Fiat business included under the GM-Fiat purchasing umbrella). It appears that
Continental has been able to pick up a large slice of this business, and it has probably been able to
do so profitably because of its low labour costs in Eastern European production locations.

25

Light Vehicle Tyres

3.11 Consolidation
Another natural and more aggressive response to market forces which pressure margins is for
companies to look for ways of reducing competition. The obvious way to do this is to acquire
rivals, thus reducing the number of active competitors. The most dramatic moves occurred nearly
20 years ago when there was a short period of frenetic activity and the industry structure changed
very quickly, but the repercussions of those acquisitions are still being felt today.
Before 1985 a dozen large companies dominated the world tyre market, but after a rapid series of
mergers and acquisitions, seven companies emerged with three-quarters of the market. Table 3.16
demonstrates how the rankings of the leading companies have changed between 1978 and 2003 and
how many of the leading names have been taken over.

Rank

Table 3.16 Changing structure of the world tyre industry 1978-2003

1978
2003
Company
Country
Company
Country
Goodyear
USA
Michelin
France
Michelin
France
Bridgestone
Japan
Firestone 1
USA
Goodyear
USA
Bridgestone
Japan
Continental
Germany
Dunlop 2
UK
Pirelli
Italy
Uniroyal 3
USA
Sumitomo
Japan
3
Goodrich
USA
Yokohama
Japan
Pirelli
Italy
Cooper
USA
General Tire 4
USA
Kumho
South Korea
Yokohama
Japan
Toyo
Japan

1
2
3
4
5
6
7
8
9
10
Note:
1 Acquired by Bridgestone
2 Acquired by Sumitomo
Source: Bowfell.net, Tire Business

3 Acquired by Michelin
4 Acquired by Continental

Of the ten leading companies in 1978, only five are now still independent in 2002. The first move
in the succession of mergers and takeovers was made in the Far East and had little to do with the
activity that was to follow. In 1981 Sumitomo Rubber Industries, a relative newcomer to the tyre
industry, bought a controlling interest in Ohtsu, a fellow Japanese manufacturer that had
experienced difficulties because of the 1979 oil shock. Four years later Sumitomo again found
itself in the right place at the right time. In Europe, Dunlop, one of the best-known brand names in
the world tyre industry, had tried to achieve a higher world rank by merging with Pirelli. This illfated merger proved to be a disaster for both parties, and it was disentangled after a brief period,
leaving Dunlop on its own again with a strong brand name and weak management an ideal
acquisition candidate. BTR, an expanding conglomerate with no interest in tyres, bid for Dunlop in
1985 and eventually succeeded in taking over the company. In order to pay for the acquisition, it
sold off most of Dunlops tyre interests, together with the sporting goods business, to Sumitomo.
Sumitomo could interpret this as a defensive move because it had previously been the licensee for
the Dunlop name in Japan and it needed to protect that business. However, it set other companies
thinking about the structure of the industry and their own future role.
The round of aggressive takeovers began in 1985 in a small way with Continentals acquisition of
Semperit, a small Austrian producer, and in the following year two mid-sized US producers,
Uniroyal and BF Goodrich, merged in a defensive manoeuvre as both companies were losing
market share to stronger rivals. The real change in attitudes came about later in 1986 when Sir
James Goldsmith put together an ambitious and highly leveraged bid to purchase Goodyear, the
biggest tyre company in the world at that time. This particular bid failed, but it was a landmark, not
just in the tyre industry but in the much wider field of financial mergers and acquisitions. It

26

Light Vehicle Tyres

demonstrated that there was finance available for well-constructed proposals, and it also
demonstrated that even the biggest of companies could be vulnerable.
The new thinking led to a spate of cross-cultural mergers. First, Continental of Germany
successfully bid for General Tire in the US. This was then followed by the most dramatic takeover
of all, Bridgestone of Japan making a successful bid for its old mentor, Firestone. Pirelli then
acquired Armstrong Rubber of the US, and Yokohama, emboldened by its compatriots success,
acquired the much smaller Mohawk Tire. Finally Michelin made a successful bid for the ill-fated
Uniroyal-Goodrich, which had already sold its European operations and licensed the Uniroyal
name in Europe to Continental.
In the meantime, Pirelli had also made a long drawn-out attempt to acquire Continental in order to
form another European company capable of challenging Michelin, but in the end it failed because
key German shareholders were opposed to the idea. Consequently, Michelins acquisition of
Uniroyal-Goodrich was the last shot in a hectic battle that had lasted five years and completely
changed the structure of the world tyre industry. A few small acquisitions followed, such as
Continentals purchase of Gislaved and Viking in 1992, but the industry needed time to digest and
to respond to the changes that had occurred. A summary of mergers and acquisitions from 19811992 is given in Table 3.17.
Table 3.17 Merger and acquisition activity 1981-1992
Acquirer
Target
Sumitomo (Japan)
Ohtsu (Japan)
BTR (UK)
Dunlop (UK)
Continental (Germany)
Semperit (Austria)
Sumitomo (Japan)
Dunlop (part only)
Uniroyal (USA)1
BF Goodrich (USA)1
Finance consortium 2
Goodyear (USA)
Continental (Germany)
General Tire (USA)
Bridgestone (Japan)
Firestone (USA)
Pirelli (Italy)
Armstrong Rubber (USA)
Pirelli (Italy) 1, 2
Continental (Germany)
Yokohama (Japan)
Mohawk (USA)
Michelin (France)
Uniroyal-Goodrich (USA)
Continental (Germany)
Gislaved & Viking (Sweden)

1981
1985
1985
1986
1986
1986
1987
1988
1988
1989
1989
1989
1992
Note:
1 Merger
2 Failed
Source: Bowfell.net

What had started out as a few minor adjustments and some defensive moves to protect tyre
suppliers own interests had quickly evolved into a frantic struggle for market share and a presence
in different markets. History seldom repeats itself, but it is perhaps worth examining the results of
the last round of changes. The driving force behind most of the acquisitions was foreign
companies desire to increase their presence in the key North American market. Three acquisitions
were eventually successful: Bridgestones acquisition of Firestone; Michelins takeover of
Uniroyal-Goodrich; and Sumitomos purchase of Dunlop (which had a significant presence in
North America). Of the others, the results have been less happy. Yokohamas acquisition of
Mohawk was a good buy in terms of assets purchased and the price paid for them, but the company
was not big enough to remain viable in the US market, even with the addition of Yokohamas
existing import business. It is still making a loss many years after the purchase, and it has done
nothing to help Yokohama.
Pirellis acquisition of Armstrong was followed by closures, reductions and rationalisations, even
though Pirelli insisted it was happy with the original decision. Finally, in 2001 the company at last

27

Light Vehicle Tyres

threw in the towel and closed its sole remaining plant in Hanford, California. Continental fared
little better. At the time it paid far too much for General Tire as the company had old and poorly
maintained factories as well as a poor brand image. It paid for this error of judgement with a stream
of losses which carried on until the late 1990s but it eventually brought it back to profitability after
a lot of capital investment. However, this lasted for only two years and since 2000 the North
American operations have reverted into losses.
Both Pirelli and Continental had intended to make premium quality tyres at their new acquisitions,
but the plants were unsuitable and the existing brand image was inappropriate. Continental has now
almost achieved that objective but only after years of investment and management time. Pirelli
failed completely. Even the companies that have managed to make a success of their purchases
have had to make very large investments, spending far more than they anticipated, in order to make
factories competitive. The record of rationalisation is therefore rather mixed.
Immediately after the last round of consolidation the world market slipped into a mild recession,
and this exacerbated the restructuring problems facing all the mergers. As well as plant closures,
there were long and acrimonious battles with the unions as each company tried to negotiate more
flexible working practices. This battle was eventually won, as it had to be, because the whole
industry was moving towards continuous shift working in order to improve productivity, but in
order to win it both Bridgestone and Michelin had to endure long strikes.
The day of the huge global acquisition would now seem to be over. From time to time there are
rumours that Pirelli would like to dispose of its tyre interests or that Continental would concentrate
on its braking and suspension activities, but these are no more than speculation. No new player is
likely to want to enter the tyre industry as the slow growth prospects and narrow margins make it
unattractive. At the same time the big three players Bridgestone, Goodyear and Michelin
already have a global network and are enjoying good economies of scale in such areas as R&D,
brand management and purchasing. There is no real incentive for them to make such large
acquisitions for such little return, leaving aside the problems that could be encountered with
competition authorities in both North America and Europe.
Attention has now turned to other methods of consolidating the industry and extending global
reach. There are still some small acquisitions taking place, but these are either medium-sized firms
developing new markets (Cooper purchasing Avon) or large firms filling in weak parts of their
global network (Michelin buying Icollantas of Colombia; Goodyear strengthening its control of
South Pacific Tyre).
Rather than acquisitions or even mergers, the trend now is for firms to form alliances or joint
ventures. Goodyear and Sumitomo Rubber announced the largest and most dramatic of these. The
two companies had been developing closer links for several years, but in 1999 they announced a
comprehensive series of joint ventures, pooling their resources in several major markets across the
world. Essentially Goodyear has dominated this alliance, taking control of the North American and
European operations as well as R&D and purchasing, but the importance of the alliance is that it
was the first formal link between a Japanese and a western company. Ironically, although Goodyear
has had more operational control than Sumitomo, it has over-reached itself in terms of the debt it
took on and it has been in thrall to its bankers since early 2003. Sumitomo, meanwhile has gained
in strength and reported growing profits.
Since this major collaboration there have been a number of smaller joint ventures, but most of these
have been in areas where acquisitions are politically difficult. Both Bridgestone and Michelin have
formed joint ventures in China in order to give them a foothold in this vital emerging market.
However, the trend does seem to be towards larger and more formal alliances.
Cooper and Pirelli formed a partial alliance with the idea that Cooper could help the sales of Pirelli
in North America whilst Pirelli could perform the same service for Cooper in South America.

28

Light Vehicle Tyres

Although sound in theory, this failed to work in practice and the alliance has now been
substantially altered to let each party play to its strengths.
Yokohama and Continental have now formed an alliance, although it does not appear to be as
formally based or as far reaching as the Goodyear/Sumitomo alliance. In February 2002 Yokohama
and Continental signed a formal contract to set up a joint-venture company to meet the needs for
OE tyres for Japanese carmakers and a contract to cooperate in expanding Continental's
replacement tyre sales in Japan. The two companies also signed a contract for exchanging their
technology. These contracts were based on a Letter of Intent signed in June 2001 for closer
collaboration in both companies global tyre businesses. In April 2002, Yokohama Rubber became
the exclusive importer/distributor of Continental tyres in Japan and started distributing Continentalbrand and other main tyre brands of Continental for passenger cars as well as tyres for industrial
vehicles. Yokohama and Continental are also continuing to discuss a closer tie-up in the field of
tyre production and technology in the North Atlantic Free Trade Area (NAFTA). The two
companies are evaluating concrete cooperation on improvement measures for quality, cost and
delivery, including the unification of product specifications, the exchange of production items and
cooperation in product distribution. Both companies have joined with Bridgestone in promoting the
different concepts for runflat tyres developed separately by Bridgestone and Continental. This is
probably more a reaction to the group of licence holders that Michelin has built up for its PAX tyre
than the harbinger of a closer relationship between the three companies.
A more traditional method of consolidation than the new concept of alliances is the old-fashioned
method of buying shares in a company and both Bridgestone and Michelin have followed this route
recently. In April 2003 Bridgestone acquired an 18.9% ownership stake in Nokian Tyres, by
agreeing to buy Nokia Corp.s 2 million shares of Nokian Tyres for $73.2 million. Bridgestone said
it intended Nokian Tyres to continue as an independent company. The two firms stated that they
would examine ways to complement each others product development, testing and distribution
operations but this could obviously develop into a much closer co-operation.
At about the same time Michelin and Hankook signed a partnership agreement, apparently
involving co-operation in R&D, manufacturing and distribution. Hankook would be licensed to
produce Michelin's PAX runflat technology as part of the agreement. Michelin took a 10% stake in
the Korean company, which, based on the share price when the deal was signed, is estimated to
have cost just over US$33 million. However, it emerged later that there was more to the agreement;
it was not just technical co-operation but is a more wide-ranging agreement than originally
disclosed, according to analysts who cover Hankook. The deal offers Hankook access to Michelins
distribution networks in Europe and North America and gives Michelin a chance to tap into
Hankooks low-cost manufacturing in Korea and China. Michelin now will ship Hankook tyres
through its own distribution networks in Europe and North America, allowing Hankook to reduce
the complexity of its distribution and thereby lower its distribution costs while retaining more of its
margins for itself. Michelin, in return, gains access to Hankooks low-cost production in China
where Hankook has committed about $250 million over seven years to triple output and to
Hankooks Korean distribution network and OE presence. Michelin plans to source about 9 million
to 10 million BFGoodrich-brand tyres from Hankook plants for sale in North America.
This would seem to be the future direction for the tyre industry formal alliances, informal
partnerships and minority share purchases rather than outright mergers or acquisitions. In the last
five years 14% of the global industry has consolidated, so these less dramatic agreements can still
have a major influence on the structure of the industry.
These actions and reactions to the prevailing economic conditions by the companies in the industry
ensure that the industry is continually evolving. It may not be a fast growing or particularly
profitable industry at present but the major players are trying to position themselves to take what
advantage they can in the prevailing circumstances. In so doing they are changing the shape and the
structure of the industry.

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4 Manufacturing
4.1 Introduction
Until this last decade, tyre manufacturing had developed little from the time when it was first massproduced. In the early days of tyre manufacturing there were a steady stream of improvements
treads, bead wire, steel reinforcement which all improved the product, and altered the
manufacturing process but from the 1920s onwards these structural and material changes altered
little. The introduction of the radial tyre, the only truly innovative development that the industry
has produced, in the 1950s and 1960s was a major change, requiring completely new machinery.
Indeed, the cost of this replacement was a major factor in the decision by the big American
companies to delay changing over to radials. However, this was a product improvement, and even
that was fifty years ago. There have been no comparable advances in process improvement since
1920.
For much of its history, tyre making has been a multi-stage and highly labour intensive industry,
involving building up the tyre carcass manually, in layers on a drum. Each layer of material is often
cut to length by hand before going off to be encased in its sidewall and tread components and then
vulcanised. The introduction of automated processes has tended to be gradual and partial;
evolutionary not revolutionary. Modern plants now have sequenced feeds and autocutting of
materials to the building drum, but the whole process would still be recognisable to the
manufacturers of the 1950s.
This is all now beginning to change, as first Michelin and then most of the major tyre
manufacturers have announced radical new manufacturing processes which promise dramatic
improvements in investment costs, productivity, material saving and quality standards.
Unfortunately, although eager to announce these general improvements, the tyre manufacturers are
all extremely reticent about disclosing the details of their processes, so it is difficult to find out
exactly how the tyre is made, let alone compare the process in one company with another.
However, cumulatively there is no doubt that a paradigm shift is taking place in the industry, which
will change the economics of tyre manufacturing and the marketing fundamentals of tyre
distribution. In order to understand these changes, it is worthwhile examining how tyres are made
at present and then reviewing the pressures on the industry that have brought about these proposed
and actual changes to the manufacturing process. The various manufacturers solutions are then
compared, before examining the implications these changes will have for the industry as a whole.
4.2 Materials
Table 4.1 Tyre materials
Material
Natural rubber
Synthetic rubber
Total rubbers
Filler
Steel
Chemicals
Textiles
Total
Tyre weight (new)
Tyre weight (scrap)
Source: Rubber Manufacturers Association

% weight
16
30
46
26
12
12
4
100
11.3 kg
9.0 kg

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Tyres are composed of many more materials than just rubber, and each of these constituents is
complex on its own right, so that variations in formulae can result in marked differences in final
tyre performance. Although the tyre is a highly engineered product, it owes as much to chemistry
as it does to physics, and each of the materials making up the final mix has an important role.
To put these in context, Table 4.1 lists the major classes of materials in a passenger car tyre by the
proportion of total weight that each represents.

4.2.1 Rubber
Rubber is the classic polymer; a compound of high molecular weight made up of a linked series of
repeated simple monomers. It was the first polymer that was used in any great volume and it has
some unique properties. It can seal gaps, absorb noise and offers a soft, yielding surface, which is
far more comfortable to hold than either greasy plastics or cold metals. At first its composition was
not understood but research gradually opened up its secrets and synthetic rubbers have gradually
been introduced throughout the last century. The quality of these rubbers has gradually improved
and new synthetics have been developed with specific properties for use in various key parts of the
tyre. Production of synthetic rubber achieved parity with natural rubber in 1967 and since then
more synthetic rubber has been used in tyre production than natural rubber.
Natural and synthetic rubbers are interchangeable to a certain extent, and the proportions used in
tyre formulae can, and do, vary from time to time. The key factor in this decision is usually price;
when the price of oil goes up synthetic rubbers become more expensive and demand for natural
rubber increases as a substitute. The reverse is also the case; when natural rubber is in short supply
the price rises and synthetic rubbers are in more demand. This process can only be taken so far in
either direction, as the formulae for each type of tyre are developed in order to give the finished
product specific properties. There is a limit, particularly in the short term, as to the amount of
substitution that can take place.
Broadly, natural rubber is used when its key technical properties are in demand. These include low
hysteresis losses, good green tack and good crystallisation properties. At the same time, it has
disadvantages that can militate against its use. It is sensitive to reversion so, when it overheats in
service, the performance deteriorates relatively quickly compared with many synthetics. The chief
problem is contamination, which is found in a relatively high proportion of bales of natural rubber.
Typically contamination rates are from 0.03% up to 0.2% compared with synthetic rubber, where
contamination is virtually non-existent.
Natural rubber also has a broad viscosity spread. Whereas the repeatability of synthetic rubber is
within 1 Mooney unit (a measure of the resistance of unvulcanised rubber to deformation), for
natural rubber it is around 4.5 units. This variability of viscosity can cause considerable problems
at the mixing stage and tends to discourage the use of natural rubber.
Both of these negative qualities are linked to the agricultural origins of natural rubber. The material
often gets contaminated with slivers of wood or particles of grit, and these contaminants become
points of weakness in the final product. Any small particle embedded in the rubber acts as a stress
concentrator, increasing the actual stress at that point by a factor of three or more over the
theoretical bulk figure. This can reduce the life of a tyre dramatically as, for example, a truck tyre
is often designed for a life of one million kilometres and well over 300 million load cycles.
However, perhaps the worst handicap for natural rubber in comparison with synthetic rubbers is the
lack of technical backup. Variations in the polymer are much bigger than in the manmade synthetic
rubbers, yet the latter usually have strong technical backup from the manufacturers. In contrast the
technical support for NR is virtually non-existent.
Table 4.2 summarises the advantages and disadvantages of the different types of rubber commonly
used in tyres.

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Table 4.2 Advantages and disadvantages of different rubbers

Type
Advantages
Disadvantages
Variable uniformity of quality
Natural rubber (NR)
Tear strength
Ageing resistance
Wear resistance
Fatigue resistance
Impact resilience
Ozone resistance
Low heat generation
Impact resilience
Styrene-butadiene rubber
Processability
Heat generation
(SBR)
Uniform quality
Ageing by heat
Frictional force
Tear strength
Butadiene rubber (BR)
Impact resilience
Wear resistance
Low temperature properties
Fatigue resistance
As NR
Isoprene rubber (IR)
As NR
plus
plus
High Cost
Consistent quality
Impact resilience
Halogenated butyl rubber (IIR) High air impermeability
Heat generation
Ozone resistance
Adhesion
Fatigue resistance
Source: Toyo Tire
The choice of different types of rubber when designing tyres depends on prices, processing and
service requirements.
As outlined above, rubber prices are important as they dictate what rubber is bought which affects
manufacturing routines such as formulations, mixing procedures, vulcanisation conditions etc. This
will all have an effect on the overall manufacturing cost. Processability includes the ease with
which rubber can be mixed, shaped and vulcanised, together with its convenience in terms of
presentation.
Natural rubber usage first fell below that of synthetic rubber in 1965, and by 1985 it had slipped to
only 30% of total rubber use. However, it is gradually increasing its proportion of the rubber
market once again, and it has now reached about 40% of the total.
The main reason for this is ongoing research which is finding new or better uses for natural rubber.
For instance, oil extended natural rubber (OENR) has made an impact on winter tyre treads. Trials
in Sweden showed that unstudded OENR treaded tyres had a better grip on ice and snow than
studded synthetic rubber treads. Consequently it was able to take over from studded tyres when the
ban on the use of studs came in as authorities recognised that in melted sections the studs tore up
the road surface.
Another factor which is likely to become much more important is the environmental impact of NR
compared to SR. It is estimated that only 16 GJ (gigajoules) of energy is required to produce one
tonne of natural rubber, whereas a synthetic rubber such as SBR requires 130 GJ, more than eight
times as much. The natural product also plays an important role as a carbon sink.
The geographic development of the world tyre industry could also affect the balance between NR
and SR. It is likely that synthetic rubber will make gains at the expense of its natural counterpart in
the less developed industrial regions as they start to manufacture more sophisticated products. This
is already forecast to be happening in China, and it is likely that other developing economies in
Asia will follow a similar pattern at a later stage. Set against this, it is likely that Russia and the CIS
(Commonwealth of Independent States, formerly USSR) will begin to use more natural rubber as
the economy opens up and the rubber industry begins to compete in the world market.

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4.2.2 Carbon Black

Traditionally tyres are black in colour, although rubber itself varies from pale to dark brown. The
colour is achieved by the addition of carbon black, a very important filler material used to
strengthen or reinforce the rubber compounds and to extend tread life. In the early days of motoring
french chalk was used as a filler, making the tyres greyish-white in appearance. It was used to bulk
out the more costly materials rather than adding any unique properties to the mixture. In 1907
Pirelli started to add carbon black as a filler and discovered that this improved the wearing
properties of the tyre. Other tyre manufacturers also began using carbon black. There was a
transitional period at first with tyre treads using carbon black because it was there that abrasion
resistance was most important, whilst the sidewalls remained white because they still used chalk.
However, when it was realised that the black also constituted a barrier to degrading ultraviolet
light, carbon black was used for this component as well.
Carbon black, also known as lampblack or channel black, is made from heavy aromatic tar oil, a
petroleum-based feedstock. The oil is pumped into a specially designed furnace, where it is heated
above 2,000 F. This process cracks the oil to produce a gas stream laden with carbon black
powder. The particles result from incomplete combustion in the reaction furnace. The gas stream
passes through a series of filters, where the carbon black is separated from the gases. The carbon
black powder then is bound with water to create larger beads or granules, which are passed through
a dryer and packaged for delivery. The small particles typically used in tyre rubber make the
compound harder and improve the wear resistance of the material, but at the same time they allow a
higher heat build-up and reduce the elasticity.
A renaissance in carbon science seems to be happening, stimulated by the greater understanding of
the structures developed. Despite the fact that this field is widely seen as mature, with processes,
products and applications that are well established, there is plenty of scope for advances in
understanding. The wind of change is also blowing in carbon black production technology, where
manufacturers are using a process that has changed very little over the last 60 years. The process is
characterised by very poor yields, of 35 to 65%, and is also environmentally damaging, producing
SOx, NOx and CO2 emissions. Up to 50% of the carbon is wasted in CO2 production,
Carbon black has been used as the filler of choice for tyres since the 1920s, although it is now
receiving competition from silica. The three largest producers of carbon black are Cabot
Corporation, Degussa and Columbian Chemicals, but many petrochemicals manufacturers also
produce it. Between them, these three produce about 54% of supply with the remainder accounted
for by 20-30 other companies. Tyre production takes around 70% of the world carbon black
production of 8,500 kilotonnes. As with tyre production, carbon black manufacture is moving
towards the growth markets, particularly Asia, and small companies in India and China have shown
exceptional growth in the last few years. Over 30% of world capacity is now in Asia and this
proportion is growing at the expense of North America and Europe (Table 4.3).
Table 4.3 Carbon black production by region 2002
Region
%
North America
25.97
Asia-Pacific
33.86
Western Europe
15.68
Eastern Europe
13.79
South America
5.0
Africa
3.7
Source: Hi-Tech Carbon
Carbon black is a business that has been plagued by overcapacity for decades. The average growth
rate of the industry is 1-2% per year, roughly paralleling the expansion of the rubber business. The
overcapacity problem combined with weak demand growth has put a strain on profits. To make

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matters worse the industry has been the centre of two political disruptions in the last two years. It
complained about dumping into the European market by Russian and east European manufacturers.
Although this complaint was upheld by the European Commission, it was overturned by the
Council of Ministers of member states, no doubt because they calculated that there were more votes
from the tyre industry than from carbon black workers. However, competition authorities in the US
and Europe mounted a joint investigation into price-fixing by the industry. This could well be the
result of tyre manufacturers putting pressure on the industry but the investigation is still ongoing.
However, in the first months of 2004 all three of the big producers announced better profits from
their carbon black business, partly as a result of higher prices holding and partly because all three
are moving production to lower labour cost countries in Asia, which also happens to be where the
market growth is.
Prices have been rising in the last two years because of the price of oil and carbon black producers
also have been challenged by the costs of complying with strict new environmental regulations to
control air and water emissions at their production plants. Meanwhile, such other products as silica
and the silanes are being touted by their producers as environmentally benign substitutes for carbon
black. Silica is claimed to promote lower rolling resistance in tyres, which saves fuel and it may
soon capture up to 25% of the carbon black market in tyres.

4.2.3 Silica
Silica has taken a long time to be adopted as a filler because it is so difficult to mix with rubber.
However, the pioneers persevered as there were major advantages to the material if it could be
processed efficiently. Much of the development work was carried out over fifteen years by RhonePoulenc in collaboration with Michelin, and Rhone-Poulencs successor company, Rhodia, is still a
major supplier of silica to the tyre industry.
Silica-filled rubber reduced the rolling resistance of tyres markedly but initially it had a detrimental
effect on other tyre properties such as traction and durability. Chemical solutions were developed,
particularly by combining highly dispersible silica with polysulfide bis-alkoxysilanes but in
addition it is being found that different processes have to be used to maximise the benefits of silicasilane compounds. The raw material mix must be compounded in multiple non-productive mixing
steps. The nature of the silica surface and the reactivity of the silanes employed necessitate this
more time-consuming approach.
The market for precipitated silica is between $800 million to $1 billion a year and growing at twice
the rate of the tyre industry as a whole. The largest precipitated silica players, accounting for about
75% of the market, are Degussa, Rhodia, PPG and J.M. Huber. However, it is used in a wide range
of applications, not just tyres. The tyre industry accounts for about 53% of the demand for silica.
Table 4.4 Advantages of silica usage in tyre components
Tyre component
Benefit
Bead insulation
Adhesion
Bead fitter
Stiffness
Inner liner
Air impermeability, strength
Carcass plies
Adhesion, strength
Belt edge
Adhesion, tear resistance
Steel belt
Adhesion
Lower sidewall
Stiffness
Sidewall
Strength
Undertread
Tear resistance
Main tread
Lower rolling resistance, traction, wear
Source: Autobusiness

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Light Vehicle Tyres

Despite the ongoing problems with silica, it is being used increasingly by the industry because of
the improvements it can make to tyre performance. As well as its capacity to improve wet grip and
to reduce the rolling resistance of the tyre, it can improve compounds in other parts of the tyre
(Table 4.4).
Like the carbon black industry, silica producers have soon found themselves in a commodity
market. Large amounts of manufacturing capacity were built in Europe immediately prior to the
economic slowdown starting in 2001, and these have remained under-utilised, leading to intense
price competition in the sector. Overcapacity, compounded by stiff competition from Chinese
producers and the downturn in the global economy, led to a shakeout of some of the smaller
suppliers of colloidal silicas, precipitated silicas, and silica gel. The larger suppliers like Grace
Davison and Rhodia were able to shift their surplus among their various facilities around the world,
but profits fell, and capacity utilisation levels are still well below optimal.
Most new cars in Europe are now factory-fitted with green tyres, so there is little room for growth
in the OEM market. The key now is to get silicas into replacement tyres and truck tyres, and to
incorporate silicas into more of the tyre body than just the treads. Demand for precipitated silica in
tyres is likely to grow at 4% per year over the next five years and this period will also be marked
by a distinct growth in production facilities in Asia.

4.2.4 Steel Cord

Steel cord is used in all radial tyres, both for passenger cars and for trucks, as a reinforcement, and
it is also used in the tyre to form the bead which secures the tyre to the wheel. Consequently
demand is growing slightly faster than the industry as a whole because of the continuing gradual
move from bias tyres to radials. This conversion has already happened in the developed countries
but a considerable proportion of tyres in developing countries are still the bias design. Steel is
superior to other reinforcing materials in the critical properties that affect tyre performance, but it
needs considerable skill and experience to make the steel adhere to the rubber. Consequently the
less sophisticated tyre manufacturers in developing countries have been slow to develop radial
tyres, preferring the simpler techniques of fabric reinforcement.
The cord is made from multiple layers of wire filaments with diameters ranging from 0.15 mm to
0.38 mm. These are wound together to form a strand and several of these are wrapped to form a
cord. The manufacturing process runs high level carbonaceous steel wire through a die numerous
times. In the course of this process heat treatment is applied once or twice because steel wire
becomes hard by running it through a die. It is also plated with brass in order to improve adhesion
to rubber. After repeatedly drawing the wire through the extruder die, the wire finally reaches the
correct diameter.
The important characteristics of steel cord are excellent tensile strength and a high modulus of
elasticity. By modifying these characteristics, different cords are used in different tyres and
different parts of the tyre. For passenger car tyres, steel cord is usually confined to the tread belt
area, whilst in light truck and truck tyres it is also used to reinforce the carcass. In passenger car
tyres the diameter of the filaments is smaller, improving the ride comfort and the durability of the
belt. In addition the pitch of twist (turns per centimetre) is longer because durability is not as
important in the belt area compared with the carcass.
The most common weak point of steel cord is rust, caused by water penetration because of poor
rubber penetration. If this process is carried out effectively there is no ingress for water and
consequently no opportunity for the cords to fret against one another. Because of the importance of
quality control in the manufacture of steel cord, many of the larger tyre companies produce some of
their own supply, but the move now is towards buying it in from independent companies. By far
the largest independent supplier is the Bekaert Group, headquartered in Belgium, but with a global
manufacturing network in all the major regions.

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Light Vehicle Tyres

As with other suppliers to the tyre industry, the major suppliers of steel cord are expanding
capacity rapidly in Asia and rationalising production elsewhere. Bekaert SA, for example, aims to
double its capacity for making steel cord in China by the end of 2005. The group said its strategy is
to take 50% of the Chinese market for tyre cord, which it said has grown at 25% annually since
1997 and is continuing to grow at that pace. Over the next 3 to 4 years the market is expected to
double again due to a combination of economic growth and a further radialisation of the tyres. The
expansion programme will first involve expanding capacity at existing plants in Jiangyin and
Shenyang to 80 to 90 kilotonnes per annum (ktpa) by the end of 2005. The steel maker has also
started preparations for building a third plant in the north east of Shandong Province, with an initial
capacity of 10 ktpa.
China is not the only Asian market seeing investment in tyre cord. Bekaert has also inaugurated its
first steel cord plant in Pune, India in early 2004. Initially, the plant has an annual steel cord
production capacity of 5,000 tons, but this capacity could be expanded in line with the market
growth. Bekaert is supplying most of the international and local tyre manufacturers in India with
steel cord for the reinforcement of radial tyres. Similarly Sumitomo Electric Industries will double
production at its subsidiary Sumitomo Electric Tochigi. Monthly production will increase from the
current 2,400 tons to 4,800 tons in 2007.

4.2.5 Fibres
A wide variety of fibres are used in tyres as reinforcement. In the early days this was mainly cotton
but gradually newer materials were introduced. In the 1930s rayon was used and found to make the
tyres stronger (or alternatively, make lighter tyres of the same strength). Nylon came in during the
war and this was followed in the 1970s by polyester and later by aramid. As each new material
arrived it did not necessarily drive out its predecessor but was used for specific purposes.
Consequently, all of these materials are being used in tyre construction with a balance being drawn
up weighing performance against cost but this equation is not static, it is constantly changing.
Polyester has been making considerable inroads against rayon. Since about 1990, most tyre makers
have increased their use of polyester reinforcement cord. Polyester is not as good as rayon, but it is
far cheaper, less environmentally damaging, is more consistent from batch to batch and needs less
careful handling. As a result, demand for rayon has remained steady, while demand for polyester
has boomed. This change has taken place at the same time as the European tyre industry has made
a marked switch away from low performance tyres to higher performance products. Some might
even argue that the remarkable improvements in polyester cord in terms of strength and stiffness
have allowed the tyre makers to increase the speed rating of their tyres.
To summarise the alternative fibres and their properties:
Cotton Cheap, readily available and adheres easily to rubber without any pre treatment.
However, it has poor impact resistance and is susceptible to chemicals. It is no longer used in
automotive tyres but can be used in some bicycle tyres.
Rayon Good adhesion to rubber, low elongation, resistant to heat shrinkage and maintains
uniformity in manufacturing and under the dynamic conditions of use. However, it is more
expensive than other synthetics and not as resistant to wear.
Nylon Low specific gravity and high strength with excellent resistance to abrasion and fatigue.
Against this, nylons are thermoplastic so heat shrinkage is a problem and they are responsible for
flat-spotting when tyres are stationary for extended periods.
Polyester Relatively inexpensive and less susceptible to growth or deformation under normal
service conditions. At the same time it is less suitable for heavier tyres because of its susceptibility
to degradation and its higher hysteresis at elevated temperatures.
Aramid Superior in most physical properties but very expensive and only used in high value
applications.

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Light Vehicle Tyres

The next big leap in tyre manufacture is likely to be runflat tyres. These are designed to run hot
up to 160 or 170 C so temperature has become the limiting factor in their life. Rayon can survive
those temperatures but polyester cannot, so rayon could be making a comeback. Aramid has
advantages over both these fibres but its cost is prohibitive for most usage. It is used extensively in
racing tyres and to some extent in very high performance tyres. However, other areas are also
increasing in importance. One notable example is the Michelin C3M system, which requires a
single cap ply, and in many cases, this can only be achieved with aramid, or an aramid blend. One
of the most active areas of research in the tyre reinforcement field at present is the use of a yarn
comprised of one strand of aramid and a second strand either of polyester, or nylon or rayon. The
combined yarn is almost as strong as pure aramid, but is significantly cheaper and offers a range of
possibilities to the tyre designer,
As reinforcing material, tyre-cord fabrics play a vital role in the quality of modern tyres. The tyrecord yarns are produced through a process of polymerisation, spinning and drawing. These yarns
are then twisted and woven into raw tyre-cord fabric. Next, the fabric is dipped in an adhesive
solution in order to bond it to rubber, and finally it is heat-treated to ensure dimensional stability.
Research in polymer companies is concentrated on modifying existing polymers rather than trying
to find new ones. The general aim is to try to optimise at least two of the three properties that are
important to tyre companies traction, rolling resistance and wear. This usually means trying to
improve traction and rolling resistance without sacrificing the wear characteristics. There is scope
to improve existing polymers so completely new polymers would be difficult to justify. There is a
lot of capital investment in existing materials and processes. Despite this conservative approach
several companies are actively investigating spider silk. Weight-for-weight and size-for-size it is
far superior to any synthetic material so far developed. If it can be synthesised economically it
could make big inroads into the market held by existing materials.

4.3 Current Manufacturing

A tyre is a composite product of materials that have widely differing properties. The main
subassemblies making up the tyre are:
The Bead Bundle
The bead is a loop of high-strength steel cable coated with rubber. It gives the tyre the strength it
needs to stay seated on the wheel rim and to handle the forces applied by tyre mounting machines
when the tyres are installed on rims.
The Body
The body is made up of several layers of different fabrics, called plies. The most common ply
fabric is polyester cord. The cords in a radial tyre run perpendicular to the tread. Some older tyres
used diagonal bias tyres, tyres in which the fabric ran at an angle to the tread. The plies are coated
with rubber to help them bond with the other components and to seal in the air. A tyre's strength is
often described by the number of plies it has. Most car tyres have two body plies. By comparison,
large commercial jetliners often have tyres with 30 or more plies.
The Belts
In steel-belted radial tyres, belts made from steel are used to reinforce the area under the tread.
These belts provide puncture resistance and help the tyre stay flat so that it makes the best contact
with the road.
Cap Plies
Some tyres have cap plies, an extra layer or two of polyester fabric to help hold everything in place.
These cap plies are not found on all tyres; they are mostly used on tyres with higher speed ratings
to help all the components stay in place at high speeds.

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Light Vehicle Tyres

The Sidewall
The sidewall provides lateral stability for the tyre, protects the body plies and helps keep the air
from escaping. It may contain additional components to increase the lateral stability.
The Tread
The tread is made from a mixture of many different kinds of natural and synthetic rubbers. The
tread and the sidewalls are extruded and cut to length. The tread is just smooth rubber at this point;
it does not have the tread patterns that give the tyre traction.
Tyre Assembly
The three main materials used in a tyre polymers, fabric and steel reinforcement follow separate
routes in the preparatory stages of tyre manufacture.
The polymers, various mixes of natural and synthetic rubbers, are mixed with fillers carbon black
or silica and other chemicals to make the rubber component of the tyre. Different parts of the tyre
will have different mixes used in order to achieve the appropriate properties. The mixing is carried
out in a Banbury mixer which uses slowly revolving rotors to achieve a homogeneous mix. The
various mixes are then extruded to a specific contour, forming treads, sidewalls and other
components. They are cut to length as they emerge from the extruder.
Textile fibres are twisted into cords, and these are then woven into a fabric with the cords running
only lengthwise but held in place by crosswoven threads. The fabric is then impregnated with a
special cement to improve adhesion with rubber before being passed through a multi-roll calender,
where it is coated on both sides with rubber. The calendered fabric is then cut to certain widths and
angles to be used as breaker and reinforcement in various parts of the body of the tyre. Rubber
coatings are applied to the fabrics to facilitate adhesion and retention in the finished tyre.
High tensile steel wire is used both for the bead the rigid base of the tyre and for the belt. The
bead is coated with rubber and assembled into a ring-shaped bead which fits the rim of the wheel.
At the same time the tyre cord passes through the wire treatment cutter to be cut to predetermined
widths and angles before being assembled into the body of the tyre.
The various subassemblies are then brought together for the building process. The individual
components are pressed into shape sequentially by automatic rollers, giving a green tyre. After
inspection, this is placed in a curing press, where the tyres get their final shape and tread pattern.
The moulds are engraved with the tread pattern, the sidewall markings of the manufacturer and
various identification markings required by law. Each press cures two tyres at a time, operating
round the clock, seven days a week. Passenger tyres are cured at about 150 C for between 12 and
25 minutes. This curing process changes the rubber permanently by vulcanising it, converting the
green tyre to a finished product. Once the mould opens, the tyres are placed on a conveyor and
subjected to a final inspection. This includes both visual inspection and uniformity checks on a
force variation machine. Tyres are also checked for balance and a sample are usually X-rayed.
The entire process is multi-stage and highly labour intensive, involving building up the tyre carcass
in layers manually on a drum. Each layer of material is often cut to length by hand before going off
to be encased in its sidewall and tread components and then vulcanised. The introduction of
automated processes has tended to be gradual and partial; evolutionary not revolutionary. Modern
plants now have sequenced feeds and autocutting of materials to the building drum, but despite
many incremental improvements, the whole process would still be recognisable to the
manufacturers of the 1950s.
Tyre manufacturing is part of the chemical industry but unlike most processes in the chemical
industry, tyre manufacture is a discontinuous process. Whereas a chemical plant is virtually
automatic and runs with minimal levels of manning, a tyre plant is much more labour intensive and
requires several hundred people. Consequently tyre plants have to operate at utilisation factors

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above 90% in order to be profitable. The need to keep these plants running at full capacity is the
main reason why the market has always suffered from oversupply. This in turn leads to highly
competitive pricing and inadequate financial returns for most companies in the industry.
The firms in the industry have responded in two ways to overcome this disadvantage. They have
worked to increase productivity and attempted to develop economies of scale. All companies have
made enormous strides in this area over the last decade, and the industry as a whole has probably
doubled its efficiency in the last ten years. Moreover, the pressure is still on and further gains are
likely in the next five years. Companies have introduced automation wherever possible and moved
towards three-shift, seven-day working wherever it was feasible. However, with all tyre suppliers
achieving these gains, there is no comparative advantage all the companies are doing is pushing
down the aggregate cost base for the industry.
The other way to become a low cost producer has been to build ever larger plants in order to
maximise economies of scale. In particular, Goodyear and the two Korean companies, Kumho and
Hankook, have built really large plants. Goodyears Lawton plant in Oklahoma (US) can produce
63,000 passenger tyres each day, and the Kelly-Springfield plant in North Carolina can produce
64,000. Hankooks Daejon (South Korea) plant is of similar size, and its newly-built Kumsan
(South Korea) plant has provisional plans to be even larger.
4.4 New Manufacturing Methods
Economies of scale can give a competitive advantage to a company but the market itself has been
changing and this is cancelling out these cost savings. Large-scale plants making enormous
quantities of a very few types of tyre are ideal for the most popular tyres, but the market has been
fragmenting, with both tyre sizes and types proliferating. Consequently a more flexible production
method is needed, at least for part of the process.
Even with the most popular sizes that can continue to be made in large-scale plants, the market is
geographically broad, and if all production is concentrated on one location, the transport costs to
end markets are substantially increased, offsetting much of the scale economies in the production
process. At the same time, the efforts of the industry to lower its cost base has placed much more
emphasis on just-in-time manufacturing and taking excess stocks out of the supply chain. Overall
this can reduce costs dramatically but it does result in localised shortages of certain tyres at times
when unexpected surges in demand or poor forecasting result in under-supply. Not only does this
harm the reputation of a leading brand but it also means that the company loses the potential profit
from maximising sales. The converse is also true. If a company can supply tyres at a time of
localised market shortage it can expect to earn a premium, or at the very least higher margins, on
the sales of this product.
These factors have played just as large a part in the thinking behind new production methods as
improvements in processing and production. All manufacturers have been looking at ways to
reduce the inefficiencies in their production process and at the same time looked to serving the
market demand more effectively. If small plants can be built near markets and they can produce
tyres at much the same cost as large-scale plants, the economics and the structure of the industry
will change radically. Michelin was the first to announce a new process but since then all the major
manufacturers have claimed major advances in production methods.
The key to any improvement in manufacturing is to make it more of a continuous process and to
reduce the number of break points which destroy this continuity, eliminating as many of the steps
involving semi-finished components as possible. Most of the new production methods reduce the
amount of splicing required and they also try to use special weaving machines which are able to
produce jointless carcass structures. Some also allow for the direct extrusion of treads and
sidewalls onto the carcass and the injection moulding of circular parts such as beads.

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All of these developments are shrouded in secrecy but they do seem to share certain attributes: they
give the manufacturer much more flexibility, they promise considerable operational efficiencies
and they require far less capital and space than conventional processes. However, whether they can
combine both flexibility and low operating costs is not yet proven.

4.4.1 Michelin
The first official news about a new manufacturing system came in 1990, and a prototype plant was
built in 1993 but it was not till 1997 that the first plant opened outside France. The first tyres
produced by this process were not very consistent, but within a few months the consistency
improved dramatically and the process is now used for Michelins top of the range Pilot brand. The
C3M process has become an integral part of Michelins manufacturing capabilities, with greater
levels of quality and uniformity than its other more mature tyre manufacturing processes. One
distinct feature of the process is its pinpoint accuracy for the placement of components during tyre
manufacturing. In terms of quality and uniformity it has proved far superior to conventional
manufacturing.
The main advantages claimed for the process are:

Capital costs about half of equivalent conventional plant.

Labour required only one tenth of normal.
Floor space required also one tenth of conventional systems.
Stock turnover increased ten times.
Lower energy consumption.

The key advantage of the C3M process is that tyre building is a single operation and curing is
integrated into the process. The feed material is pre-extruded strip, supplied from central Michelin
mixing plants. C3M units can be transferred from site to site easily and can be operational less than
24 hours after arriving at a plant. Michelin claims a 20-30% rise in productivity is possible with the
new system.
Every part of this new process of tyre manufacturing is radically different; from the initial mixing
through to the final cure. The process is a flow-line system which makes components in their final
form, and all conventional batch processes are eliminated. The reason that the plant takes up so
little space compared with a normal process is that virtually no subcomponent manufacture is
required.
Each building machine is focused around a metal torus, which is fixed in size and proportion, so
only tyres of a particular rim size and width can be built on that particular machine. However, this
still allows variations in construction. Consequently this makes the individual machine somewhat
inflexible, but as the machines are relatively cheap, a wider variety of them can be used, so the
factory as a whole is very flexible. When a tyre of a different construction is needed, the machine is
simply reprogrammed and the particular balance of ingredients fed into the extruder is altered.
All the rubber parts are built directly on to the torus, and the bead wire is fed in as a continuous
process from a drum, as are the belts. The C3M process allows Michelin to place precisely three
different rubber compounds across the tread. Each of those compounds delivers a different kind of
performance. The ply is knitted around the tyre in situ, passing around the bead wire to maintain
structural integrity. This is probably the weak link in the process, as it takes the longest time. The
torus is heated whilst building is taking place, and there is only a single heating/cooling cycle
rather than many cycles in a conventional process. As the rubber is applied exactly where it is
needed, less material is used and the tyre is lighter than a conventional equivalent. Belts, cords and
Kevlar reinforcements can all be placed at performance-specific angles to control the shape of the
tyre while it is in motion a critical factor in performance, so the process is ideal for highperformance tyres.

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The C3M unit is small enough and light enough to fit onto two aircraft pallets for transport.
Consequently it can be shipped anywhere in the world at very short notice. Once it has arrived at its
new location it can be operational within 24 hours as opposed to the 2 to 6 months for a
conventional tyre building system. Typical production from a C3M unit is 5 or 6 tyres an hour,
making 100-120 tyres a day, depending on the design. Consequently Michelin uses C3M mainly
for strategic advantage and for high-quality precision manufacturing but there are other benefits.
The logic behind C3M is to be flexible, portable and able to install quickly in strategic spots around
the world to serve the customer better.

4.4.2 Goodyear
Michelin was the first company to announce and to put new manufacturing methods into operation
but it was soon followed by the other major companies. Goodyears new process technology was
announced in early 1998, and has been developed since. The term IMPACT is an acronym for
Integrated Manufacturing Precision-Assembled Cellular Technology. It makes claims of very large
savings in the production process, though perhaps not quite as dramatic as Michelin.

Material costs reduced 15%.

Labour costs reduced 35%.
Energy costs are lowered significantly.
In-process inventory cut in half.
Curing time cut by 20%.
Initial investment significantly reduced.
Floor space significantly reduced.

In addition to this, it is claimed to be 43% more precise than the current industry capability, which
improves ride, handling and treadwear, and it also reduces the weight of the tyre. As the cycle time
is reduced by 70%, it increases productivity by 135%. Unlike the C3M process, Impact is a catchall name for a combination of new technologies applied to tyre manufacture. The system is still
developing, but it has four main aspects that can be used all together, separately or in any
combination. Even when all four elements are used together the system can be fully integrated with
existing tyre-building processes.
There are many technical advantages to this system. There is no need for elaborate control systems
to match the various stations, and there is no change of shape of the profile as it progresses through
the machine. The components are positioned very accurately with respect to each other, so design
tolerances can be tightened and overall dimensions reduced. This results in lower total mass,
shorter curing times and less waste. A third benefit is that the compound is not worked as much as
in the conventional process because there are fewer extruders, so it retains its original properties.
The use of these machines and systems has had a dramatic effect on productivity. In the pilot plants
where IMPACT has been in operation the aggregate productivity index (tyres per hour across all
employees) rose from 100 in 1998 to 125 in 2002. It has also resulted in substantial cost savings.
Goodyear has taken a technically more conservative route than Michelin, but it still appears to be
making dramatic improvements. The IMPACT developments are more a novel use of familiar
technologies than something revolutionary. That is not to say that the process is less effective than
other automated technologies, just a different way to achieve improvements.

4.4.3 Bridgestone
Like all the big manufacturers, Bridgestone develops its own machinery in-house, and it has a high
reputation for this aspect of its business. For some years it was rumoured to be developing an
innovative manufacturing system but it was not announced until late 2002 when it revealed a
complete manufacturing system. The new BIRD system (Bridgestone Innovative and Rational
Development) is claimed to be the first to automate the whole tyre-making process from material

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processing to final inspection. It is an integrated system comprising three key elements which can
all be deployed separately. The three elements are:

ATMSS (Automated Tire Manufacturing Synchronised System) automates and integrates the
manufacturing processes from material processing through to vulcanisation.

AIMST (Automated Inspection Modular System Technology) inspects the finished tyres
automatically.

FOA (Flow Oriented Approach) provides highly distributed autonomous information

processing.

The BIRD system generates the materials needed to produce tyres during the production process.
The production control centre sends instructions to the system to produce only the amounts
necessary to complete production. In addition to doubling productivity, the BIRD system improves
tyre quality compared to older systems. Tyre roundness is said to increase by 15%, the blend of
tyre hardness rises by 30%, tyre weight balance jumps by 70%. Other advantages claimed for the
system are that it permits great latitude in tyre design and it has the ability to produce multiple sizes
of tyres simultaneously. This allows for smaller batch sizes and reduced inventories. It uses only
40% of the current energy used to manufacture a tyre and it minimises CO2 emissions.
One BIRD unit can produce 200,000 to 350,000 tyres annually and occupies between one quarter
and one third of the space of a conventional production layout. Bridgestone has tested the system in
a pilot plant and is now launching production at its Tokyo plant during 2004. Plans call for the
gradual implementation of the system at other Bridgestone manufacturing plants in the course of
2005. The technology will be used in markets where demand for ultra-high-performance tyres is
high, though the group has yet to decide where and how to implement the system

4.4.4 Continental
Continental has taken a somewhat different approach to the other multinationals. At its main
factory it has introduced a fully automated system for producing long runs of standard tyres in
basic sizes. This is not very flexible but the demand for these tyres can sustain continuous
production. At the same time it has improved conventional tyre building equipment in order to
speed up the building process and developed a fully automatic tyre-building machine called ESA,
or single stage builder. This is reputedly capable of turning out a completed green tyre in less than
30 seconds, but it is believed to be extremely complicated as a machine.
However, it is the main innovation that is the most radical. MMP or Modular Manufacturing
Process was developed in response to a situation that is common to all tyre companies an uneven
demand pattern. Only about 400 of Continentals more than 2000 passenger tyres offer a
substantial volume. The remaining 1,600 have comparatively low annual demand. Production of
these relatively small volumes is spread over the year and involves expensive machine changes and
tyre stocking. The introduction of new tyre sizes and types means that the market is getting even
more fragmented and adding to the problem.
MMP is designed to make the manufacturing process more flexible by making use of large-scale
production capacities to manufacture what the company calls the tyre platform, the blank casing.
This platform is partially cured before being shipped out to the specialised MMP satellite for final
assembly. Here the individual tyre distinguishing elements the tread, the sidewall and the belt
package are added and final curing takes place. A dedicated MMP finishing plant or minifactory is designed to operate viably at volumes as low as 500,000 tyres a year and is flexible
enough to accommodate runs as small as 100. This is not a substitute for existing manufacture, but
a supplement to it.
Continental believes that its MMP system matches or exceeds C3M and MIRS (Pirelli) in quality,
productivity and cost. It is using its modular system at plants in Austria and Germany and at the

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San Fernando, Argentina, plant of its technical affiliate, FATE S.A.I.C.I. In addition the new plant
at Timosoara, Romania, and other new plants are designed around the system. The company
estimates that 15% of all passenger tyres were produced in MMP plants in 2003.

4.4.5 Pirelli
Pirelli has developed a roboticised system for making tyres and has now linked that to a unique
process for the production of compounds. The MIRS concept Modular Integrated Roboticised
System came on stream at an experimental level in late 1998 and P KDV VLQFH EHHQ LQYHVWHG
in various European plants to install the system. The process starts with a pre-production phase
where four machines make thin calendered reinforcement strips which will eventually be cut to
precise lengths and used to make the reinforcing elements. Each machine has a creel containing
bobbins of prepared wire or twisted and dipped yarn that feeds into the extruder.
The second main production step is the robotic building area. Each tyre is built around a rigid
aluminium toroidal drum made up of eight segments. The robot then presents the drum to an
extruder and applies the first layer, in this case the inner liner, before moving to a second extruder
for application of the under liner. The part-finished tyre, still on its former, is then passed from
robot to robot, each adding two or three more component layers. When the robot arms have built up
a complete tyre the green tyre is then placed in a curing press by more robot arms. The full tyre
production cycle is carried out entirely by robots without interruption. Among the advantages of
the system is that semi-manufactured components do not have to be moved so no intermediate
storage is required and there is no waste of energy. The MIRS can make a new tyre every three
minutes.
The CCM (Continuous Compound Mixing) system was added in 2002. It is claimed that this is able
to ensure quantitative control of materials with an unprecedented level of precision. The
computerised management of the feed flows permits a total control of up to 40 ingredients together
with chemical reactions, temperatures and mixing conditions. As a result, the lead time, which is
about 24 hours in the traditional mixing process, is greatly reduced to 4.7 hours, energy
consumption is lowered by over 20% and the variability of the physical properties of the compound
is 70% lower.

4.4.6 Other Developments

As well as the global manufacturers, other tyre companies have also been developing
improvements in production. Sumitomo Rubber Industries Limited has unveiled its new tyre
production system, which is already in operation at its Shirakawa plant in Fukushima, Japan.
Called Taiyo Japanese for sun the system integrates tyre production processes from
component preparation to tyre curing in one compact cell.
Among the claims Sumitomo makes for Taiyo are:

A 5% reduction in tyre weight due to tighter tolerances on rubber thickness.

A more rigid casing due in part to the use of micro fibres compounded into the sidewall rubber.
Greater flexibility in design and production.
Enhanced investment efficiency, in that a Taiyo cell can produce 1,000 tyres of eight different
sizes a day.
Improved operating efficiencies from a smaller plant size, reduced intermediate inventories and
a 35% drop in energy consumption.

Kumho, the Korean manufacturer is incorporating a modular system in its new factory that is being
built at Pyongtaek, close to some major car assembly plants. Known as APU (Advanced Processing
Unit), the modular system was fully installed in early 2004. The new factory can produce 6,000
tyres per day, with annual production capacity expected at 2 million. The basic principle of APU is

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to minimise up-stream component production and storage and move to a just-in-time or on-demand
supply of tyre components at the building station. APU combines up to nine tyre-making steps
calendering, extrusion, tyre building and more into an integrated system that reduces the length of
the tyre production line by a third, to about 790 m.
Most developments by the global companies involve them designing and making their own
machinery but the independent machinery makers are developing their own systems, often in
collaboration with some of the medium-sized tyre manufacturers such as Cooper. VMI and
Berstorff GmbH have been collaborating for the past five years on automation, mating Berstorffs
tread extruders with VMIs tyre builders. A machine undergoing trials at Cooper-Avon is the first
practical test of this technology. Assogomma, the Italian rubber industry association, is at the
centre of a loose consortium of mainly Italian machinery companies examining continuous mixing.
This technology has been used in mixing plastics compounds for at least 50 years, but has only
recently attracted significant interest from the rubber sector.
However, perhaps the most unexpected entrant into the field of new manufacturing techniques is
Toyota, the vehicle manufacturer. Toyota has co-developed a new tyre-making technology with
Fuji Seiko, a manufacturer of industrial equipment. The company has been deliberately vague
about the technical details, but the tyre is built to its final, fully inflated shape by assembling it
around a core, and only then is it sent through the curing process. Like other new manufacturing
processes, Fuji Seiko claims considerable savings cost reductions of 20% and space savings of
80%. Moreover the tyre itself is claimed to be considerably lighter than a unit made on existing
manufacturing equipment. Both Yokohama and Toyo have agreed to manufacture tyres using this
equipment and both started production in late 2002 but neither has adopted this for large-scale
production it is still in development. It is generally believed that this is an experiment by Toyota
rather than a serious attempt to manufacture tyres on a large scale. The companys main objective
is probably to gain first-hand knowledge about tyre-making costs, giving it more strength in its
negotiations with companies such as Bridgestone or Michelin.
4.5 The Future for Manufacturing
For many years there has been little change in the manufacturing process apart from incremental
improvements in productivity but the last decade has seen some dramatic innovations. All of the
big global companies now have new manufacturing systems though they are only installing them
gradually, partly because they are still being developed and partly because they are better at some
types of production than others. They differ in their details quite considerably but all are different
approaches to the same problems. They all claim dramatic savings in space, capital cost and labour
input but they also lend themselves to the production of a much more precise end-product. They are
much better in terms of the precision placing of components within the tyre. With the greater
understanding of the physics involved in tyre dynamics this is critical in order to develop products
to take advantage of the changing nature of the market.
It is not possible to compare one system with another in any detail but it is no coincidence that the
new developments have come mainly from the dominant firms in the industry. These are the
companies that have the resources to develop new processes, and it is very much to their advantage
to do so, as it means widening the production gap between themselves and smaller competitors.
Large plants are still needed for the efficient manufacture of high volume tyres. At the same time
the market is changing and there are fewer really large volume lines. Where the large firms are
likely to take advantage of the new processes, though, is in building small flexible plants for
specific markets or for specific customers such as the vehicle manufacturers. Whichever route they
take, it would appear that production advantages are beginning to swing back to the large
established companies rather than the aggressive newcomers.

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5 Marketing
5.1 Introduction
Michelins Bibendum is one of the most recognised brand symbols in the world and other tyre
manufacturers such as Goodyear with its Wingfoot symbol also enjoy high recognition. Yet,
despite this high visibility, tyre company marketing has been characterised more by commodity
sales than by sophisticated campaigns and the margins of the companies involved reflect this.
This situation is now beginning to change, though very slowly. About 30% of passenger car tyres
are sold to original equipment manufacturers, and these buyers are extremely sophisticated. The
tyre brand means little to them (though it does have some influence in their choice of tyres,
particularly for prestige or high performance vehicles). Their main consideration is obtaining the
right tyre for the specific vehicle in order to enhance and maximise the engineering objectives for
that vehicle. Thus a sports version of, say, a Volkswagen Passat will have different tyres than a
middle-of-the-road saloon version as it has different suspension, acceleration and grip
requirements. The other main consideration for OEM buyers is price but this only comes after the
engineering specification. Traditionally the tyre manufacturers have sold their tyres at cost price or
even at a loss to the OEMs because of the prestige of being an original fitment and in the hope of
obtaining replacement purchases but they are beginning to be much more sceptical of these
unquantified advantages and are demanding higher prices, commensurate with the R&D effort that
is put into many of these products for new vehicles. Michelin led the way in Europe some years
ago, by walking away from some business when they were offered uneconomic prices and other
suppliers have also toughened their attitude. In turn the OEMs are sourcing their tyres from a wider
range of suppliers although they still look to the major producers for innovative engineering
solutions. The two Korean manufacturers, Kumho and Hankook, are now obtaining OE contracts in
Europe and North America, as well as in their native Korea and Yokohama and Toyo are also used
on a number of vehicles.
The other 70% of passenger car tyres are an aftermarket product, replacing worn tyres, and it is
here that the tyre companies are attempting to get rid of their commodity reputation. The effort is
being made across a wide front, starting with distribution and covering branding, market
segmentation, and a variety of high margin niche markets (though the hope is that they will develop
into sizeable market segments).
5.2 Distribution

5.2.1 Wholesaling
In most of the developed markets distribution is a two-tier operation with both wholesalers and
retailers servicing the market but it is rather more complicated than this simple description implies.
In Europe wholesalers supply a national market but rarely cross borders. They supply in bulk
largely to the independent retailers as the chains have their own supply lines, but because retailing
demands very quick deliveries of specific brands or sizes they also supply local branches of chains
with their daily non-stock requirements. Some wholesalers are owned by the major manufacturers
but they operate at arms length from their parent as they need to stock all major makes of tyre for
their customers. However, a number of the independent companies act as the importers and
exclusive suppliers of brands from small manufacturers in Asia, particularly China, Taiwan and
India.
In North America, because of the sheer size of the USA and Canada, wholesalers tend to operate
regionally rather than nationally, covering several states with their delivery service. The only
national companies are private brand suppliers which are not strictly wholesalers as they do not
carry a wide range of popular brands. They concentrate on their own private brands, controlling the
rights to their labels and restricting distribution to maintain exclusivity. For example, TBC, based
in Memphis, Tennessee, derives the bulk of its wholesale business from the sale of its Cordovan,

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Multi-Mile and Sigma private labels. However, it also acts as the distributor for the Fulda imported
brand.
Japan is a much more compact market and is much more closely tied into networks of business
relationships, so far more of the retail outlets offer only a limited range of brands. As a result the
wholesale companies work very closely with a single manufacturer such as Bridgestone or
Yokohama and supply only tyres approved by that manufacturer.
Despite these structural differences, wholesalers worldwide are all facing the same pressures. Tyre
size proliferation, the reduction in safety stock by the tyre manufacturers, and the need for greater
forecasting by distributors and retailers alike have changed the face of inventory management for
wholesalers. Because manufacturers are sourcing globally, the lead time in getting its tyres can be
doubled. Sizes within the same style might be produced in several different factories, located in
different countries around the world. As a result, manufacturers cannot respond as quickly to
inventory shortages or spike demands. This puts much more emphasis on the wholesalers and their
role is growing in importance. So too are their responsibilities.

5.2.2 Retailing
Retailing is carried out by a wide range of businesses ranging from petrol service stations to large
chains of specialist tyre fitters. In most developed economies independent tyre fitters operating a
two or three bay centre comprise the majority of outlets and the non-specialist outlets are in
decline. The major tyre companies regarded these specialist outlets as important marketing
channels and built up extensive chains in various countries but the nature of the market prevented
them from selling their own brands exclusively; they had to be able to offer competitors brands in
order to remain competitive. For example, in the UK until recently Michelin, Goodyear,
Continental, Sumitomo and Pirelli all had their own equity chains but none of them operated
under the name of their parent company. At the core of these chains was wholly-owned outlets but
several of them expanded their coverage by extending the operation to independent operators under
a franchise.
These chains certainly helped the companies to maintain their market share but the business was
very competitive and most found it extremely difficult to make a profit. With a new sense of
realism, some companies such as Continental have sold off their retail business completely whilst
others such as Goodyear are cutting back on the size of their operation. Companies which were late
into the field such as Bridgestone in Europe, have not attempted to buy or build up equity chains
but have taken the alternative route of establishing a soft franchise network under the name First
Stop.
The one exception to this appears to be Michelin which has gradually brought its various
operations in Europe under the Euromaster banner and has now bought the Danish Viborg chain
with 465 branches throughout Germany, Austria, Denmark, Switzerland and the Netherlands.
Added to the 1200 strong Euromaster chain, the combined Euromaster-Viborg network now has a
share of about 13% of the European truck tyre replacement market and 8% for passenger tyres,
according to Michelin. Michelins strategy is more concerned with providing a Europe-wide
service to targeted groups of users than a crude increase in its market share. It uses these outlets to
service contracts with large trucking fleets and, to an increasing extent, with car leasing operations
and other large fleets of passenger cars. However, it is now building on that base and offering
added value services such as its OnWay scheme.
This scheme, which has now been extended from France to Germany and Austria, acts as a free
insurance service to motorists who buy Michelin-brand tyres. Included in the cost of the tyre is an
insurance premium, which covers the motorist against tyre damage either accidental or malicious
or theft. The service lasts two years from the date of purchase, and guarantees a one-hour
response time. Motorists have to register their tyres, either on-line or using a brochure supplied
with the tyre. Once registered, the motorist is given a card with a contact number, and in the event

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of damage or theft, calls the number. The contact number is a reduced-rate service and is available
24 hours a day, every day of the year. If the tyre can be repaired then the motorist pays nothing, but
if a part-worn tyre has to be replaced, following damage, then the motorist shares the cost, paying
pro rata for the amount of treadwear. If the car has a serviceable spare tyre, then the service will
swap tyres at no charge to the motorist.
The tyre companies have not been the only people building up fast-fit chains. Sears-Roebuck in the
USA built up a nationwide chain but found it difficult to make consistent profits. After much effort
it has now sold its 225 National Tire & Battery outlets to TBC. This company now has almost 1200
outlets across North America, 590 Tire Kingdom and 570 Big O service centres. Other mass
merchandisers remain in the business, however, the largest being Wal-Mart with its Sams Club
and Tire & Lube Express Centers. Many successful independent operators have extended their
business plan into chains of various sizes but most have sold out at some stage to larger operators.
In North America several companies have more than 1000 outlets and although no company has an
even spread of representation, TBC, Discount Tire, Les Schwab and Pep Boys can all be
considered national chains. In Europe only Kwik-Fit approaches this size. Originally a UK
company, it was purchased by Ford but is now once again independent with outlets across several
countries in northern Europe.
The variety of outlets is demonstrated in Table 5.1 showing the proportion of tyres sold in North
America by the various types of dealer.
Table 5.1 Retail sales of tyres by type of outlet 2003
Car tyres
Light truck tyres
Local dealerships
44%
52%
National dealerships
19%
21%
General merchandise distributers
19%
10%
Tyre makers outlets
10%
8%
Regional dealerships
3%
6%
Other
5%
3%
Source: Tire Business
Local dealerships are those with less than ten outlets but in total they command the bulk of the
market as Goodyear has recently found to its cost. One of the main reasons for that companys poor
financial performance and loss of market share in North America has been because it upset its
independent dealers. They felt that they were being used unfairly by the manufacturer and turned to
other suppliers. They are not unrealistic and accepted that a major manufacturer must supply all
market channels but they felt they were being treated unfairly. Nevertheless it is possible to run
with the hare and chase with the hounds as Bridgestone/Firestone has proved. It has about 1500
outlets but when it agreed to supply Midas, a servicing chain, with Firestone tyres the agreement
was that they were to be supplied through local Firestone dealers, thus keeping potential arguments
at bay.
All tyre retailing is having to move with the times and the internet is attracting a great deal of
attention but its potential has not yet been realised.

5.2.3 E-Commerce
A study by J.D. Power in 2003 regarding the motorists use of the Web was based on responses
from about 7,900 vehicle owners in the US who had bought replacement tyres for their vehicles
shortly before the survey was conducted. The satisfaction study found that more than 60% of tyre
buyers access the Internet, but only 16% of them use it when they need to buy tyres.
However, all the major manufacturers have developed extensive web pages designed to give full
information about the complete product offering. Whether or not these will be used by potential

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Light Vehicle Tyres

buyers is another question. One of the most interesting approaches has been made by Michelin in
North America with its Tire Advisor web site. After entering Tire Advisor, the screens are selfinstructive. Consumers are asked to enter their vehicle year, make, model and options. They are
then asked one to five questions concerning their driving habits and driving priorities. Based on
these responses, they are given a list of tyre lines that meet their criteria. This list also contains
information on test results so that consumers can compare different tyre brand lines and make
informed decisions about their tyre needs. Ratings are given on a one-to five-star basis, with five
being the best.
What makes the Tire Advisor unique is the comparison across a variety of brands not just the
Michelin, BFGoodrich and Uniroyal brands. Other national brands compared in Tire Advisor
include Bridgestone, Cooper, Dunlop, Firestone, Goodyear, Pirelli, Yokohama and a small
percentage of other brands. This type of independent approach has much to recommend it though
whether it will be used by customers is too early to judge.
Some new businesses have grown up with the Internet at the core of their business plan. For
example, Black Circles in the UK is using the Internet as a tool to market tyres in what is a unique
route to market. Whilst most tyre purchases remain distress purchases, Black Circles concentrates
on the growing sector of the market where planned replacement of tyres is the norm. This usually
means sales of ultra-high performance (UHP) and higher margin tyres.
This rapidly growing Internet and mail order tyre operation carries very little stock and has no inhouse retail outlets or warehouses to speak of. People call or use the Internet to request
information, obtain a quote, and book a fitting for their tyres. This is then arranged with one of the
fitting outlets that have joined the network. Black Circles takes on the cost to sell tyres and pays its
fitter partners in advance. In the process it claims to offer everyone a better deal from the client
buying the tyre, to the retailer getting paid in advance and taking a greater margin. Even the UK
tyre wholesalers and manufacturers are content as Black Circles has a policy of supporting local
suppliers who can offer them repeated standards of high service.
It is likely that a lot of the chains, both manufacturer owned and independent, will start to follow
this approach and eventually it will be emulated by the smaller independents but this does depend
on educating the customer to pay more attention to their tyres. At present it is mainly a distress
purchase and it will be a long and difficult path to wean the majority of customers away from this
attitude. Hence the effort that all manufacturers are putting into branding.
5.3 Branding
The development of standardised marketing in global corporations has emerged only recently in the
tyre industry. Marketing in the industry is not new Michelin brought out its Guides in 1901 as a
promotional aid to encourage people to travel more but until the 1980s even the largest
companies were essentially regional. Even if they operated in several regions the marketing policy
was not set centrally; it spread out from the centre but was modified or altered to suit local
conditions.
The corporate mergers of the 1980s changed this situation dramatically as several companies found
themselves with worldwide interests, often in conflict with each other. For example, Bridgestone,
having taken over its old mentor Firestone, found itself with competing brands in several regions.
The challenge was to position these brands in order to maximise sales. Just as important, because of
the increasing contact between regions, the brands had to be consistent across regions. All the other
major tyre suppliers faced similar problems, though not perhaps in quite such an extreme form.
In broad terms most developed markets can be divided into four categories:

50

Brand conscious
Value customer

Light Vehicle Tyres

Store reliant
Price conscious.

Each of these categories takes about one-quarter of the market, although the proportions do change
somewhat over time and between different market areas. The brand conscious customer is
knowledgeable, interested and prepared to pay a premium price for the product that will suit his or
her requirements. The value customer is still prepared to pay more than average and these
requirements are less exacting, but he or she wants the reassurance of a good name. Store-reliant
customers know little about the subject, and they put their faith in the retail outlet they use to select
a good product for them, whilst price conscious customers will search out the lowest price with no
loyalty to either brand or store.
These perceived categories have implications for branding, and most manufacturers are developing
brand portfolios to address these the premium brand for brand conscious customers, secondary
brand for value conscious motorists, fighting brand(s) for the price conscious market and private
brands for store-reliant customers.
In order to clarify their brand structure most manufacturers have concentrated their efforts on three
main brands but because they have only recently become true multinationals they have had
considerable difficulty even achieving this simple brand structure. They have chosen a good,
better, best formula and the global companies are now trying to establish these brands on a
worldwide basis.
Manufacturer
Michelin
Bridgestone
Goodyear
Continental

Table 5.2 Brand position of major manufacturers

Good
Better
Best
Klber
B F Goodrich
Michelin
Dayton
Firestone
Bridgestone
Kelly
Dunlop
Goodyear
Barum
Uniroyal
Continental

However, it can be seen that even this simple classification gives many of the manufacturers major
problems. Although the Michelin brand is recognised worldwide, the Goodrich brand is mainly
known in North America and Klber is only strong in France although it is growing elsewhere in
Europe.
Bridgestone had considerable problems when it took over Firestone as the Firestone brand was far
stronger in the USA than the parent brand, Bridgestone. For some years Bridgestone tried to get the
Bridgestone brand accepted by the OEMs but with limited success and then the disastrous recall of
Firestone tyres in 2000 forced it to rethink its strategy. The bad publicity resulted in a major loss of
market share for Firestone and at one stage Bridgestone even considered dropping the brand
altogether. However, it persevered and Firestone has now made up for most of its losses but there is
no doubt that it is not as strong as it was. Bridgestone meanwhile has made considerable progress
with OEMs and is gradually building a position in the replacement market but it will be a long slow
change. The Dayton brand has no recognition outside the USA so the company needs to develop a
credible third brand.
Goodyear probably has the most widely recognised three-brand structure. Goodyear itself has a
high recognition factor worldwide and, since its alliance with Sumitomo, it now has another widely
recognised brand, Dunlop. Its third main brand, Kelly, is well-known in the USA but hardly
recognised elsewhere so the company still has a lot of work to do.
Continental is much smaller than the big three manufacturers but it has a plethora of brands to
choose from, thanks to acquisitions. Its premium brand is Continental but it has much more of a
problem with its secondary brand. Almost all of the brands it has acquired are little-known regional
brands. The obvious choice would seem to be General, the company it bought in the USA in 1987

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Light Vehicle Tyres

but that brand never had a good reputation, even in its home market. The name itself lacks any real
identity and is not one to inspire much loyalty. Continental has now accepted this and is
substituting the Continental brand for General throughout North America. However that leaves the
company with the problem of what to use as its second brand. It appears to have chosen Uniroyal
but that has considerable disadvantages. It first licensed the Uniroyal name from UniroyalGoodrich in the 1980s for use throughout Europe. However, when that company was taken over by
Michelin it found that its French rival now owned the name. In the event Michelin has agreed to the
continued use of the name by Continental but only in Europe it cannot use it elsewhere. This puts
considerable restraints on its brand strategy and cannot be regarded as a satisfactory long-term
solution. However, it has had considerable success in developing its Barum brand as a value-formoney product.
This simple three tier brand structure favoured by the manufacturers is proving difficult and
expensive to implement because of the previous fragmentation of the industry and the conservatism
of the customers. In any case the market itself is now fragmenting much more and some of the
bigger firms are adopting a much more sophisticated strategy.
Michelin, for example, argues that other emotions also affect purchase decisions, not just quality
and price and it places its brand names on a four-axis grid. The top/bottom axis shows QUALITY
and PRICE (though Michelin does not use the word quality in this context as it would imply that
some tyres were not of the same quality as others). The side/side axis shows the emotional response
to a tyre with gradations from PASSION to REASON. The Michelin brand itself is placed at the
top for brand reputation, i.e., quality but with a neutral position between passion and reason.
Goodrich, however, is regarded as a tyre for the passionate buyer though still priced above average.
The companys lesser known and regional brands are below average in pricing terms but can still
appeal either to the passionate or the reasonable buyer.
Table 5.3 Michelins view of its own brand positioning
BRAND
Michelin
Kleber

BFGoodrich
Uniroyal

REASON

PASSION
Taurus
Riken
P&A Brands

Kormoran

Siamtyre
Icollantas
PRICE
Source: Michelin
This is a much more precise method of brand management and it helps in the planning of strategy
for the new niche markets that are appearing. However, it is expensive to develop any brand
properly and the more brands there are, the more the total cost. The smaller companies have
already acknowledged this and concentrate their efforts on one or two brands but the larger
companies may have to recognise this as well.

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Light Vehicle Tyres

5.5 Market Niches

Every manufacturer seeks out market niches areas of the market where it can establish a special
position. These always start small but they can grow to quite a sizeable proportion of the market
and they often grow much faster than the overall market. However, the key characteristic of these
niches is that they usually command higher margins, both for the manufacturer and for the retailer.
Some niches are small and will remain small but they can still give good returns to the specialist
dealer. For example all-terrain vehicles (ATVs) require special tyres and these vehicles are
becoming more popular though the demand is not large enough for the tyres to be stocked by the
average dealer. Similarly, recreational vehicles (RVs) are a mature though significant market,
particularly in North America, and these too require special tyres only made and stocked by a
minority of companies. However, the most important market niches are not servicing specialty
vehicles but are part of the normal passenger car tyre market.
Three segments of the passenger car tyre market are particularly buoyant at present, showing rates
of growth which far outstrip the market average. Consequently most manufacturers are
concentrating a lot of their activity on these three sectors ultra-high performance tyres, SUV tyres
and winter tyres. Table 5.4 shows that these segments are forecast to grow at much higher rates
than the industry average of 2-3%
Table 5.4 Worldwide growth in dynamic sectors 2002-2005
(Index 2002 = 100)
Segment
2002
2003
2004*
UHP tyres
100
111
119
SUV tyres
100
104
112
Winter tyres
100
104
107
* Note: 2004 and 2005 are forecasts
Source: Michelin

2005*
140
118
111

At one stage SUV tyres were considered to be specialty tyres for specialty vehicles but this design
is now so prevalent it is considered part of the passenger car market; indeed in North America
SUVs now almost outsell conventional cars. High performance and ultra-high performance (UHP)
tyres used to be limited to a very small segment of the market but as cars have improved in
performance and specification these tyres are now commanding an ever larger share of the market.
Winter tyres are another niche, this time confined to more northerly climates but they are not
necessarily for snow and ice; they are designed for better control of a vehicle in low temperatures
and wet and dirty conditions so they have established markets in some temperate northern climes
such as the Netherlands. Finally, the so-called tuner market is driven by fashion but this market
often introduces styles and designs which later find a wider market.

5.5.1 High Performance Tyres

The high and ultra-high performance tyre sector is the cutting edge for manufacturers to promote
their flagship products. Such tyres used to be for sports cars or the more exotic marques where
performance is everything. This trend has however now changed, with luxury cars demanding UHP
tyres which both perform and which are comfortable. Until recently OE sales of UHP tyres
outnumbered replacement market sales, but the balance is reported to be shifting, and it is forecast
that by the middle of the decade, the roles will be reversed. Vehicle characteristics are continually
evolving. New vehicles coming from OE manufacturers are being required to do different things
than they have in the past, including perform at different levels in terms of handling, cornering
capabilities and braking. Performance tyres are part of that mix of chassis performance.
The high performance sector of the tyre market is attracting a lot of attention from manufacturers,
partly because it is growing rapidly and partly because it offers the opportunity of high margins in

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Light Vehicle Tyres

what is increasingly a commodity business. In Europe especially, but also in North America, there
has been a surge in demand for high performance tyres V-, W- and Z-rated tyres. Midperformance (H-rated) tyres have demonstrated a static demand in Europe but are growing strongly
in America, and in both regions sales of low performance tyres (S- and T-rated) have declined
substantially.
Unfortunately the market suffers from conflicting definitions of high performance. Europe is the
definitive market for these tyres as it was here that the development first occurred with OEMs
requiring better tyres for the high performance cars produced and it is in Europe that the
performance of these tyres really comes into its own. A significant proportion of car buyers drive
their vehicles to the limit on winding and tortuous roads as well as on motorways. America tends to
have a very different style of driving with long straight roads and speed limits that are generally
lower than in Europe. Consequently the market for true high performance tyres is more advanced in
Europe than America. In Europe high performance tyres are limited to V-, W- and Z- rated tyres
whilst American figures usually include H-rated tyres in this category as well a tyre that would be
regarded as mid-performance in Europe. Indeed the performance tyre market, as it is defined in
North America, is even broader than that. Many tyres lumped into the performance category are
merely cosmetic or performance in appearance only. Some companies include such tyres in the
data they supply for the industry wide tally and other companies do not an inconsistency in
reporting that increases the difficulty of quantifying the performance tyre market as a whole.
In North America in 2003 manufacturers sales of H, V, Z and Y speed-rated tyres enjoyed doubledigit increases, according to industry figures. If sustained, such growth would exceed the 8.5%
annual increase over the next five years forecast by the Tire Market Analysis Committee of the
Rubber Manufacturers Association (RMA). Shipments of performance tyres as a whole, including
non-speed-rated tyres, are expected to increase at a more modest 3.3% annual rate during the next
five years. Yet this too would surpass the 1.5 to 2.3% annual growth anticipated for replacement
passenger tyre shipments as a whole. As a group, performance tyres last year accounted for about a
third (32%) of the 198.9 million replacement passenger units shipped in the US. Of the 63.6 million
replacement tyres shipped to the performance sector, the ultra-high-performance tier accounted for
about 34.7%.
In Europe high performance tyres will increase from a market share of 18% in 2000 to a forecast
share of 31% in 2005. In what is a largely static replacement market that represents significant
growth so it is little wonder that all major manufacturers are paying a lot of attention to this
segment. The proportions vary quite markedly from country to country. In Switzerland and
Germany in 2000 HP tyres represented over one third of the market whereas in France they only
accounted for 8%. However, the growth in France is likely to be much faster with HP tyres
accounting for 26% of the market by 2005 whilst in Germany it will have grown to 42% and in
Switzerland 45%.
Overall, the high performance sector (including H-rated tyres) is forecast to grow by more than
50% between 2002 and 2008.

Europe
Asia
North America
World
Source: Michelin

54

Table 5.5 Forecast growth for performance tyres 2002-2008

2002
2008
m. units
%
m. units
138
57
209
56
23
80
48
20
91
242
100
380

%
55
21
24
100

Light Vehicle Tyres

5.5.2 SUV Tyres

The sports utility vehicle has been a phenomenon of the car industry throughout the last decade.
Although vehicles of this type of specification have been available for more than fifty years it is
only recently that they have really taken off. At first they were the equivalent of luxury versions of
the ubiquitous Jeep and Landrover vehicles such as the Rangerover and the Mitsubishi Shogun
but as more and more customers were attracted to the capabilities and the high driving position of
these vehicles a plethora of variations were introduced. At first they claimed to have an off-road
capability but now most only give a token nod to this part of the specification and concentrate on
comfortable on-road driving. The implications for the tyre industry are that these vehicles are
bigger and heavier than most passenger cars and they therefore require a light truck tyre in size and
construction. However, they also demand more comfort than a light truck tyre would normally give
so new designs have been developed. The market for these tyres has grown as rapidly as the market
for SUVs and, until recently has shown little sign of slowing down.
The North American market leads the rest of the world in the demand for these tyres as it is this
region which has shown the strongest demand for SUVs. They are also gaining market share in
both Europe and Asia but they have not displaced conventional passenger cars to nearly the same
extent as in North America.

North America
Asia
Europe
World
Source: Michelin

Table 5.6 Forecast growth for SUV tyres 2002-2008

2002
2008
m. units
%
m. units
81
71
106
24
21
28
9
8
15
114
100
149

%
71
19
10
100

Overall this represents a growth rate of 4.5% per year; still high compared with the general market
growth but well down on the dramatic growth rates of the 1990s when it was growing from a much
smaller base. However, it is still producing very satisfactory gains as the latest quarterly estimates
for the west European market show. According to figures released by SNCP, the French polymer
industry trade association, SUV replacement tyre sales in the EU plus Norway and Switzerland
grew by 12.2% in the first quarter of 2004 compared with the corresponding quarter in 2003.
Growth is set to continue in the short term but rising oil prices cast a cloud over the medium and
longer term prospects for SUVs (and hence SUV tyres). These vehicles are larger and heavier than
passenger cars and they use much more fuel. If oil prices remain at current levels or rise further it is
likely that prospective buyers will choose economical passenger cars rather than thirsty SUVs.

5.5.3 Winter Tyres

The original name for winter tyres was snow tyres but this was a misnomer and has hindered sales.
The industry now refers to these tyres as winter tyres.
Thirty years ago many motorists in northern Europe and northern North America. used a set of
snow tyres on their vehicles. But thanks to the proliferation of all-season tyres over the years and
the popularity of front-wheel-drive vehicles dedicated snow tyres gradually lost their grip on the
market. Consumers came to believe that all-season tyres were enough to pull their cars and trucks
through snow and ice.
Winter tyres are designed to deal with temperature conditions that adversely affect the performance
of summer tyres. A summer tyre is manufactured with the function of keeping the tyre in contact
with the road surface in both wet and dry conditions. The. compounds of which it is made have a

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Light Vehicle Tyres

specific level of adhesion designed in. The chemical make up creates an interaction between the
tyre and the roadway. However, the compound utilises an oil in the mixing process that allows the
various components in the compound to blend and mix and work together as one. This polymeric
oil can, and does migrate in time, leading to the deterioration of the tyre. In practice it migrates
inwards in cold climates towards the lining of the tyre, thus degrading the tyre tread, hardening it
and making it less effective in its interaction with the road surface. The point at which it does this is
around 7 to 8 C. So, the efficiency of summer tyres in the wet or dry in winter is diminished. Even
without snow and ice, a winter tyre becomes a safer option in colder weather as shown in Table
5.7.
Table 5.7 Performance comparison of summer and winter tyres
Braking distance from 100 kph to rest
Dry roads
Winter tyres
Summer tyres
20 C
46 m
41 m
5 C
41.5 m
39.5 m
Wet roads
20 C
67 m
65.3 m
5 C
65.7 m
70.5 m
In this test by an independent testing organisation in Germany the summer tyres outperformed the
winter tyres in both wet and dry conditions when the temperature was at 20 C. However, when the
temperature fell to 5 C the performance of the summer tyre fell off markedly; much more than the
winter tyre. Although it still retained an edge over the winter tyre on dry roads it performed much
worse on wet roads. The conclusion is that when it is cold and wet, but not necessarily icy, winter
tyres perform better.
Because of the move towards all-season tyres many of the bigger manufacturers lost interest in this
market and concentrated on improving their compounds but others persisted, most notably Nokian
of Finland and Continental. They proved that there was a consistent market and gradually other tyre
manufacturers once again took an interest in this segment. Several years ago, tyre makers began to
promote dedicated winter tyres again. Existing products were updated, new ones were rolled out
and advertising campaigns were deployed. At the same time drivers were being made more aware
of the safety aspects of winter tyres by the promotions and incentives offered by insurance
companies. Similarly a number of independent media and consumer reports began looking at the
attributes of these tyres.

Europe
Asia
North America
World
Source: Michelin

Table 5.8 Regional market for winter tyres 2002

m. units
56
15
7
78

%
72
19
9
100

The market has built up gradually but it is an erratic market and very seasonal. 80% of sales are
made in the second half of the year and demand can be very fickle. If snow comes early in the
winter sales can be very good but a late snowfall or two or three mild winters can kill demand. The
market is also concentrated in a few areas. In Europe it is mainly confined to Scandinavia,
Germany and Austria whilst in North America it is mainly in New England and the states and
provinces near the US/Canadian border. These tyres are popular in Japan but not elsewhere in Asia.
However, new markets are developing. The most recent upsurge in demand is coming from Eastern
Europe and Russia areas which have severe winters and, until recently, have had little exposure to
the latest developments in tyre technology.

56

Light Vehicle Tyres

More intriguingly there is an increasing interest in markets that have more temperate climates such
as the Netherlands, northern France and the UK. This is mainly because of efforts by manufacturers
to educate the motorists and, in particular, to offer a storage service for their winter tyres (and
wheels) over the summer. In 1995 winter tyres accounted for 0.5% of the Dutch market but by
2002 this had risen to 7%. This was done initially by capitalising on a bad winter but the effect of
this soon wore off. Eventually Vredestein, the indigenous manufacturer, teamed up with a leasing
company and Euromaster, a retail chain owned by Michelin. The interest in such a venture for the
manufacturer and the retailer is obvious but the leasing company wanted to differentiate itself from
its competitors. The combination proved effective and their success encouraged other
manufacturers and retailers to launch their own promotions.
This is not an easy concept to get over to motorists but the Dutch experience shows that it can be
done. The market is likely to grow at a faster rate than the general tyre market but the growth is
unlikely to be consistent. It will vary considerably from year to year and the succession of mild
winters has done little to improve the prospects for growth. Even though winter tyres are for wet
and cold conditions it usually takes the first snowfall of winter to raise awareness of them and if
that snowfall is late or doesnt come at all it can have a dampening effect on sales.

5.5.4 Tuner Market

Tuners are people, manufacturers or shops that specialise in aftermarket accessories for a particular
vehicle. At the lower end of the market, cars such as the Peugeot 206, Honda Civic and
Volkswagen Golf, as well as the Ford Focus, are popular. In North America the Honda Accord and
Mitsubishi Eclipse are also prominent. BMWs, Mercedes-Benz and Lexus are the vehicles of
choice at the opposite end of the socioeconomic spectrum. In both Europe and America the typical
tuner is young (18 to 24), male and often from one of the ethnic minorities. According to the
performance tyre brand manager of one of the major brands. Their car is part of their
entertainment. They hang out with their buddies and girlfriend. Theyre saying, I have the car, the
clothes, the tunes. I like interactive things such as skateboarding and traditional sports. Its all
intertwined.
This market is dominated by sales of wheels as these have the most visual appeal but the sale of a
set of wheels is invariably accompanied by the sale of a set of tyres.
Plus sizing wheels and tyres can be the best way to improve both the performance and appearance
of a vehicle quickly and relatively cheaply. By using a larger diameter wheel with a lower profile
tyre it is possible to properly maintain the overall diameter of the tyre, keeping odometer and
speedometer changes negligible. By using a tyre with a shorter sidewall, there is a gain of
quickness in steering response and better lateral stability. The visual appeal is obvious, most wheels
look better than the sidewall of the tyre, so the more wheel and less sidewall there is, the better it
looks.
However, low profile tyres are not restricted to the tuner market. They were first developed by the
vehicle manufacturers as for some performance versions of standard cars they needed more braking
power. The only way to achieve this was to fit larger wheels, thereby giving more space for bigger
disc brakes, but the larger wheel still had to fit within the same wheel space within the standard
body. The solution was a tyre with a lower aspect ratio and these were duly developed. They do
have technical advantages in that they give better cornering response but this comes at the expense
of ride comfort. This is not of major concern to the enthusiasts buying performance vehicles (or to
the tuner buyers who try to make standard cars look like performance specials).
In effect it is almost a fashion market; it makes a statement. However, the tuner market is difficult
to quantify in size since tuner car enthusiasts buy their tyres from a variety of sources including the
internet and mail order companies. In the performance segment, the popularity of items can come
and go in as little as six to nine months. The problem is that once an item or colour or design is
popular, everyone starts to buy it and then its not distinctive anymore. This applies to tyres just as

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Light Vehicle Tyres

much as any other accessory so the manufacturers have to keep very close to the market with a
constant stream of new variations and retailers have to be very careful with their stock levels.
A typical product for this market is distinctive in more ways than just a low profile. Michelin
designed a tyre specifically for this market incorporating colour as well as an aggressive
appearance asymmetric tread, the Scorcher from B F Goodrich. It was the first passenger tyre in
North America to sport red, blue and yellow colour bands around the tread. Later, it became the
first tyre buyers could customise by specifying their own choice of hues and colour configurations
in the tread. The latest twist to this product offer is a version of the Scorcher with a black-only
tread, the same as every other tyre. As well as keeping buyers interest by frequent product changes
in a market notorious for its short attention span and lack of loyalty, the new version tries to focus
buyer attention on the H- and V-rated Scorchers high-performance capabilities. In developing the
Scorcher, Michelin didnt set out merely to produce a coloured tyre. It created an ultra-highperformance tyre at a carefully chosen price point and designed it so that colour could be put into
it. The Scorchers high-silica compound not only makes the colour tread bands possible but also
provides excellent wet and dry traction. According to the company an absolute novice can get
behind the wheel and feel a distinct difference between the Scorcher and other tyres within its
competitive class.

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Light Vehicle Tyres

6 Technical Developments
6.1 Introduction
Despite the large amounts spent on research by the tyre industry, the public perception of a tyre is
that of a simple annulus which has not changed much since it was first developed well over a
century ago. In fact, there have been many changes but they are invariably small and incremental
and often invisible, as changes in the chemical composition of materials are not obvious. Moreover,
a tyre has to perform a variety of functions, some of which oppose each other, so the changes that
are made are always a matter of compromise. A tyre must provide grip when subjected to braking,
acceleration or sideways motion, as in cornering, on all types of road surface and in all weather
conditions. It is the interface between the vehicle and the road, so, as the vehicle becomes more
powerful and more sophisticated, so too must the tyre.
The various tyre products differ quite markedly in their technical content as can be seen in Table
6.1. Passenger car tyres provide by far the largest market for tyre manufacturers but at the same
time they demand a high level of research and development. The OE market in particular demands
a lot from the tyre industry as the vehicle designers set very specific requirements for the tyre
manufacturers to reach. However, the industry usually achieves its objectives by incremental steps
and by compromises on the properties of the tyre; it rarely introduces a really revolutionary
product.
R&D content
HIGH
HIGH
HIGH
HIGH
MEDIUM
MEDIUM
MEDIUM
MEDIUM
MEDIUM
MEDIUM
LOW
Source: Bowfell

Table 6.1 R&D content by product

Product
Size of market
Radial aviation
Small
Earthmover
Medium
Radial truck
Large
Passenger OE
Large
Radial motorcycle
Small
Agricultural
Medium
Bias aviation
Small
Passenger replacement
Very large
Bias truck
Medium
Bias motorcycle
Small
Bicycle
Small

The last important technical breakthrough in tyre development was in 1946 when Michelin
patented the radial tyre. The radial tyre has two major advantages over the cross-ply or bias-ply
design. The cross-ply tyre is structurally much more rigid than the radial and consequently it does
not give as the vehicle corners. The radial tyre can be used safely at much higher speeds and it
runs cooler, resulting in greater durability and less rolling resistance. The vehicle manufacturers, or
at least those based in Europe, were not slow to recognise this superiority, and the design was first
used as original equipment in 1951. By 1955 the majority of European manufacturers had adopted
the design and this type of tyre rapidly became universal, although the US manufacturers were
much slower to adopt the technology, not moving over to radials until the 1960s.
Since then there has been no comparable advance in fundamental tyre design (though it is possible
that the Michelin PAX design could cause a similar major shift if it is adopted by several vehicle
manufacturers for their volume cars). Nevertheless tyre technology has made enormous progress in
recent years. A typical tyre has become lighter and longer lasting with less rolling resistance. As a
result it is capable of higher speeds and delivers much shorter braking distances on wet as well as
dry surfaces. Almost all of this improvement is the result of small, incremental changes in the
design and composition of the tyre but, over time, these can make dramatic differences in

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performance. Table 6.2 illustrates the changes in a typical passenger car tyre that have taken place
since 1975. Most properties have improved by at least a third and some by considerably more.
Table 6.2 Tyre performance changes 1975-2000
Attribute
Dry braking distance
at 100 kph
Wet braking distance
at 100 kph
Tyre life
Maximum speed
Weight
Rolling resistance
Source: Continental

Units

1975

2000

%
Improvement

Metres

55

36

34

Metres

85

55

35

Kilometres
kph
Kilograms
n.a.

35,000
210
11.6
1.3

50,000
300
8.0
0.9

43
43
31
30

Research will continue to bring in incremental improvements so that there will be gradual change
in the performance of tyres but it does not operate in isolation. More of the research being carried
out is defined, and in many cases directed, by legislation that is being brought in.
6.2 Legislative Environment
The tyre industry has always worked within a framework of legislation but, until recently, the
legislation has been essentially national. The operating environment is now changing, and the
companies are faced not only with more legislation but increasingly uniform legislation. Although
excess legislation is always unwelcome in any industry, the trend towards international uniformity
in tyre legislation is of benefit to the multinationals, as it allows them to work to (or at least
towards) common standards in many of their countries of operation.
The three areas that affect the industry most are: environmental protection; consumer safety; and
health and safety at work. All three areas are coming under scrutiny from governments and more
and more legislation is being enacted.

6.2.1 Environmental Protection

Environmental protection is probably the single most important driving force for general legislation
at present, its ramifications are spreading wider and the tyre industry has not been excepted. There
is an increased focus on requiring enhanced environmental protection in all areas relating to tyres
tyre production, tyre usage and tyre disposal. The most recent environmental measure of specific
application to tyres is the EU Directive on tyre noise, which sets limits on the noise that tyres may
make when in contact with the road. The Directive came into force in August 2001 and, within
three years of that date, i.e., August 2004, the Commission must submit a report to Parliament
suggesting even tighter noise limits.
An even more immediate challenge has been established by the End of Life Vehicles (ELV)
Directive. This is a Directive by the EU that all light vehicles must be dismantled at the end of their
useful life, and materials re-used wherever possible. The specific target is that by 1 January 2006,
for all end-of life vehicles, the reuse and recovery shall be a minimum of 85 % by weight per
vehicle and year. Within the same time limit the reuse and recycling shall be increased to a
minimum of 80 %. This will increase to 95% by 2015. Vehicle manufacturers have the ultimate
responsibility for responding to this directive.
There is little specific reference to tyres, but the Directive is having a profound effect on all
components, and on tyres more than most. Tires make up about 3.5% of the vehicle weight, and

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vehicle manufacturers will try to squeeze the last drop of credit out of the tyre as a way of fulfilling
their obligations to achieve 80% reuse and recycling. One of the ways they could do this is by
trying to incorporate as much recyclate as possible in the new tyres they buy.
This Directives requirements need to be taken together with the ban on landfilling under the
Landfill Directive, in order to develop a coherent industry strategy for the disposal of used tyres.
The terms of this prevented whole tyres being placed in landfill by 2003 and shredded tyres will be
banned by 2006.

6.2.2 Consumer Safety

Until recently tyre safety has been of little concern to legislators, most countries leaving quality
standards in tyres to be decided by industry groups in discussion with government agencies. There
was informal co-operation between countries and the system seemed to work well. However, this
situation has now changed as the TREAD Act in the US is a much more intrusive measure.
As a direct result of the Firestone recall, the US Congress passed the Transportation Recall,
Enhancement, Accountability and Documentation (TREAD) Act, which became law on 1
November 2000. The TREAD Act is a series of 12 congressionally mandated rulemakings within
the National Highway Traffic Safety Administration to prevent catastrophic vehicle and tyre
problems and expedite agency responses to product defects. Two key clauses in this Act mandated
the introduction of tyre pressure monitoring devices on all new vehicles by 2003 and authorised the
National Highway Transport Safety Administration (NHTSA) to revise the 35-year-old federal tyre
testing standards.
In June 2003, the agency issued new, stringent tyre performance testing standards the first
complete rewrite of the rules since 1968. By August, the tyre industry had filed several petitions for
changes to the rules and there will be further discussions and lobbying before they are brought into
effect.
This is, of course, a sensible procedure, but there now appears to be much more interest in the tyre
industry and legislators are increasingly willing to introduce direct legislation rather than allowing
industry standards to be the main control. Moreover, there is much more liaison between regions.
For example, a proposal put forward in Europe to have a ten year sell by date on tyres was
quickly picked up in the USA and a member of congress tried to introduce this into American
legislation.

6.2.3 Health and Safety

The normal health and safety regulations which apply to all industries affect the tyre industry but
this is a burden shared equally by all companies. However, there is a growing disparity between the
developed regions, where legislation demands roughly equal standards between countries in Europe
and North America, and the countries of the developing world which lay a much lighter burden on
companies operating there. So far this merely enhances the labour cost incentives of producing in
these countries but, in time, it is likely to be brought up to the standards in developed regions.
However, there is a lot of other legislation which could impinge on the tyre industry. Under a
controversial European Commission proposal, known as REACH, or Registration, Evaluation and
Authorisation of Chemicals, all chemicals made or sold in the EU risk being banned, unless they
are accompanied by public data on potential hazards. According to the European Commission, the
new policy is designed to replace 40 different pieces of legislation and to increase protection for
people and the environment against damage caused by exposure to chemicals. Many of the
chemicals used in the rubber industry are potentially hazardous. According to BLIC (Bureau de
Liaison des Industries du Caoutchouc) the costs to the rubber industry of meeting the REACH
proposals will be prohibitive. BLIC, the European federation of rubber industry associations, has

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Light Vehicle Tyres

been coordinating a comprehensive risk assessment on zinc oxide, and has so far spent around
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BLIC data, the rubber industry uses some 4,000 different chemicals, most of which are likely to
come under the terms of the policy. A simple calculation projects total costs of  PLOOLRQ RQ
the rubber industry. The industry employs some 280,000 people in Europe, so the projected cost is
estimated at over  SHU HPSOR\HH
After intense lobbying by industry the Commission has softened its original proposals but will still
involve over 20,000 chemicals. The lobbying battle will now move into the European Parliament
and the Council of Ministers from national governments, and may drag on into 2005 and beyond.
In the meantime the European Commission has acted on a narrower front by adopting a proposal to
phase out the marketing and use of many polycyclic aromatic hydrocarbon (PAH) extender oils for
the production of tyres. The ban, which covers extenders containing over 10 mg/kg of listed PAHs
will take effect from the end of 2008. PAH-rich extender oils are particularly important for the
production of summer tyres and high-speed rated tyres. The Commissions proposal is intended to
improve public health protection, according to Erkki Liikanen, the ECs Enterprise Commissioner.
ExxonMobil anticipated this by announcing that it would stop supplying Distillate Aromatic
Extract oils (DAEs) by the end of 2003. These oils were traditionally widely used as processing
aids and extenders in the tyre and rubber sectors. DAEs fell into disfavour starting in the mid
1990s, as a result of classification by the EU as potential carcinogens. Concerns about the health
and environmental implications of DAE use were highlighted initially in Sweden. Since then, the
tyre sector and its suppliers have started using alternative process oils.

6.2.4 Impact of Legislation

In theory the enactment of the TREAD Act applies only to the domestic US market, but in practice
its ramifications will be felt in Europe and, to a lesser extent, in the rest of the world. This is partly
because the companies themselves want to standardise products wherever possible, but also
because national regulatory bodies are working together much more closely than has been the case
in the past. The European Commission has already stated that it wants to introduce mandatory tyre
pressure monitoring systems into all new cars.
However, complications can arise from this rash of new legislation and regulation as the
interactions can be complex, with new laws impacting on existing ones. For example, Tyre
Pressure Monitoring Systems (TPMS) will increase the weight of tyre/wheel systems and affect the
balance, but this could affect the proposed ban on lead balancing weights under the ELV Directive.
These illustrations show the increasing, and sometimes conflicting, regulations that are being
imposed upon the tyre industry. The process will continue and almost certainly accelerate, so the
industry needs to develop a coherent strategy to deal with this. Regulations no longer affect the
industry purely at the margins they now impact on the heart of the process and can shape the
future fundamentally. The industry needs to seize the agenda and be proactive rather than reactive.
The disparate authorities are not going to be able to discern for themselves how their demands
interact to the detriment of the industry, so the companies or their trade organisations need to tell
them. More than that, they need to anticipate and initiate legislation, putting forward ideas as to
how the aspirations of the various interest groups can be met.
The key to all this is communication. There needs to be continual contact with government and
quasi-government bodies at all times and at all levels. Moreover, there needs to be more contact
between regions and between governments in order to ensure that regulations in one area are
compatible with regulations elsewhere. The obvious body for this is one or all of the trade
associations, but to do this job properly they need much more funding from their members and a
much enlarged management to prepare and implement these strategies. It is unlikely that the
industry will be willing to act decisively or quickly to do this, but delay could be costly as the
industry is currently finding with the consequences of the TREAD Act.

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Light Vehicle Tyres

6.3 Research and Development

6.3.1 Research and Development

The tyre industry spends over $2.5 billion on research and development each year. In addition there
are significant amounts spent in universities and by the material producers, which supply the
industry. The total amount spent on R&D is estimated to be well over $3.5 billion. Relatively little
fundamental research is carried out by the tyre companies, but they keep contact with various
universities and research institutes in order to be aware of interesting developments. In addition the
material suppliers are researching their own areas of expertise and they keep the companies
informed of improvements in compounds or reinforcing materials.
Most of the $2.5 billion is spent on development bringing to market new tyres with improved
specifications. This work is usually done in collaboration with an OEM in order to develop a tyre
with particular characteristics to suit a new vehicle they are bringing out. However, sometimes the
tyre manufacturer perceives a wider market opportunity and develops a whole family of tyres
specifically for the aftermarket. The Goodyear Aquatred or Michelin Pilot range were developed in
this way.

6.3.2 Materials Development

The most important materials used in tyres apart from natural and synthetic rubbers are carbon
black, silica, steel and fibre reinforcement. There are continual developments in all these areas but
they are usually small developments, not dramatic changes.
Natural rubber
Natural rubber and synthetic rubber are competitors but they also complement each other and the
natural rubber industry has learnt to live with synthetic rubber. Considerable work is being carried
out with natural rubber but the emphasis is on improving the quality and particularly the
consistency of the material. In the main growing countries geographic expansion of the plantation
industry was difficult for both economic and political reasons and instead increased productivity
and reduced cost of production have become the critical factors in making the plantation industry
remunerative and viable
Synthetic rubber
Developments in synthetic rubbers have also had problems. Prices in the volume SR sector butyl,
butadiene and SBR have been very low for a long time. No-one is making enough to both reinvest and to get a sensible return on the business, despite major efforts to improve efficiency. This
has held back research and development to some extent but there have still been improvements.
The industry is now restructuring and it is likely that the more focused companies will apply more
resources to development in order to raise their margins.
Carbon black
Among the factors that have affected carbon black loadings are a shift in the product mix away
from bias ply to radial tyres (which last longer and use less carbon black), and a trend towards
lower carbon black loadings in general (to reduce rolling resistance and fuel consumption). At the
same time there are also a number of factors at work within the industry which are leading to an
increased use of the material, one significant one being the longer warranties offered on all-season
radial tyres, but the most important is the continuing growth in high performance tyres. The latest
step is the development of carbon blacks with reduced HBU (heat build up) and rolling resistance.
Silica
Since 1990 silica consumption in the passenger tyre tread market has grown dramatically,
particularly in Europe, and significant growth is also being seen in both North America and Japan.

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Light Vehicle Tyres

It is claimed that a typical tyre tread, incorporating precipitated silica, now gives a superior
performance to carbon black in several key areas. Using the carbon black performance as an index,
silica can give improved performance in three areas; wet traction, snow traction and rolling
resistance. One of the major problems with silica is that it lacks the requisite static dissipative
qualities for heavy use in tyre treads. Tyre companies, particularly Michelin, continue to
experiment with higher silica loadings, but they still find that the rubber is building up a static
charge from contact with the road surface. Carbon black is fighting back against silica in passenger
tyre treads, and the view is beginning to develop that in the longer term any further displacement of
carbon black by silica will be minimal.
Steel cord
Until now steel has only been used for steel belts in passenger tyres, not body casings. However,
the introduction of ultra-tensile steel has led the way to its use as the next generation passenger tyre
reinforcement material. Stronger steels are harder and more brittle so the big problem has been how
to draw them into fine wires. This problem has now been mastered and further developments will
see more ultra tensile steel. The biggest market for this high strength steel will be for the sidewalls
of runflats if this market grows as predicted. Steel would give the casing sufficient integrity to
achieve runflat capability, whereas until now only rayon has been suitable. It can impart the
dimensional stability to the casing, which is necessary for a runflat, whereas neither polyester nor
nylon measure up because they do not meet the high heat-resistance demands and aramid is too
expensive.
Textiles
The demand for tyre cord has generally shifted towards cheaper materials but as the technical
demands on tyres are increasing there is a slight shift back towards more expensive materials such
as aramid and rayon. For example, the use of aramid is growing at about 10% per annum but from
a very low base and it is never likely to become a dominant fibre for use in tyres. However the shift
towards high performance tyres and particularly runflat tyres is leading to an increased demand for
high performance fabrics. Polyester research is ongoing and there have been considerable
improvements in some properties but it cannot match the heat resistant properties of the more
expensive fibres.

6.3.3 Tyre Property Improvements

There have been changes not just in the materials of which tyres are made but also in the design of
these tyres leading to much improved physical properties. Some improvements are brought about
by pressure from consumers (durability), some by regulations (noise reduction) and some by the
manufacturers themselves (wet surface performance). However, most improvements come about as
a result of all three influences. Again, as with materials, the changes are mostly incremental but
they can make a substantial difference over a period of years as Table 6.2 demonstrated.
Durability
In the early days of the motor car it was not uncommon for motorists to carry six spare tyres on a
long journey. Thanks to poor design and bumpy roads, the average driver in 1900 used 37.5 tyres
each year. Both tyre quality and roads have improved dramatically over the past century but there
is still pressure to improve the life of tyres. Since 1903 the average tyre life has risen from about
500 miles to 44,700 miles. The cost per mile has dropped from about 3 cents per mile in the 1920s
to about 1.8 cents per mile now. These improvements have come about by changes in the overall
tyre design, using different materials for the tread and improvements in roads and their surfaces. In
North America companies have felt confident enough to guarantee a tyre for life (albeit with
numerous conditions) but they have not yet taken this step in Europe because the roads are much
more varied and there are far more bends and corners.

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Light Vehicle Tyres

Improvements are continuing. The National Highway Traffic Safety Administration (NHTSA) tests
virtually all tyres on the American market for various properties of importance to drivers. In early
2004 it declared from test results that tyres are better at resisting wear than they were in 2000.
However, as always in the tyre industry, advances cannot be made on all fronts simultaneously and
tyre ratings for traction performance and heat resistance have seen little change.
Weight
This is particularly important to the OEMs, as they are continually looking for weight savings
wherever they can, in order to improve fuel consumption. Reducing tyre weight is particularly
important as it reduces the unsprung weight of the vehicle. Reductions in the unsprung mass
improve the handling properties of the car. No dramatic improvements have been made in reducing
the weight of tyres, but each successive generation is slightly lighter than its predecessor, with
thinner sidewalls and, in certain cases, the substitution of steel by fibres. Sometimes the reduction
can be substantial Michelin claims that its new Proxima tyre which is still in the prototype stage
is 20% lighter than the Energy tyre it will probably replace. Over the longer term the weight
savings have been even more dramatic. In 1980 the MXL tyre weighed 12 kg while the equivalent
new Proxima weighs only 6.5 kg.
However, the development of runflat tyres could reverse this trend as these tyres are considerably
heavier than their standard equivalent. If runflats become popular quickly the average weight of
tyres will increase in the short term but in the longer term average weight will still decline. This is
too important a characteristic for the manufacturers not to do all they can to reduce it.
Noise
Although there are many sources of noise in a moving vehicle, for speeds above 60 km/h in cars,
tyre noise becomes the dominant noise source, the tyre and road surface combined accounting for
78% of audible noise. A tyre's tread contains block shapes that smack against the road surface like
tiny hammers. Those tread blocks and underlying reinforcing belts vibrate and radiate energy
outward, producing sound much like the vibrating cones in stereo speakers. Different portions of
the tyre vibrate faster than other portions, producing more noise. However, the pavement that the
tyre is travelling over can make a dramatic difference to the level of noise produced. The trend
towards wider tyres has increased the problem as these have a much larger contact patch which
gives rise to more noise.
Tyre/road noise is one of the major environmental problems of modern society and is not yet under
control. The EU has made several attempts to legislate for this problem but these do not fully
address the issue. It has published vehicle noise directives and, more recently, tyre noise directives.
However, tests carried out on the values for the tyre noise directive demonstrated that virtually all
tyres on the market met this standard. It would seem that the present limit values are too high to
bring about advances in the state-of-the-art. No substantial changes in the directive are foreseen for
several years as even a lowering of limits by 1-2 dB as suggested by the EU in 2007 or 2009 would
be ineffective. What drives the tyre makers to make quieter tyres is the vehicle noise directive, not
the tyre noise directive.
However, the testing methods in use are the subject of a great deal of controversy and it is this lack
of consensus that is delaying more legislation. There is a debate whether the tyre should be tested
as a single entity or as part of the larger vehicle. Similarly it is very difficult to assess whether it is
the tyre or the road surface that is producing a particular noise. Nevertheless, this aspect of tyres
must be given attention as pressure is sure to build up demanding quieter tyres.
Rolling resistance
This characteristic of tyres was not given much attention until recently; far more attention was paid
to grip and braking capability. However, the increased emphasis on economy and environmentally
friendly equipment has now given it much more importance. Again a compromise has to be
reached between the ability of the tyre to ride easily over the surface but still be able to grip in all

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Light Vehicle Tyres

conditions and to bring the vehicle to a halt in as short a distance as possible. The addition of silica
has made this possible but a great deal of research remains. This material proved very difficult to
disperse evenly in compounds and, when this was resolved, tyres made with the new compound
suffered from poor abrasion resistance. Another of the major problems with silica is that it lacks the
requisite static dissipative qualities for heavy use in tyre treads. Tyre companies continue to
experiment with higher silica loadings, but they still find that the rubber is building up a static
charge from contact with the road surface.
Wet grip
Wet surface performance has always been an important characteristic of tyres and a major element
in performance testing. On a wet road the tyres tread pattern sweeps water from in front and then
drains the remainder through the grooves in the tread. As a result the influence of tread depth in
wet accident statistics is not disputed. Even when vehicles have other electronic safety features
such as traction control, stability control, and anti-lock braking systems the ability to remove water
from the tyre contact patch via the tread pattern and the road surface will remain critical. No matter
where you drive in Europe, you are facing a lot of rain: according to the yearly weather statistics it
rains in Brussels, Frankfurt, London, Paris, Warsaw and Stockholm three out of five days, even
cities like Athens, Madrid and Rome have almost 100 rainy days per year. European drivers across
the continent have to drive an average of 141 days per year on wet roads.
The design of the tread has an important influence over wet grip as it is important to remove excess
water as quickly as possible. Goodyears Aquatred took full advantage of this, helped by a design
that not only was effective but also looked effective. However, only so much can be done by tread
design and now most research on improving wet grip is concentrated on new material
developments. The wet grip characteristics of tread compounds, whether based on carbon black or
silica, may be improved by using a new acrylonitrile-, styrene-butadiene terpolymer (NSBR).
High performance
Whereas good tread wear and a comfortable ride are the hallmarks of a mass-market tyre, steering
precision and maximum handling are the most desirable characteristics of an HP or UHP tyre.
Therefore, the materials, design and engineering of a HP tyre are very different from those of a
regular tyre. A high-performance tyre has a more aggressive and asymmetrical tread pattern than a
mass-market tyre, to enhance precision and manoeuvrability. The tread compound is designed for
optimum performance in temperate conditions. When the temperature drops substantially below
freezing, the traction deteriorates. UHP tyres have directional tread patterns designed to channel
water from under the tread and prevent hydroplaning. There are no sipes (small grooves) in those
tread patterns, because that takes rubber away from the road. Unlike mass-market tyres, the treads
on UHP tyres are designed specifically for the left and right side of the vehicle, which creates
major problems if they are mounted incorrectly. If they are put on backwards, water is drawn under
the tyre, increasing the chances for hydroplaning.
In terms of construction, mass-market tyres have bodies made almost entirely of polyester, which is
pliable and durable for a soft ride and long life. Most HP and UHP tyres, however, contain nylon or
rayon which have better heat properties than polyester and can absorb shock more effectively. HP
and UHP tyres probably have a harder bead filler than regular tyres. Hard fillers improve steering
response. In UHP tyres, there is often extra reinforcement of nylon or steel along the bead to
stiffen the sidewall. Also because of the high-speed factor, an HP tyre will be slightly non-radial,
slightly angle-ply compared with a true radial. The partial cross-ply structure gives extra stiffness.
Nylon cap plies are a construction feature that became notorious during the Ford-Firestone recall
controversy. This began as a result of Firestone being forced to recall about 10 m tyres in August
2000 because they appeared to be losing their tread when driven under-inflated at high speed. It
appeared to only happen when these tyres were fitted on Ford vehicles and there was a great deal of
recrimination between the two companies. In a further dispute about another type of tyre Firestone
refused to accept responsibility for defective workmanship and Ford replaced the tyres themselves,

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Light Vehicle Tyres

leading to further animosity between the two companies. Eventually Firestone refused to supply
Ford with tyres, breaking a relationship that had lasted for over one hundred years. Consumer
advocates and lawyers made an issue of cap plies, insisting that all tyres should have these for
safety. However, the tyre manufacturers maintain that cap plies are necessary only on tyres
designed to be driven at very high speeds. Cap plies are universal on ultra-high performance tyres.
At speeds of 125 or 130 miles per hour, centrifugal force tends to pull belts off, and cap plies
prevent this. They are not for safety, just for speed.
In some UHP and Z-rated touring tyres, such as those used as OE for Mercedes-Benz and BMW,
aramid is used as a belt material. It is extremely strong and lighter than steel, but its high cost
prevents its wider use. High performance tyres also tend to be wider than mass market tyres and to
have a lower aspect ratio. Wider tyres give better grip and the taller the sidewall, the greater the
shock absorption. Taller sidewalls are desirable in mass-market tyres, where as smooth a ride as
possible is required, but not in UHP tyres, where drivers want to feel the road. Aspect ratios can go
as low as 30 for UHP tyres, with widths in the 305-315 range. This compares with 55-60 and 235245 for HP tyres and 65-70 and 215-225 for mass-market tyres. Because of these specific
requirements high performance tyres are at the forefront of research and development with the
major manufacturers.
Winter tyres
Ice and snow grip are possibly the most difficult things to test on a tyre. Not only are the physics of
ice grip poorly understood, but it is not even clear which variables affect that grip. The first winter
tyres simply featured increased tread depth, but improved sipe technology and compounds that are
flexible at low temperatures have increased performance significantly. Sipes are small grooves or
slits in the tread of the tyre which promote water dispersal. Typically there are now 2,500 sipes in a
winter tyre mould whereas initially there were only 100 or 200 because it was extremely difficult to
get them out of the mould. In addition they have become more complex in shape. Most
manufacturers are researching different compounds which will react better with ice and hardpacked snow. Nokian, for instance, has a tread rubber compound that contains rape-seed oil, which
the company claims offers both environmental and performance advantages. Natural rubber is very
bad in the wet and has handling disadvantages. Different blends of synthetic rubbers are used and
several companies use a hard base underneath a soft cap instead of one full tread cap. Research is
being carried out into the direct coupling of silica with polymers and the use of various additives.
However, new academic research could lead to a new way of improving winter performance by
using electrical charges. The mechanics of the ice traction system are relatively straightforward. A
mild electrical current through the tread creates an electrical charge on its surface. This charge has
the opposite polarity from the ice on the road and creates a thin coating of ice on the tyre. Now the
two oppositely charged ice surfaces can grip each other and this provides the traction necessary to
steer and slow a vehicle over ice. Although this is still a long way before it is likely to be adopted it
would seem to be technically feasible. Microthin electronic sensors and conductors could be
embedded in a tyre. As tyre manufacturers are already incorporating traction sensors and other
microelectronics into tyre and wheels, this would not be an enormous change in the manufacturing
process.
6.4 Runflat Tyres
The most dramatic innovation in tyre technology in the last few years has been the introduction of
runflat tyres into the mass market. They have been available for at least a generation, starting with
the Dunlop Denovo but they have taken a long time to reach technical maturity. Early versions
were heavy and uncomfortable for passengers but many of these problems have been overcome and
they are beginning to show strong market growth. Sales amounted to an estimated 2 million units in
2003 and current estimates suggest a doubling of sales in 2004 to about 4 million units. If the take
off point has been reached there will be rapid substitution of conventional tyres over the next
decade.

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Light Vehicle Tyres

However, there are three different and distinct approaches to the problem and it is not yet obvious
which will win. The most successful so far has been the self-supporting sidewall design. The
sidewall is reinforced with extra rubber and fabric so that when the air leaks out there is still
sufficient rigidity to carry the load of the vehicle and passengers. The disadvantage is that the rigid
sidewalls produce a less comfortable ride. It works much better with low profile tyres and relatively
light vehicles.
This was the design favoured by Goodyear when they introduced their EMT tyre in 1997. The
other major manufacturers quickly followed with similar designs but Bridgestone and Continental
preferred to promote the idea of a support ring. These rings, made of metal or plastic, are fitted
between the rim and the tyre to give physical support and to prevent the inner surfaces of rubber
scraping against each other. A normal tyre is destroyed by running at zero inflation pressure, partly
by the excessive deformation and cycling of the sidewalls and partly by the rubbing of one internal
surface against another. This abrasion quickly destroys the inner liner and leads to significant heat
build up even at very low speeds. The support ring prevents this and offers a small amount of
flexibility to make the ride a little less uncomfortable in the deflated condition.
The third runflat technology is the PAX system developed by Michelin although Michelin claims
that it is much more than a mere runflat design it is a revolutionary method of fixing the tyre to
the rim. Its runflat capability is provided by a combination of shorter sidewalls and a support ring
inside the tyre. This system is the most technologically advanced but it requires a special rim and is
much heavier than the other solutions. A typical tyre/wheel combination for a small car weighs 17
kg and a self-supporting tyre would add one or two kilograms. The equivalent PAX system weighs
about 21 kg. Nevertheless the PAX system is attractive because it offers much improved fuel
economy and thin sidewalls which deliver better performance, handling and comfort. PAX is now
offered as an option on a few vehicles but it will probably tend to be used on larger, heavier
vehicles where comfort is important.
At present the self-supporting sidewall design is leading sales in the market, closely followed by
the support ring. The PAX system is a poor third. However, this situation could change quickly if
more OEMs followed the lead of BMW by specifying runflats as standard. It may well be that no
particular design becomes pre-eminent. PAX could be used for heavy duty applications such as 4x4
vehicles and diplomatic cars; the support ring for larger saloons and self-supporting sidewalls for
small- and medium-size cars.
6.5 Pressure Sensing
This innovation has been in progress for several years as it is a necessary complement to runflat
tyres but the real boost came with the Firestone recall in 2000 and the subsequent legislation. The
TREAD Act, which came into force in November 2000, required the NHTSA to publish
performance standards within one year and to implement this within two years. In effect, all new
vehicles sold in the United States between November 2003 and model year 2007 must be fitted
with such a device.
The two main systems which it approved are direct and indirect measurements. The direct systems
transmit an absolute measure of pressure into the vehicle electronics whilst indirect systems
measure tyre diameter to detect when there has been a significant pressure loss. There is no doubt
that direct systems are more accurate but there was considerable pressure from vehicle
manufacturers to endorse indirect systems because these systems would be cheaper to install, using
as they do, existing technology such as ABS. Tyre makers wanted direct systems that cost around
$65 per vehicle whilst vehicle makers supported the indirect approach, estimated at around $22 per
vehicle. However no one was happy with the deflation limits of 25% for direct and 30% for indirect
systems which NHTSA proposed.
Since then there has been considerable controversy in the USA with consumer groups taking
NHTSA to court in order to press the claims of direct systems as being superior. In retaliation Ford

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has hardened its stance for indirect systems, citing a customer survey it had carried out. It claims
that customers had seen major problems when they switched from winter tyres to summer tyres.
First there had been radio interference from the tyres stored in the garage and in addition the whole
system had to be recalibrated when the tyres were swapped over. Even though these claims are
serious they still only affect a minority of drivers worldwide but it is a substantial minority and
their problems cannot be ignored. There are also compatibility problems when drivers replace an
OEM tyre with a replacement tyre but these have not yet been in evidence because the systems are
so new.
In August 2003 the court ruled in favour of direct systems saying in its ruling Unlike direct
systems, which work in virtually every instance in which one or more tyres are significantly
underinflated, indirect systems do not warn drivers in about 50% of those instances. Absent any
satisfactory explanation in the rulemaking record, the adoption of a standard that permits
installation of plainly inferior systems seems to us to be arbitrary and capricious. NHTSA had the
opportunity to appeal the ruling but it has since decided to rewrite its regulation although no timing
has been set out. Originally it had promised to make a final ruling by March 2005 for
implementation by November 2006 and it will probably stick to this timetable. In September 2004
it published a notice of proposed rulemaking which evaded the conflict by merely publishing
performance standards rather than methods. This was immediately criticised by many in the
industry and is unlikely to be the final word.
More than three dozen suppliers including BERU, Bosch, Gycloid, Delphi, Goodyear, Infineon,
Lear, Motorola, Schrader Electronics, SensoNor, Siemens, SKF, SmarTire, STMicroelectronics,
Texas Instruments, TRW, Visteon and Wabco as well as every major OEM and tyre
manufacturer are now involved in the technology, leading to a huge range of potential solutions.
Already some of these names are dropping out of the market or combining with others but the
familiar pattern of automotive component supply has not yet emerged three major players
dominating the world market.
Ultimately, many engineers believe that tyre-pressure systems will not be truly complete until they
are self sufficient. They should not have to rely on a separate power source, i.e., a battery and they
should release drivers from the onerous task of looking for service stations that offer pressurised
air. Ideally, such systems would automatically pump up the tyres while a vehicle continues its
journey. A number of manufacturers are working on this idea using either inertia-powered air
pumps or separate compressors. The other major development is to develop sensors which do not
need batteries as these will probably have to be replaced at least once in a tyres life. Again, a
number of technologies are being applied but no obvious winner has yet emerged. However, the
Japanese manufacturer, ALPS Electric launched a transponder-powered device in mid-2004,
becoming the first in the field.
6.6 Future Development
Runflat tyres and pressure sensing systems go hand-in-hand, as no responsible manufacturer will fit
runflat tyres unless there is a reliable system which tells the driver that a tyre has lost pressure.
Both these developments have grown strongly in the last two years but there are alternative and
competing technologies for both and it is not yet clear which will become the most successful.
However, all the systems have focused attention on the tyre as a key element in controlling the
vehicle. The tyre is at the interface between the vehicle and the road and, as such, it can play a
much more central role in vehicle handling.
The first moves have been made to use the tyre as a source of information. Michelin, Goodyear and
other companies have developed a radio frequency identification (RFID) transponder that is
manufactured into the tyre and stores vital tyre identification information. With this technology, the
tyre identification number can now be associated with the vehicle identification number (VIN)
making the tyres uniquely identifiable with an individual vehicle, telling when and where the tyre

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was made, maximum inflation pressure, tyre size, etc. There are still technical problems as well as
questions about standards (which radio frequency should be used and should it be an international
standard) but this type of chip will be the first step in developing an intelligent tyre. Pressure is
now coming from the retail sector with Wal-Mart announcing that its top 100 suppliers must
comply with a requirement to Radio Frequency Identification each case and pallet delivered to its
stores by 2005.
Siemans and Goodyear have announced a further step in this direction with what they describe as
the second generation of tyre pressure control systems. This unit is more than just a pressure
sensor, as it can record mileage and tyre wear, moving a step towards the intelligent tyre. The
new sensors operate with an indirect power supply and allow electronic identification of the tyres,
as they are embedded into the tyre carcass, rather than part of an external sensor fitted to the wheel.
As well as the sensor, the system incorporates an antenna in the tyre and a transmitter/receiver in
the cabin. It is this latter unit that supplies the tyre with energy. Should there be a drop in pressure,
the sophisticated software recognises this and sends a warning to the driver. Additionally, a chip in
the tyre records the mileage and the distance that can be travelled without sufficient pressure.
Almost every tyre company is keen to emphasise its ability to develop integrated systems which
can optimise braking and steering performance in cars. Bridgestone has set up a special division
within its Tokyo technical centre to look at integrated systems in suspension, braking and steering.
Most tyre companies have been developing chip-in-tyre systems for some years as a way of
keeping track of truck tyres, and this technology is now being adapted to car tyres as a way of
measuring forces and moments, transmitting them to the car's electronic management systems.
Most of these changes are perhaps a few years away from commercialisation, but the work on TPM
systems has stimulated a wide range of research projects.
Continental has taken a rather different approach to the problem of taking information from the tyre
in order to apply it to other vehicle systems. Rather than estimating such information based on
secondary data such as engine torque, brake fluid pressure, wheel speed and vehicle acceleration
Continentals SWT system (Sidewall Torsion System) now takes this information directly from the
tyre by measuring sidewall deformation from the suspension strut. The tyre sidewall is marked with
a magnetic material in two rings, one near the belt and one near the rim. One marking ring and the
corresponding sensor constitute a conventional ABS pole wheel. The time difference between
passages of the boundary between adjacent poles through a fixed point is measured from the
vehicle with active magnetic-field sensors.
This SWT system is currently in prototype phase. The basic functionality and applicability of the
sensor has been demonstrated but there is still a long way to go before it appears on production
tyres. All parts of the system must be made robust enough to ensure that failures are minimised.
The system layout must ensure that the failure of a component is recognised and that drivers can
control the vehicle safely at any time. Moreover, this prototype system only measures one of the
forces acting upon the tyre. A truly intelligent tyre will measure all forces and such measurements
will eventually be incorporated into the system. For example Continental is collaborating with
Darmstadt University to integrate wireless surface acoustic wave sensors into tyres. Potentially this
can provide an on-vehicle method of measuring tread deformation in response to driving
conditions. For other factors involved in reading the tyre sensors embedded in the tyre will be
used.
Research is in progress to mathematically model the tyre-to-road frictional contact in terms of the
radial force and ground plane stresses. If it can be proved that these forces effectively control the
vehicle and if they could be continually measured in each of the tyres in motion, the tyre would
become the key sensor in vehicle control technology. The vehicle could respond continually to the
measurement of tyre-to-road friction and this data could be coupled with satellite navigation
technology. Then, the data on tyre road friction, together with vehicle speed, programmed
direction, road geometry and traffic density would be sufficient to ensure that the driver is unable
to drive in a manner which would be likely to cause an accident.

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However, a truly integrated intelligent tyre is far into the future. In the more immediate future
developments are also taking place in the physical design of the tyre. Michelins PAX tyre has
already been discussed in the context of runflat tyres but it is primarily designed to become a new
high safety, high performance, low-rolling resistance tyre wheel. The PAX system involves a
special wheel rim, and a dedicated cover, an inner ring support to assist runflat capability and an
inflation pressure detector system. The rim is much flatter than the standard deep well rim.
Consequently the tyre is ultra low profile, and there is more wheel space available for brakes and
the suspension strut. This allows designers either to incorporate bigger wheels in the same body
space or use the same size wheels and utilise the extra space saved by enlarging the cabin. The
design means the sidewall loads are carried straight into the wheel rim with almost no sideways
component and the sidewalls themselves are very evenly stressed. The result is a tyre which
delivers an excellent combination of grip, steering response and lowered rolling resistance.
However, no matter how good the design, Michelin would have been unable to succeed on its own
as OEMs do not like single-sourcing such unique components. One or both of the other two major
suppliers were needed to adopt the system before the carmakers would fit it to mass production
vehicles. Consequently Goodyear has agreed to manufacture the tyre under licence and Pirelli,
Sumitomo and Toyo have also become licensees. This should remove the doubts about single
sourcing but the tyre will still need time to be widely accepted. Vehicle designers have to
incorporate the radical new design in new models, not existing designs. At present it is offered as
an option on several Renault models and as standard equipment on the Rolls Royce Phantom. It
will take some years before this concept can be judged as to whether it is a commercial success. It
will only be a success if the design advantages of the new wheel overcome the traditional
conservatism of the industry.

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7 Recycling
7.1 Introduction
The disposal of scrap tyres is a problem that has been growing for decades. A used tyre appears to
have very little value or use, and consequently it was invariably discarded once it had reached the
end of its useful life. When the volumes were small, the problem was containable, but with the
growth of vehicle sales the number of used tyres has grown rapidly in the past few decades.
A vulcanised rubber tyre is a difficult recycling challenge. It is composed of different materials,
often including steel, so it is difficult to disassemble. It comprises many different types of rubber,
physically mixed together, which are impossible to separate. It has undergone a chemical
vulcanisation process which cannot be reversed. Even if no attempt is made to salvage the
component parts, the whole tyre is big, bulky and difficult to find an application for large numbers
of them. Even if they are stockpiled and used as landfill they are unsightly, form a breeding ground
for mosquitoes and are dangerous in that they present a fire hazard.
However, despite the associated problems, both governments and the industry itself have
recognised that a solution, or a range of solutions, must be found. Consequently most of the major
tyre companies and their trade associations are engaged in exploring ways of reducing the
environmental impact of used tyres, and they are encouraged in this, to a greater or lesser extent, by
the governments where the problem is greatest North America, Europe and the Far East. The
typical composition of a car tyre is illustrated in Table 7.1.

Material
Carbon black
Natural rubber
Synthetic rubber
Steel wire
Extender oil
Organic fabric
Other petrochemicals
Other
Total

Table 7.1 Typical composition of a car tyre

% of total weight
North America
28.0
14.0
27.0
10.0
10.0
4.0
4.0
3.0
100.0

Japan
26.3
28.0
21.8
9.6
5.9
3.7
0.0
4.7
100.0

7.2 Hierarchy of Waste

Most of the constituent materials, including carbon black and synthetic rubber, are derived from
crude oil and they have a high energy content, so the material could be burnt, but this is not
necessarily the most ecologically preferred course. In environmental terms there are five broad
alternatives that address the challenge of scrap tyres. This hierarchy of alternatives demonstrates
the relative desirability of each approach. In descending order of preferment the alternatives are as
follows.
1. Reduction reducing the number of tyres that need to be scrapped.
2. Re-use either retreading to make a new tyre or using scrap tyres for other purposes.
3. Recycling treating the materials in a tyre so that they can be used in other products.
4. Recovery essentially burning in order to recover energy.
5. Landfill.
Ideally the amount of waste should be minimised and as much as possible re-used. Only then
should disposal methods be considered and even here recycling, or converting into other useful
products, is preferable to burning or simple tipping. Progress is being made in all areas but the

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more difficult applications tend to be higher up the hierarchy of waste and less progress has been
made with these.

7.2.1 Reduction
The best way to reduce waste is to use less tyres but as it is unlikely that less cars will be bought in
the foreseeable future the alternative is to make tyres last longer. The industry has made
considerable progress in this respect, not just for altruistic reasons, but because longer-life tyres
provide a marketing advantage. The big breakthrough came with the development of the radial tyre,
which lasted twice as long as contemporary cross ply tyres, but there are still improvements being
made now as more resilient rubber compounds are developed. Goodyear estimates that the average
mileage of a tyre has nearly doubled in the last 25 years, from about 25-27,000 miles in the 1970s
to an average of 43,000 miles today. However, this is not enough to make a real impact on the
amount of waste generated so other alternatives have to be addressed.

7.2.2 Re-use
This has much more potential, not just for reducing the volume of waste, but also in the energy that
is saved in producing new tyres. The simplest form of re-use is the sale of used tyres to other users.
Export. This activity has thrived as the legal requirements for tread depth have been increased. The
de facto worldwide standard tread depth is now 1.6 mm, and many drivers change tyres before this
minimum requirement is reached. These tyres have a value, and they enter a brisk international
trade. Most of these end up in developing countries where they are often used until they are worn
through to the casing. In the short term this appears to be a way for developed countries to get rid
of embarrassing waste but in the longer term it is not a satisfactory solution. Quite apart from the
moral question of selling substandard tyres, developing countries are now a prime target for tyre
manufacturers in India, China and South Korea offering new and relatively low cost tyres. In
addition a number of developing countries are questioning the idea of importing used tyres that will
add to their own environmental problems. Thailand has already announced that it will ban the
import of used tyres.
Re-grooving. The cheapest method of renewing a worn tyre is to re-groove it. This can only be
done legally with truck tyres, as passenger car tyres do not have enough thickness of tread rubber to
allow the process. Although it is done with passenger car tyres the numbers are small and
declining.
Retreading. The retreading operation is the removal and subsequent replacement of worn tread
rubber to provide another tyre life. It fulfils the hierarchy of waste requirements in two ways,
meeting the primary objective of best environmental practice by minimising the use of raw
materials, whilst also meeting the second best objective of re-use. The word retreading is now used
in a general sense and covers several accepted methods of reconditioning a worn tyre such as
remoulding, top capping and recapping. Remoulding too is now fully accepted for truck tyres but
the remould of passenger car tyres is rather more contentious, and the manufacturers do not
associate themselves directly with this. The industry has suffered in the past from some quality
problems and from some unscrupulous operators giving all the firms a bad name.
Retreading is carried out in all three of the major tyre producing regions Japan, North America
and Europe but the former two regions concentrate mainly on tyres for commercial vehicles.
Japan retreads about 4% of its used tyres, and this has fallen steadily from around 10% a decade
ago. South Korea retreads about 10% of its used tyres, whilst the USA treats about 8%, or 20m
tyres. In Europe the quantities are larger because far more passenger car tyres are remoulded,
although it is difficult to make generalisations because the various regional markets are subject to
differing influences. The industry prospered in the early 1990s as larger firms became involved and
quality standards rose, but from about 1997 the retreading industry across the whole of Europe

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went into steep decline. The problems had started as early as 1995 as the major manufacturers
introduced budget brands to build up their market share and the financial problems in the Far East
at that time then led to a flood of further imports. The passenger tyre industry is now in severe
difficulties, and many firms have gone bankrupt or exited the industry. In the medium and longer
term the increased emphasis on recycling and protection of the environment should offer some
hope for the industry, but in the meantime it has to survive the short term and that is not
guaranteed.
Whole used tyres. There is a market for used tyres without any modification at all. Farmers use
them as stock feeders and as cover weights for stored feed. They are used in marinas and docks as
bumpers and more recently experiments are being made to construct artificial reefs and
breakwaters. Other uses are being tried out such as whole houses made of tyres or childrens
playgrounds but none of these applications make much of an impact on the annual output of scrap
tyres. Moreover, the applications are not expanding or growing significantly.

7.2.3 Recycling
The next step down the hierarchy of use is to recycle the tyre, using it for other purposes after
treatment.
Fabricated products. The simplest form of recycling is to cut up the used tyre and to use the
fabricated pieces for other purposes. Tyres make excellent sandals throughout Africa and Asia,
strips are used to provide anti-vibration fasteners for exhaust systems and carcass walls can make
excellent snowblower blades. However, as with the creative use of whole tyres, these applications
are small in size and limited in growth potential.
Size Reduction. A more promising disposal route is to grind the rubber into crumb or powder and to
use this as a filler-extender in moulded rubber or plastic products. It has been successfully used in a
variety of products ranging from car mats to athletic tracks and highways. The tyres are
mechanically shredded into large chips and are then reduced further, either by freezing followed by
grinding or granulated in crackermills. Chips or granules of various sizes can be produced. The
larger chips >100 mm are generally used in civil engineering or landscaping, acting as drainage
layers or as part of an aggregate base. If tyres are ground to smaller sizes around 1 mm the
application range expands again, not only to established markets such as sports surfaces and
childrens playgrounds but also to paving blocks, livestock mattresses and roofing materials.
According to estimates from the European Tire Recyclers Association (ETRA), in 1995 39% of all
recycled tyre rubber ended up in sports surfaces and childrens playgrounds and, while the total
volume used in this application has not fallen, the percentage in 2001 was down to 33%, a figure
that is expected to decline further to 27% by 2010.
New tyres. The most obvious use for filler made from old tyres is to put it back into the material
being used to make new tyres. This is done to a limited extent by all manufacturers, substituting
perhaps 2-3% of the total compound. Some manufacturers such as Pirelli and Vredestein are
pursuing this course energetically, and both talk of quantities up to 10% of the mass being added to
the compound as their technology advances. However, other manufacturers are less enthusiastic.
The problem is that ground rubber from scrap tyres is chemically different from natural or synthetic
rubber. In the grinding process the rubber is broken down mechanically but no chemicallycombined sulphur is removed: the rubber has not been devulcanised. Ground material used as a
filler in tyres gives a lower tensile strength, additional build up of heat and oxidative ageing.
Goodyear claims that for every 1% of reclaimed rubber used there is an equivalent reduction in
tread life. At the same time the rolling resistance of a tyre containing reclaimed rubber is increased,
thus resulting in greater fuel consumption. However, Ford and Michelin have announced a joint
programme to develop a new car tyre that includes 10% of recycled rubber so they presumably do
not see the problems as insuperable. Goodyear too is working on the problem and it has filed a
patent for devulcanising rubber chemically.

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Asphalt. Crumb rubber can be used as a modifier for asphalt, giving it a longer life and a more
resilient surface. Most progress on this has been made in the USA as the legislators tried to
accelerate the normal market forces. In 1991 the Intermodal Surface Transportation Efficiency Act
(ISTEA) mandated that crumb rubber modifier should be used in a proportion of all paved roads.
There was a lot of resistance to this and the act was repealed in 1995 but several states notably
California, Texas, Florida and Arizona persevered with the idea and experimented widely. The
experience gained with crumb rubber is far from uniform or consistently positive but the federal
government has now funded research into asphalt technology under the Superpave programme. The
Scrap Tire Management Council claims that the crumb used in asphalt has risen by 50% since 1994
and the proportion of all crumb rubber going into asphalt has risen from 35% of the total in 1994 to
54% currently. Costing estimates for this material vary considerably with some claiming that it is
more than conventional asphalt whilst other organisations maintain that it is 5-10% cheaper.
Goodyear, in particular, remains somewhat neutral about its prospects and the company points out
that there has been little progress in the last 30 years, but it does see some hope for the future.
However, it would seem to be becoming established as a substantial and growing use for scrap
tyres. The ultimate responsibility in North America for used tyre disposal lies with the states and
provinces, and this could well encourage further development. In Europe, Germany and the UK are
the largest users but all countries use some rubber asphalt. A useful additional benefit which is
being developed in France by Colas is the use of a rubberised surfacing material to reduce highway
noise. With the present emphasis on noise reduction this could be an important factor in
encouraging its use.
Pyrolysis. This is a process that heats tyres in a kiln up to 1,080 C in the absence of oxygen.
Combustion does not take place because of the lack of oxygen, and instead the tyres decompose
chemically. The process yields gas, aromatic oil and steel as well as a high-grade carbon, which
can be used as a fuel or as a filter medium to clean dirty water. The tyres are not used as a fuel but
as a source of recycled materials, so this is a recycling process rather than a heat recovery process.
Typically using this process a tonne of European tyres produce 200 kg of oil and gas, 400 kg of
carbon and about 150 kg of steel. The fuel could be used in an adjacent combined heat and power
plant. This type of technology would seem to have a future, but it is highly capital intensive and is
only suitable for a limited number of locations. The technology works in that energy products can
be derived from old tyres but, with the exception of the steel wire, the solid materials generated
have little value. Competitive fuels are cheaper, so the economics of tyre pyrolysis are poor. Other
methods of disposal are needed to make a significant dent in the annual quantity of used tyres.

7.2.4 Recovery
This is the general term for using waste as fuel. It accounts for the majority of waste tyre disposal
as it is one of the easiest methods of disposing of tyres and is well within the capabilities of current
technology. One major advantage of tyre-derived fuel (TDF) is that it burns much cleaner and
hotter than coal and has over 20% more heat value. The main advantage of using tyres in place of
coal is that CO2 emissions are reduced by about 20%. In addition TDF results in over 40% less ash
at the end of the process. However, there are problems in using tyres in a number of processes,
though these are generally being resolved and tyre collection is being improved.
Cement kilns. The main disposal method using tyres as fuel is in cement kilns. A big advantage of
using tyres in cement kilns is that there is no solid waste disposal. The tyre is completely consumed
and becomes part of the final product of the kiln - clinker. This clinker is ground with gypsum and
the resulting product is Portland cement. Tests have shown that using scrap tyres as fuel results in
harder cement. The wire of the tyre provides one of the raw materials required, iron oxide, and the
limestone that is the main raw material neutralises sulphur from the tyres. Kilns can use either preshredded tyres or whole tyres, depending on their design. Whole tyres burn slower than shredded
TDF, as well as being cheaper, and this provides a more stable operation for the kiln. Consequently
recent developments have allowed whole tyres to be injected into the side of the kiln, usually two
or three tyres for each revolution.

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Internationally, cement kilns are the most important end use for energy recovery in tyres, but the
pace of development has varied from country to country. The take-up has been better in countries
where there has been a financial incentive to use tyres, as in Japan, Germany and to a lesser extent
in the USA. However, tighter regulations on gaseous emissions have delayed the approvals in a
number of countries and in some cases, where the kilns are of older design, kilns have reverted to
burning conventional fuels. Environmental legislation is likely to play an increasingly important
role in this area because of the fumes given off during the process. The EUs incineration directive,
one of three bodies of European legislation which will have a future impact on scrap tyre
management and disposal, will have the effect of forbidding older cement plants from burning tyres
from 2008. However, the industry itself is keen to use tyres as fuel and new investment will
gradually convert many existing plants to enable tyres to be used.
Paper and Pulp Plants. Another industry that can use tyres as fuel is the paper industry. A
significant proportion of the US State of Oregons scrap tyres are used to feed the paper plants in
the state, helped by a disposal tax of $1 for each used tyre. Not only has this taken much of the
ongoing waste, it has also largely eliminated the backlog of tyres which had accumulated over the
years.
Electricity Generation. Tyres are being used as a supplementary fuel in a wide variety of
generating stations in the USA, some taking whole tyres, others requiring shredded TDF. There
have been experiments with dedicated tyre-only plants, two in the USA, and one in the UK, at
Wolverhampton. However, although these plants can consume large volumes of tyres, they are not
as economic as conventional coal or gas fire plants and they require some form of subsidy.

7.2.5 Landfill
At the base of the hierarchy of waste is landfill, the disposal method used almost universally until
recently and still the method which accounts for most used tyres. However, this will not be for
much longer. The EU has already banned the landfill of whole tyres and will ban shredded tyres
from 2006 whilst in North America similar measures are being taken on a piecemeal basis with the
individual states and provinces enacting legislation.
7.3 Regional Solutions

7.3.1 North America

In the USA and in Canada the individual states/provinces set the laws and regulations for the
disposal of scrap tyres, but they act within a general framework of policy set by government.
Nevertheless, there are wide discrepancies in the regulations set by the individual states. In general
those states with more land area tend to be more lax in their requirements, but California has
imposed a very strict regime, and states such as Colorado have imposed tight conditions on
emissions into the air. Until very recently the majority of tyres were not even buried they were
stored in giant stockpiles in areas that were out of sight of main highways. However, shaken by the
publicity from a number of major fires in these stockpiles, the industry, encouraged by national and
state laws, has made strenuous efforts to reduce landfill and to make considerable inroads into the
existing stocks over the last decade.
Based on a survey of state agencies, the Rubber Manufacturers Association estimated that the
national stockpile of scrap tyres amounted to about 300 million tyres in 2003, a dramatic decline
from 1 billion in 1990. In the last five years all three major markets for scrap tyres have expanded,
and the overall recovery rate has risen to just under 80%. (This is a calculation comparing the
number of new tyres sold in a year with the number reused, recovered or recycled into an end
product in the same year.)

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The three main markets for used tyres are tyre-derived fuel (TDF), ground rubber and civil
engineering applications (Table 7.2). The biggest usage is for TDF but this is growing only slowly
and is dependent upon the economy. If demand falls for cement or pulp & paper the demand for
TDF also falls. In contrast the markets for ground rubber and engineering applications are both
growing rapidly and are less susceptible to variations in the economy. TDF uses about 120m tyres
whilst ground rubber and engineering applications are both much smaller, taking 35m and 40m
tyres respectively.
Material application
Tyre derived fuel
Civil engineering
Ground rubber
Landfill
Export
Punched/stamped
Miscellaneous
Unknown
Total
Source: STMC

Table 7.2 Scrap tyre utilisation in USA in 2001

%
40.9
14.2
11.7
10.0
5.3
2.8
2.6
12.5
100.0

7.3.2 Europe
At the European level, there are currently various systems for organising and funding the collection
and processing of non-reusable end-of-life tyres:
Tax-based system The producers pay a tax to the government. The state is responsible for
organising the system and pays the recycling operators. Operating in Hungary, Denmark and
Slovakia.
System with producer responsibility A decree makes the producers responsible for the processing
of end-of-life tyres (ELT) and they pay into a fund in proportion to their sales. This fund finances
ELT processing. This system is now in place in Sweden, Norway, Finland, Portugal, Poland,
France and soon, the United Kingdom, Spain and Hungary.
Free-market system The distributor deals with the recycler of their choice as in Germany and Italy.
Producer responsibility appears to be the most practical system as the majority of countries have
decided to move towards this method. In France, for example, seven tyre firms Groupe Michelin
and its Kleber unit, Bridgestone/Firestone, Goodyear and its Dunlop operation, Continental AG,
and Pirelli Group will coordinate collective recycling efforts through Aliapur, a trade association
they formed in January 2002. Under the law, each tyre producer must pay annually for the
collection and recycling of a weight of tyres equal to the weight of tyres it sold in France that year.
Aliapur estimates the per-tyre cost at 65 cents to $1.63, depending on tyre size. Vehicle makers are
responsible for tyres fitted on new cars including imported tyres while the tyre manufacturers
must pay for replacement tyres. This money is then used to fund a collection scheme and, where
necessary, a subsidy to the end user such as cement kilns which often claim that using tyres reduces
the capacity of the kiln.
Pan-European statistics are now collected by the trade organisation, working with governments, but
the organisation is only in the early stages and the figures are not yet very reliable (Table 7.3). In
particular, individual countries cannot be compared with each other. However, they do demonstrate
the general level of waste recovery and the main end-uses for scrap tyres. As the systems in each
country become more established the recovery rate should rise and the reporting should become
more accurate.

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Table 7.3 Used tyre disposal in Europe 2001

Belgium
Denmark
Finland
France
Germany
(capacity)
Greece
Italy
Netherlands
Portugal
Spain
Sweden
United
Kingdom
Hungary
Poland
EU
Source: BLIC

Tyre
arisings
(000
tonnes)
72
41
32
401

Overall
recovery
rate (%)

Reuse
(%)

Retreading
(%)

Material
recycling
(%)

Energy
recovery
(%)

Export
(%)

Landfill
(%)

63
100
100
53

5
0
0
10

4
3
3
15

34
97
97
18

14
0
0
10

6
0
0
0

0
0
0
47

582

96

13.5

16.5

46

16

Not
388
32
52
280
62

available
59
100
90
25
100

4
0
4.5
0
5

13
0
41
13.5
5

15
10
29
1.5
55

25
0
15.5
7
24

2
90
0
3
11

41
0
10
75
0

435

74

12

17

26

17

26

40
135
2552

63
31

0
0

13
12

10
8

27
10

13
1

37
69

Stored
waiting
for
recovery
37

7.3.3 Asia
Only Japan and South Korea have so far brought in schemes for the disposal of scrap tyres but
other countries are beginning to take note of the problem and will have to start developing practical
schemes in the near future. In Japan the estimated total of scrap tyres amounted to 107m in 2001,
up 47% from the figure of 73m in 1986. In order to finance a disposal scheme the government has
imposed a tax on the disposal of tyres of 250 per tyre ($2.28) paid to the tyre shops when buying
replacements. Collection companies are given licences to collect and they arrange disposal, using
the money from the tax to pay incentives to certain industries such as cement kilns, but receiving
payment from such sources as tyre retreaders and rubber crumb plants. In 2001, 78% of all tyres
were disposed of either by re-use (17%) or by burning for heat recovery (61%), the balance being
exported or landfilled.
The proportion of tyres recycled in some form has not changed dramatically in the last fifteen
years, but the disposal routes within that total have changed quite markedly. In 1986 42% of all
tyres were re-used whereas by 2001 that proportion fell to 17%. Conversely the use of tyres for
recovering energy rose from 34% in 1986 to 61% in 2001, mainly because of increased use in
cement kilns and the start of usage in the steel manufacturing industry in 1999. As energy recovery
is lower down the hierarchy of alternatives, it could be argued that Japan has slipped back in its
environmental programme.
In Korea the policy and practice are evolving, rather than being firmly established. As in Japan, a
tax on new tyres pays for collection and disposal. The tax is 500 won (61 cents) for a truck tyre and
150 won (19 cents) for a passenger car. Even bicycle owners are not exempt they have to pay the
equivalent of 6 cents. The tyre manufacturers pay this tax to the trade association, and in turn the
association pays the tyre collection companies a total of 22 licensed companies nationwide. Some
payments are received from the end users as a further contribution towards costs.

7.3.4 Developing Countries

Unsurprisingly, statistics on tyre disposal in developing countries are notable by their absence.
However, a study by Modi Rubber demonstrates that recycling is very important in India and, by
implication, in many other countries. In India the reclamation of tyre materials employs about

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250,000 people and generates a value of $375 m. About 90% of the material is reclaimed for use in
a wide variety of products retreads, shoe soles, fabric ropes, animal harness and wire cages. Most
of the remainder is used as fuel in village industries or brick kilns.
Other countries have a weaker infrastructure for recycling tyres but they too are becoming more
aware of the problem and are approaching it in ways similar to the developed countries. South
Africa, for example, has an estimated stockpile of 800 million waste tyres; a considerable
achievement for a country that produces only 12 million tyres per annum. Currently most of these
tyres are either burned in the open air or retreaded. The former method releases styrene and
butadiene, both known human carcinogens, into the atmosphere along with thick black smoke and
other chemicals. The South African government recognises that this is not a satisfactory response
to the growing problem and is intending to make it mandatory that tyre manufacturers recycle their
rubber products. The recycling initiative is estimated to be about to create some 800 jobs in
recycling and collection. With only one recycling plant in the country there is a shortage of
recycling facilities and the government is in discussions with various companies with a view to
establishing further recycling plants. One of the prospective end products is the use of tyre rubber
in asphalt. Unfortunately one of the problems for any investor in recycling in South Africa is the
lower volumes experienced in the business compared to Europe or the USA. These lower volumes
push up costs and make the already marginal operations less cost effective still. The government's
aim is to drive the tyre manufacturers to provide the recycling facilities, one way or another, and to
ensure proper disposal of their products. The government will impose a one percent tariff on the
sale of every tyre, this will be used to fund the collection and disposal through the South African
Tire Recycling Process Company, a non-profit organisation that will collect waste tyres and deliver
them to recycling points.
The disposal of scrap tyres is a universal problem and those countries with the biggest problem (the
developed economies) are now beginning to address it in a systematic way. There have been a
number of false starts and misguided legislation but these have mainly been recognised and
corrected. However, only a minority of tyres are being disposed of by reuse or recycling the
majority are used for heat recovery, a relatively wasteful method of disposal. In addition, most
countries have only a vague idea of what happens to scrap tyres the figures produced are largely
estimates. Considerable progress has been made in the last decade but the world is only now
beginning to take the problem seriously.

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Light Vehicle Tyres

8 North American Market

8.1 Introduction
Of the three main regions for the tyre industry Europe, North America and Asia North America
is the largest, but the other two are catching up quickly. Asia in particular is growing rapidly as a
tyre market. However, politically and economically the three regions are very distinct. North
America is by far the most homogeneous of the three which makes it much easier for the major
manufacturers to treat it as a single entity rather than as a group of disparate countries. The region
is dominated by the USA which accounts for 85% of the economic activity. Canada is a much
smaller neighbour but there is free trade between the two and the federal structure of them both
emphasises the similarities between them. Mexico is a relative newcomer to the group but there has
been free trade between the countries since the NAFTA agreement was signed in 1992 and border
restrictions are gradually loosening. Table 8.1 gives an indication of the relative sizes of the three
countries comprising the North American market.
Table 8.1 North American market 2004
Population
USA
Canada
Mexico
Total
Source: CIA Fact Book

million
293
33
105
431

%
68
8
24
100

GDP
(at purchasing power parity)
$ billion
%
10980
85
957
8
942
7
12879
100

Because of the relative poverty in Mexico that country only accounts for about 5% of the tyre
market, compared with 10% in Canada and 85% in the USA.
Not only is North America the largest world market, it was also the earliest one to develop. Despite
the automobile being first developed in Europe, it was in the USA that large-scale production and
sales first took hold. In the first half of the twentieth century three-quarters of all vehicles were
located in the USA, and even as late as 1980 the US accounted for almost half of the world vehicle
parc. In those circumstances it was little wonder that the US tyre manufacturers grew quickly and
dominated the world industry. Goodyear was the largest in the world by the 1920s, and Firestone,
Goodyear and Uniroyal all established extensive foreign interests.
However, the US companies made a big mistake when the radial tyre was introduced in the 1950s.
Although they recognised that the tyre was technically superior to the existing cross-ply tyres they
refused to adopt it at first because of the heavy investment required in new equipment. A decade
later they were forced to make the change but by then their competitors had caught up and in terms
of both technical advances and profitability, were world leaders in their own right. As a result,
when the restructuring of the industry took place in the 1980s, a succession of well-known names
was taken over by overseas companies. A bid for Goodyear by a financial consortium in 1986
failed, but it did indicate to other companies that US manufacturers could be acquired. In 1987
Continental acquired General Tire, and the following year Bridgestone successfully bid for
Firestone. Michelin and Pirelli, both wanting a stake in the worlds largest tyre market, followed
this with Michelin buying Uniroyal-Goodrich and Pirelli buying Armstrong. Even Yokohama
decided it needed a foothold in America and it bought the much smaller Mohawk Tire.
At the time this change in control appeared to be traumatic for the whole US industry, but in the
event it proved to be far more of a turning point for the companies involved than for the industry in
the USA. The companies at first retained the names, the factories and the distribution networks of
the companies they had taken over. However, the poor market of the early 1990s led most into
losses, and this resulted in major changes in working practices. None wanted to be first in making

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Light Vehicle Tyres

these changes, but eventually Bridgestone led the way because of the enormous losses it was
making. It had built up losses of US$1 billion between 1990 and 1993 because of restructuring
costs and new investment, and it was determined to cut costs and to push through efficiency
improvements. It refused to agree a new contract with the United Rubber Workers union, and
several plants were shut down in a bitter and protracted strike between 1994 and 1995. Although
this left a legacy of bitterness in the industry and led directly to the United Rubber Workers being
subsumed into the steelworkers union, it proved to be seminal in bringing about change in the
North American industry. Bridgestone eventually achieved its aims, and in 1993 it broke into
profit, building on this year by year until by 1998 and 1999 the Firestone subsidiary was the biggest
single profit earner in the company.
Because North America is such a large market some of the subsidiaries are very important to their
parents. Bridgestone-Firestone and Michelin North America in particular are very large
organisations which operate with a considerable degree of autonomy. However, the companies
which bought the smaller operations have had continual difficulties with these subsidiaries.
Continental with General, Pirelli with Armstrong and Yokohama with Mohawk have all struggled
to make consistent profits and the subsidiaries are still only minor players in the market.
A seismic shift occurred in the market on August 9th 2000 when Firestone was forced to recall
6.5m tyres, the equivalent of the annual output of a medium-sized factory. Whatever the merits of
its case, Firestone appeared to handle things badly by first protesting its innocence, getting into a
public argument with Ford, and then refusing to go along with a further recall requested by the
National Highway Traffic Safety Administration (NHTSA). All this had a dramatic effect on
Firestones growth and profitability. The parent company stopped publishing separate results for its
Firestone subsidiary, but there is no doubt that the stream of bad publicity has had a major adverse
impact on earnings. The cost to profits has been enormous with write downs, loss of sales and legal
costs amounting to much more than the profits made in 1998 and 1999. At one point the parent
company, Bridgestone, lost 60% of its market value. The effect on sales was dramatic in North
America, as OE sales by Firestone were badly affected and many aftermarket customers were put
off by the bad publicity. This was a unique opportunity for its rivals to expand their market share
but most of them fluffed the chance. Goodyear in particular disrupted its production programme in
the effort to make more of the withdrawn sizes and had great difficulty delivering tyres to its
distributors in economic lots. The other companies proved equally inflexible and at the same time
Firestone fought back brilliantly with excellent dealer programmes and well-targeted advertising
and public relations with its customer base.
There may not have been much change in market shares between the companies but the politicians
and lawyers have changed the nature of the market dramatically. The publicity about the recall has
raised the level of knowledge about tyres and related subjects such as inflation and tyre care to new
levels and this has helped in the sale of replacement tyres. Even more important, the TREAD Act
has consolidated this new level of awareness into goods and services provided to the tyre-buying
market and provided a firm base of awareness amongst users. The market is much better informed
now than it was even three years ago and this should benefit the whole industry.
8.2 Market
The North American market is a magnet to any tyre supplier with international aspirations despite
the competition in this market and the harsh penalties for those companies that do not succeed
(Table 8.2). This is not just because of its sheer size, but also because of the credibility that a
position in this market gives to any supplier. Once a company has a credible presence in the North
American tyre market, it is no longer a French supplier or a Japanese supplier, but a global one.

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Table 8.2 North America car tyre market 2003

World
North America
Quantity (m)
Quantity (m)
OE
280
80
Replacement
715
250
Total
995
330
Source: Bowfell Associates & industry

%
29
35
33

The three countries, Canada, Mexico and the USA, account for almost one third of the world
demand for OE tyres and well over one third of the demand for replacement tyres. However,
growth in this market has been relatively slow in volume terms, and lower still in value terms.
Growth was steady throughout the 1990s, but turned negative in 2001 and 2002, before resuming
progress in 2003. The relative size of the North American market is being whittled away gradually
by faster growing markets elsewhere, particularly in Asia, but it will retain its importance for many
years, not least because of its homogeneity. There are, of course, regional differences between the
three countries and between regions in those countries but they are relatively minor the area is
essentially one single market. Growth for the OE sector is estimated at 0.34% pa for the next five
years and the replacement sector is forecast to grow at an average of 2% pa over the same period.
The OE market is, of course, dependent upon the output of the vehicle manufacturers which in turn
varies with the economy. In recent years this has been at a high level as the market has been
buoyant although the home-based manufacturers GM, Ford and Chrysler have been losing
share to foreign manufacturers, particularly the Japanese. However, this has not resulted in an
increase in imports as the foreign manufacturers have established assembly plants of their own in
the region. Consequently the demand for OE tyres has remained stable within the region; they have
not been replaced by imports. Nevertheless, the composition of the OE market is changing and this
in turn is changing the product balance in the replacement market.
Increasingly heavier vehicle platforms and more powerful engines are emerging from one
generation to the next. These vehicles require larger wheels to bear the load and, more importantly,
larger braking systems. Consequently the average tyre size is moving steadily upwards. 14" and
15" wheels are being phased out and 17" and 18" wheels are increasingly common. The standard
size is still 16" but this shows signs of declining. The move towards SUVs is also accelerating this
trend. The tyres for these vehicles are still classed as light vehicle tyres but they are larger and
heavier than passenger car tyres. At first light truck tyres were used but with the increasing
popularity of SUVs, specialist tyres were designed for them to give the vehicle a more comfortable
ride.
The other trend in the North American tyre market is also linked with the move towards more
powerful vehicles. Tyres for the mass market still predominate but there is a steady growth, not just
in SUV tyres as already described but also in high performance and ultra-high performance tyres.
These now take 17% of the market whilst mass market tyres account for only just over half (Table
8.3).
Table 8.3 North American market by tyre type 2003
Quantity (m)
Mass market
172
SUV
79
Light truck
23
High performance H
36
UHP V & Z
20
Total
330
Source: Bowfell and industry

%
52
24
7
11
6
100

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Light Vehicle Tyres

8.3 Supply Structure

A total of 65 plants supply the North American market, the majority being in the USA (Table 8.4).
These include some of the largest scale plants in the world such as the Goodyear plant at Lawton,
Oklahoma, capable of producing 61,000 tyres each day, and the Kelly-Springfield plant at
Fayetteville, North Carolina, which is slightly smaller (60,000 units). However, the newer factories
in North America are small, specialist facilities such as the Pirelli plant in Rome, Georgia using the
companys new MIRS manufacturing technology.
Table 8.4 Tyre manufacturing plants in North America 2004
Canada
Mexico
USA
Bridgestone/Firestone
1
2
8
Goodyear
3
11
Michelin
4
1
10
Continental
1
4
Pirelli
1
Cooper
4
Others
3
12
Total
8
7
50
Source: Tire Business - Global tyre report

Total
11
14
15
5
1
4
15
65

The big three companies Bridgestone, Goodyear and Michelin dominate North American
production with 40 of the 65 plants, 62% of the total in terms of numbers, but about 70% in terms
of capacity. Steady changes have been taking place in the last decade, with older and less efficient
plants being shut down and new investment applied both to existing plants and to building
greenfield factories, particularly in the southern states of the USA, which had a tradition of nonunionised labour. At the time of the signing of the NAFTA treaty in 1992 it was thought that much
of the tyre manufacturing would migrate south to Mexico, but this has not worked out as forecast.
All the major manufacturers had plants in Mexico, and they tried first to integrate these plants into
overall production plans for the region. However, labour rates in the Mexican plants are very high,
and the productivity could not justify these high rates. The Mexican rubber trade association
confirms that our productivity is low when comparing it with high technology producers in other
countries or with countries like Brazil where the labour force is not subject to obsolete regulations
like the ones we have in Mexico. After trying for several years Goodyear has closed its factory and
Michelin has closed one factory and leased another to a local manufacturer. It then opened a nonunion plant in Queretaro, after closing its unionised facility at the same location in August 2000.
There are also closures in the USA with Goodyear closing two plants as part of a major cost-cutting
drive and cutting output at some others. Also, in June 2004, Continental announced the termination
of production at its Mayfield plant although for the time being it will continue compounding there.
There is also a move offshore for the more standard tyres, concentrating North American
production on higher quality tyres. Cooper Tire & Rubber Co. is moving its production of radial
medium truck tyres to China and converting the truck tyre manufacturing space at its Albany, Ga.,
plant to performance passenger tyres and specialty light truck tyres. However, there are moves in
the other direction. In the same month as Contis announcement, Toyo Tire & Rubber Co. Ltd.
chose Bartow County, Georgia, as the site of its new North American tyre manufacturing plant.
Total capacity is roughly in line with market demand but the North American market, like other
regional markets, is not self-sufficient. About a quarter of the demand is satisfied by imports, partly
from companies in Korea, India and China but mainly by the big international companies bringing
in tyres from their plants elsewhere in the world to boost supplies of certain sizes on a temporary
basis and to satisfy niche markets. If imports from Canada and Mexico are discounted as captive
imports i.e., from subsidiary companies of US-based tyre makers then off-shore imports
accounted for slightly more than 20% of the US replacement market in 2002. However, the USbased companies also initiate many of these off-shore imports. The main importers, apart from

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Light Vehicle Tyres

the multinationals, are Kumho, Hankook and Sumitomo as well as a consortium of Chinese
manufacturers which have combined their resources in a single marketing operation, China
Manufacturers Alliance.
Goodyear is the leader in the US/Canadian OE light vehicle tyre market (Table 8.5), but Firestone
takes that position in Mexico. Until the Firestone recall and the subsequent falling out with Ford,
Bridgestone/Firestone was challenging Goodyear as the leading OE supplier. The decision to stop
supplying Ford led to a fall in market share but Bridgestone/Firestone is still in second place
overall, as Michelin has walked away from bidding for unprofitable contracts, a similar policy that
it has now adopted elsewhere in the world. Continental makes a respectable showing because of its
General brand.
Table 8.5 Market share in North America 2003
OE %
Replacement %
Goodyear
32
26
Bridgestone/Firestone
27
16
Michelin
23
22
Continental
13
6
Pirelli
1
2
Others
3
28
Source: Bowfell & industry
Both Goodyear and Firestone have strong equity chains selling their products as well as a strong
independent network and this has helped them maintain a good share of the replacement market
though both have run into difficulties recently. The Firestone recall dealt a body blow to the
company but it is now recovering its share. At the same time Goodyear has tried to incorporate the
Dunlop brand into its portfolio and this has caused problems with its distributors. Michelin has
been able to take advantage of these mistakes by its rivals and has strengthened its own network
and increased its market share at their expense.
Continental and Pirelli are relatively minor players in North America but they are following two
different strategies. Continental bought a mediocre brand when it acquired General Tire but it has
used the company to develop the Continental brand at great expense but with some success. Pirelli
had the same perception problem with its own acquisition of Armstrong Tire and it has spent a lot
of money trying to move the brand upmarket. It has now given up the fight and is concentrating on
the Pirelli brand, retaining a small manufacturing capability in the USA but importing most of its
high performance tyres from Europe. Cooper, an independent American manufacturer, ranking 8th
in size in the world, is more important in North America than either Continental or Pirelli. It has
6% of the replacement market and it is also a major supplier of private brands but, as a matter of
policy, it does not supply the OE market.
There are three broad groups of brands in the North American market flag brands, associate
brands and private brands and the major manufacturers are associated with all three. Flag brands
are the main advertised brands, and these are the ones that receive the advertising support. The
same company makes associate brands, but they receive far less support and are sold at a lower
price through the normal distribution channels. Some of these such as Goodyears Kelly brand are
very large indeed. Until recently Kelly was a separate division within Goodyear, and even now
some of the factories are totally dedicated to manufacturing Kelly brand tyres. Others are much
smaller and may not have regular distribution channels but are only used occasionally such as the
fighting brands. These can be introduced to a particular area at a very low price in order to
combat a threat posed by competitive activity. Although some of these names are recognised in
Europe, the majority are used just in the North American market.
Private brands are made for a specific company and sold only through that companys outlets.
These range from large retailers such as Sears Roebuck and Wal-Mart to oil companies such as

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Light Vehicle Tyres

Shell, but many of them are specialist tyre retailers large enough to justify their own brand. In the
1970s and 1980s these private brands grew vigorously and were eroding the market share of the
lesser brands used by the manufacturers. However, in the last decade the market balance has altered
as the majors have fought back much more aggressively with their own associate brands. The share
of private brands has dropped substantially since 1991 as manufacturers have reduced minimum
order requirements, reduced the price of house brands, and consolidated their operations, thus
reducing excess capacity (Table 8.6).
Table 8.6 Tyre market by brand type 2003
Passenger tyre %
Flag brands
57
Associate brands
18
Private brands
25
Source: Modern Tire Dealer & Tire Business

Light truck %
61
16
23

8.4 Retailing
The distribution of tyres has been undergoing a fundamental change, with the emphasis moving
away from independent tyre specialists and towards chains and mass merchandisers. This is the
result of a change in consumer behaviour over time. As a general statement, consumers are now
looking for selection (price and brand), fast service, convenience (location and hours), and credit
availability.
Goodyear has conducted surveys over the last decade that place consumers into three broad
categories. Time poor consumers nearly doubled from 27% to 51%, whilst the number of pure
price buyers declined from 48% to 39%. The proportion of consumers having a definite
preference for certain types of outlet gained in importance from 26% of the sample to 35%.
Firestone has a similar view of the market, dividing consumers into four groups:

Brand conscious about 26%, increasing slightly. These customers would specify the main
flag brands such as Bridgestone or Firestone.
Value customer about 27% and rising. Customers who would prefer an associate brand such
as Gillette or Road King.
Store reliant 24% and stable. Would rely on store recommendation.
Price conscious about 22%, declining. Looking for the cheapest suitable product.

However, since the Firestone recall and the publicity about tyre failures there has been a significant
swing towards top class brand names and specialist tyre dealers. This may not be permanent but the
continuing publicity and emphasis on safety could change the shape of the market in the longer
term.
This change in consumer preferences has led to a dramatic shift in the channels of distribution
(Table 8.7). There has been a rise in the importance of tyre discount chains and of warehouse clubs,
and an upheaval in the position of mass merchandisers. At the same time, the role of service
stations has declined and so too has the small independent dealer, but several large regional dealers
have emerged, taking in many of the independents.
Less time is spent shopping, and as a direct result of this, retailer attributes such as image, speed
and convenience are gaining importance at the expense of price. Moreover, whereas tyres have
traditionally been a distress purchase, the emphasis on safety and the application of regulations
with regard to tyre condition and tread depth have led to an increased willingness to purchase tyres
at an earlier stage and to take advice from dealers.

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Table 8.7 Light vehicle tyre sales by outlet 2003

Passenger car tyre %
Light truck tyre %
National dealers
19
21
Regional dealers
3
6
Local dealers
44
52
Equity chains
10
8
General merchandise
19
10
Other
5
3
Source: Tire Business & Modern Tire Dealer
National dealers are independent companies with more than 40 outlets in three or more regions.
The large independent tyre chains are growing rapidly. These have a mixed profile of customers,
depending upon the marketing stance of the individual chain. The reason they are doing well is that
an entrepreneur, who is both sensitive and responsive to the market, usually controls them. The
staff have a good product knowledge, the production selection is wide, location is usually
convenient, hours are flexible, and there is normally a positive price perception by the customer.
There is a strong move towards larger businesses in this area. In 2003 TBC Corp. bought 337
outlets for its Tire Kingdom Inc. subsidiary through two separate deals a $57.5 million buyout of
112 Merchants Inc. locations and $260 million for 225 of Sears, Roebuck and Co.s National Tire
& Battery (NTB) stores. TBC said it also plans to add as many as 500 Tire Kingdom outlets
independent of these acquisitions in three to five years. Two other very large chains, Discount Tire
and Les Schwab, also added stores to their total number in the last two years. Despite its size
Schwab earned J.D. Power and Associates top tyre retailer satisfaction rating for the fourth
consecutive year in 2003, being rated by customers as delivering service substantially above
expectations. The typical retail tyre outlet operated by one of North Americas 100 largest
dealerships employs 13, contains 7.5 service bays, carries 7.5 tyre brands and generates $1.81
million in sales, split 55/41 between tyres and automotive service.
Regional dealers are independent companies with more than ten outlets in at least two regions.
There are about 100 dealerships with 10 or more stores, including 52 with 20 or more. Local
dealers are independents with fewer than ten outlets in a single regional distribution area. The small
independents appear to be a dying breed, even though single outlets still account for 25% of tyre
sales. In total there are about 15-20,000. The large tyre chains are buying many of them out or they
are affiliating with manufacturer-owned chains. Their strength is that they can offer a very
personalised service, but against that they are slow to react to changing consumer needs such as
fast service, convenient hours and accessible locations.
Equity chains are outlets owned by a manufacturer but using various names and store formats.
Manufacturer outlets comprise about 8% of the total market, and this proportion has declined
steadily for some years. Bridgestone has by far the most wholly owned outlets, with about 1,550 in
total. Most of these trade under the name Firestone Tire and Service Center, but other names
include Expert Tire, Mark Morris and Tire Station. Bridgestone believes that these stores represent
a significant competitive advantage. Goodyear has about 750 company-owned dealers. 700 of these
trade as Goodyear Certified Auto Centers and most of the remainder are Just Tires. Of the five
largest manufacturers or marketers of tyres, only Cooper, which formed a marketing alliance with
Pirelli Tire North America last year, does not own its own stores. These company stores attract
conservative, comfortable buyers who want to buy a well-known brand. The strengths of this type
of outlet are in-depth product knowledge and a service offering complete car care. The weaknesses
are that there is a perception of these stores being high priced, and they inevitably have a single
brand focus. It is interesting that the manufacturers have made little attempt to introduce the type of
equity chain they own in Europe, where the name is not associated with the manufacturer,
competing brands are sold and the service is limited to tyres and a few simple services.

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General merchandise distributors are mass merchandisers, wholesale clubs and similar
organisations. Mass merchandisers were very important, but they were slow to react to changing
retail demands and are only now coming back into their own with about 16% of the market, a share
that has stagnated. These outlets appeal particularly to loyal customers of the merchandise store
and also to bargain hunters. They are invariably well located, they have a good selection of
products, flexible hours and generally there is a positive price perception. Offsetting these
strengths, the main weakness is the calibre of personnel employed there, with limited product
knowledge and giving insufficient guidance to the customer. The merchandiser who epitomised
this approach is Sears Roebuck, which was probably the biggest single private brand buyer in
North America. However, it has had problems with its service operations and is concentrating more
on retailing. It split its automotive group into two distinct divisions, one focusing on tyres which it
has now sold, and the other on service and parts. However, Wal-Mart has the largest number of
outlets of any of the mass merchandisers.
Warehouse clubs are still relatively small with 9% of the market but have continued to grow a little.
These clubs have become significant players in tyre retailing, even though they operate only about
743 units. They do not have the width of choice or provide advice, and there is only limited credit
availability. The main strength is that they offer major brands at low prices. Autoparts stores also
appeal to bargain hunters. They are open for long hours and attract store traffic, but the staff have
very little product knowledge and there is little choice. The major clubs are trying to improve their
reputation. Costco has joined Sam's Club and BJ's, in instituting a special order program. With tyre
sizes multiplying, clubs can stock only a fraction of the special sizes and speed ratings needed. The
three retailers are also adding tyre salesrooms to new and existing clubs, which means customers
no longer have to carry tyres from racks in the back of clubs through the register for payment, then
back to the tyre shop for mounting and balancing. Costco and Sam's lead the industry with lowcost, $7 and $7.50 per tyre charges for mounting, balancing, replacing valve stems and providing
road hazard coverage.
Other outlets include service stations, garages and car dealerships. Service stations now account for
only about 4% of the tyre market and even this proportion is falling. Their strengths are that there is
a loyal customer base, but it is ageing, they are frequently used for emergency purchases and
consequently they are not price sensitive. Against that, product knowledge is poor, selection of
products is limited and the market coverage is sporadic. These will probably continue to decline as
service stations concentrate on fuel and convenience sales rather than any car maintenance
operations. Car dealerships are continuing to expand efforts to become tyre dealers as well.
Following in the footsteps of Ford Motor Co., General Motors Corp. and others, DaimlerChrysler
Motors Co. L.L.C. introduced in 2003 what it dubbed Mopar T.I.R.E. Works, a tyre supply
program for Chrysler Group vehicle dealers.
There is little sign yet that Internet trading will take much business from traditional outlets.
According to the 2003 Replacement Tire Buyer Behavior and Satisfaction Survey by J.D. Power
and Associates, few vehicles owners use the Internet to buy tyres, opting instead to talk to a
salesperson about their tyre needs. The satisfaction study found that more than 60% of tyre buyers
access the Internet, but only 16% of them use it when they need to buy tyres. According to the
report The desire to discuss their needs with a tyre salesperson and their intentions to buy from the
same retailer are key reasons tyre buyers do not use the Internet as a tyre shopping tool today,

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9 European Market
9.1 Introduction
Europe is second only to North America in importance for the tyre industry, but it is a very
different market. It has always been a much more fragmented market, comprising more than forty
different (and sovereign) countries as well as having a sharp dividing line down its centre
separating capitalist and communist economies. These divisions are rapidly fading but it is also a
very different market for tyre products, requiring a very different mix between high performance
and mass market tyres as well as between winter and summer tyres because of the different driving
infrastructure and different attitudes to driving.
For many years Western Europe was conventionally defined as the European Union (EU) plus
Norway and Switzerland. Eastern Europe or Central Europe as it is more frequently referred to
now consisted of the countries of the old Comecon organisation. Even so, there were marked
differences between those countries on the border of Western Europe Poland, the Czech Republic
and Hungary and the other countries such as Romania and Bulgaria. Finally Russia was a single
entity, part in and part out of Europe, and very different from everywhere.
The break up of the Soviet Union in 1989 and 1990 changed this structure radically. The countries
bordering Western Europe are now members of the EU and are rapidly being integrated into the
economy of the west. Other countries, notably Bulgaria and Romania, will follow, but Russia and
the countries that formed the old Soviet Union have remained outside this process. Although no
longer communist, they remain largely autocratic and have the legacy of centrally planned
economies.
The multinational tyre companies have been well ahead of the politicians; first by treating Western
Europe as much more of a single entity and then, since 1990, they have been gradually bringing the
nearer parts of Eastern Europe into the same organisational structure. The US companies,
Goodyear and Firestone, were the first to consider Western Europe as a single entity. Although
they still had to work with national boundaries, they began strategic planning on a pan European
level in the 1970s, long before the European based companies Michelin, Dunlop, Pirelli and
Continental, began to take the EU seriously. Extending this strategy into Eastern Europe when
conditions allowed was a logical development and most of the large companies were alert to
developments in that area after 1990. Sumitomo and Continental were the first to make moves into
the former communist states, buying manufacturers in East Germany and the Czech Republic
respectively. Both Goodyear and Michelin followed this by buying control of companies in Poland.
Michelin went on to buy Taurus in Hungary, and Goodyear completed the process when it acquired
Sava of Slovenia in early 1998. It seemed that Bridgestone had missed out on the opportunity of
establishing a bridgehead in Eastern Europe, particularly when discussions it was holding with
Matador of Slovakia broke down. However, in mid 1998 it announced a joint venture with Stomil
Poznan in Poland to produce radial tyres for cars and light trucks. Since then there has been a lot of
investment in these plants and those operations which began as joint ventures have now largely
been completely bought out by the international partner. Michelin has bought out its litigious coshareholders in Stomil Olsztyn and Goodyear bought the remaining part of Sava Tires in Slovenia
in 2004.
As a result of these acquisitions there is only one independent producer of tyres in central Europe,
Matador, and that company has been developing close links with Continental in the form of joint
ventures and offtake agreements. There are a few tyre manufacturers in former Yugoslavia which
have remained independent because of the political situation there but these too are in talks with
major companies and they will probably be bought out or shut down in the near future. One or two
brave companies are venturing further afield and Continental has built a greenfield facility in
Romania whilst Michelin has purchased two factories in that country from the Tofa Group in the
expectation that Romania will become more integrated with the EU in anticipation of eventually
joining.

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The factories in Eastern Europe have now been integrated into the wider European production
network of each company and form part of their overall strategy for the region, particularly with
the accession of ten new countries into the EU in May 2004. The strategy for all the multinationals
has been to establish a manufacturing presence in central Europe for three purposes:

To provide a low cost supply point for western markets.

To establish a presence in developing countries that are likely to grow rapidly.
To act as a bridgehead for penetration into Eastern Europe and Russia.

They have all achieved this objective, though some with more enthusiasm than others. Continental,
in particular, has placed great emphasis on building up production in lower labour cost countries,
particularly Portugal, the Czech Republic and Slovakia. The new plant in Romania now means that
more than 50% of its production is in these areas, a target it set itself in 1995 when it realised that
its German base made it the highest cost producer of all major manufacturers. In contrast,
Goodyear still classes its east European operations as part of the Eastern Europe, Africa and
Middle East Region.
Russia, however, together with the Ukraine and Belarus, has remained largely a no-go area for
western companies until very recently. They preferred to remain on the outside looking in as the
commercial environment was judged just too unstable for secure investment. It is still a very
volatile environment but it represents a large and underdeveloped market so the attraction remains.
Most companies have established small representative offices in Moscow handling imports and
trying to understand the commercial environment but few have taken the plunge and invested in the
country. The first to do so was Matador of Slovakia which set up a joint venture in Omsk but this
was the sole outside involvement until Continental bought an interest in Moscow Tire. Soon
afterwards Nokian came to an agreement with Amtel, a major Russian holding company, but that
soon ended in tears with both sides claiming the other had not lived up to the agreement. Michelin
has now decided that the market is worth the risk and has built a greenfield factory at Davydovo,
near Moscow, which is now in trial production and should be running at planned production by
2005.
As a result of this dichotomy this chapter looks at Europe as a single entity except for Russia which
is reviewed separately. It is geographically part of Europe but it will be many years before its
economy is closely integrated with the rest of the continent.
9.2 Market
Despite its apparent fragmentation into more than forty countries the European market is vital to
any manufacturer claiming to be a world supplier. It is, in total, a very large market and also
probably the most sophisticated and demanding market. It is similar in size to the North American
market and it is also mature though the emerging economies of Eastern Europe do promise much
faster growth than the rest of the region (Table 9.1).
Table 9.1 European car tyre market 2003
World
Europe
Quantity (m)
Quantity (m)
OE
280
89
Replacement
715
236
Total
995
325
Source: Bowfell Associates & industry

%
32
33
33

Because of the more vibrant market in Eastern Europe the overall market is forecast to expand at an
average annual rate of 3.3% until 2008, somewhat faster than North America but much slower than
in the high growth areas of Asia. Europe is a mature market but, in compensation, it is very large.

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Perhaps the key to the market is that Europe is the home to more car manufacturers than anywhere
else. The OEMs provide a market in their own right but they also set new demands on the tyre
industry with every new model that is launched and this in turn leads to more sophisticated and
more knowledgeable tyre buyers in the replacement market.
European drivers cover less distance than their American counterparts, an average of only
14,000 km per year compared with 19,500 km, but they travel on more challenging roads and in
more difficult driving conditions, requiring more control over the vehicle. This is brought out by
the priorities they have in choosing tyres. In a survey commissioned by Michelin, drivers were
asked about the most important attributes for tyres and control, especially control in wet conditions,
was the clear leader (Table 9.2). In contrast to this list of preferences American drivers give far
more weight to comfort and treadwear.
Table 9.2 Preferred attributes for tyres in Europe 2003
Attribute
Road holding on wet surface
Braking distance
Road holding on snow and ice
Road holding at high speed
Ability to maintain constant performance levels
Ability to withstand shocks
High mileage
Driving comfort
Fuel efficiency
Continued driving when flat
Environmental protection
Aesthetic appeal
Source: Michelin

%
87
85
78
72
71
70
68
68
57
56
50
20

Another difference between European and American drivers is that they tend to be more loyal to
individual brands when replacing an OE tyre. If it has given good service 56% of European drivers
will replace the worn tyre with the same brand compared with only 32% in the USA. This is
probably explained by the emphasis that European drivers place upon performance. If the OE tyre
has performed well the driver stays with the same specification chosen by the vehicle
manufacturers.
This higher level of loyalty and the greater importance given to better control of the vehicle
explains the product mix of the European market. As in North America, about half of the market
buy mass market tyres but a very high 41% of drivers use high performance tyres compared with
17% in North America.
Table 9.3 European market by tyre type 2003
Quantity (m)
Mass market
159
SUV
10
Light truck
23
High performance H
71
UHP V & Z
62
Total
325
Source: Bowfell and industry

%
49
3
7
22
19
100

The same trends are obvious in the European market as in North America as they are driven by the
same technological changes in the automotive industry. Wheels are getting bigger because the

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vehicles are getting bigger and more powerful so the tyres follow suit. Tyre sizes of 16" and 17"
are now much more common and low profile tyres are helped by this trend. They are generally
thought to look smarter but the real advantage is that a bigger wheel can be used in the same wheel
arch, thus giving better braking capability.
Another area where the European market really is distinct from North America is in the preference
for winter tyres. Although the winters are no worse than in many parts of America, winter tyres
account for almost a quarter of the market. Again, the reason for this is the requirement by
European drivers to have maximum control over their vehicles. The market is mainly concentrated
in central and northern Europe Scandinavia, Germany, Austria and Switzerland, but it is
beginning to make progress in Eastern Europe as well. The rest of Europe use summer tyres all
year round; there is only a very small market for all-season tyres (Table 9.4).
Specification
Summer
Winter
All-season
Source: Michelin

Table 9.4 European market for seasonal tyres 2003

Europe %
North America %
75
2
22
3
3
95

9.3 Supply Structure

Most of the plants in Western Europe were built in order to serve a national market, but the
changing economics of the industry, together with the dismantling of barriers to trade, have now
altered the concept of regional management. Instead of a national management structure in each
country, the tyre manufacturers now use all factories in the region as a production resource. Certain
factories specialise in certain products, and these are then shipped to the markets that require them.
It was the outsiders Goodyear and Bridgestone that first developed this idea of regional
management, and it took some time for the indigenous companies Michelin, Continental and
Pirelli to follow suit. It soon became the accepted and only way of doing things as the level of
competition in the market ensured that economies of scale had to be exploited to the full.
Two major changes in the industry stimulated this change to regional planning of production. The
existing structure in the 1980s was swept away by the series of acquisitions and mergers that took
place. This exposed a lot of spare capacity, and at the same time the European tyre market began to
be targeted by unknown names from Eastern Europe and the Far East. These tyres often sold at less
than half the price of a premium brand, and they were able to establish a firm foothold in the
market.
The market then turned down and overcapacity became very apparent. The remaining
manufacturers had more capacity than they needed and they were losing sales to low cost imports.
Tyre prices fell between 5% and 10% each year in the early 1990s and profits disappeared. The
immediate reaction was to close some plants, and the main companies did this, closing peripheral
plants in Ireland, Greece and Scandinavia, but the competition was as strong as ever so there was a
longer-term effect on attitudes to costs. All the major firms began pursuing a consistent policy of
raising productivity and reducing costs in order to become low-cost producers. The standard
approach was to concentrate the production of one type of tyre in one or two plants and to adopt
seven-day working on a plant-by-plant basis. Despite difficult negotiations with labour unions, this
was eventually adopted almost everywhere.
As a result of these changes, productivity rose dramatically, but this merely made the problem of
overcapacity worse. A few plants had been shut down, but others had been opened, and many of
the newly acquired plants in Eastern Europe had received a lot of capital investment. The solution
was obvious to close more plants in high cost areas but the implementation of this strategy was
much more difficult. The high profile of the industry and the location of the plants, many of them

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in areas of high unemployment, meant that there were considerable political obstacles to making
these decisions. At first many of the tyre suppliers took the easy way out by reducing the labour
force gradually and concentrating production on a limited range of products. However, with the
continuing rise in productivity, excess capacity worsened, and the companies acted to bring supply
more into balance with demand.
Continental was the first to act, probably because its problems were the most severe, but Michelin
and Goodyear soon followed. Michelin had too many plants all over Europe, and Goodyear found
itself in a similar position once it had agreed an alliance with Sumitomo and taken over
management of that companys tyre assets in Europe. Since 2000, announcements have been made
that ten factories will be closed or dramatically downsized, and it is likely that several more will
follow. However, Table 9.5 does not show the full impact of this round of closures, as they are
often announced up to two years before the plant finally closes.
Table 9.5 European tyre plants 2003
Country
Michelin Continental Pirelli Goodyear Bridgestone
Bulgaria
Czech Rep
1
Finland
France
13
2
3
1
Germany
4
3
2
6
Hungary
2
Italy
3
3
1
Luxembourg
1
Netherlands
Poland
1
1
1
Portugal
1
Romania
2
1
Serbia
Slovak Rep
1
Slovenia
1
Spain
4
1
3
Sweden
UK
2
1
3
Total
31
9
7
15
6
Source: European Rubber Journal

Other
2
2
1
1
2
1
1
3
7
1

1
2
24

Total
2
3
1
19
16
2
9
1
1
3
2
6
7
2
1
8
1
8
92

This approach to capacity problems is slow, and more action is still needed. Europe has over 90
plants serving a market similar in size to North America, where there are only 60 plants. Michelin
in particular has a problem in France where it still has 13 plants, but closing any plants in its home
country is a very sensitive matter and it will take time to further realign supply in this area.
Not only are there too many factories, but they are also out of balance. The multinationals have 58
factories in the west and only 11 in the east. This roughly reflects the balance of domestic demand
in these two regions, but it disguises the substantial advantage the east has in lower labour costs.
This is now coming to the forefront as recent investments demonstrate. Michelin has bought two
factories in Romania, whilst Continental has built a new factory in that country and established a
joint venture with Matador in the Slovak Republic. Goodyear and Bridgestone have been less
active in this area, although Bridgestones commitment is now expanding significantly. Both have
plants in Poland, Bridgestones being the focus for current investment, but Goodyears other
purchase, in Slovenia, has a cost structure more akin to Western Europe than the east. Similarly,
although Goodyear is now in control of Sumitomos two plants in the old East Germany, this is no
longer a low cost production base.

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The European tyre market is mature and relatively stable because of the long-term contracts in
place with equity chains and independent dealers. Now that Goodyear has taken management
control of Sumitomos Dunlop operations in the region, five multinationals dominate the market in
Europe (Table 9.6).

Michelin
Goodyear
Continental
Bridgestone
Pirelli
Others
Source: Bowfell & industry

Table 9.6 Market share in Europe 2003

OE %
28
17
27
13
11
4

Replacement %
24
22
18
10
9
17

Michelin is the market leader in Europe, but in the course of the 1990s it lost a little of its market
share because of its lack of a low price brand. It subsequently rectified this and gradually regained
share, although its current strategy of focusing more on profitable, as opposed to just pure volume
business, could have adverse market share implications once again in the future. However, its
strength in OE supply puts it in a strong position in the replacement market because of the loyalty
of many drivers to the OE brand. There are no signs yet but it could jeopardise this advantage if it
continues with its policy of only taking profitable business with the OEMs.
Continental has traditionally been the second largest tyre supplier to the European market, but
Goodyear fought tenaciously for that position and eventually achieved it when it took control of
Sumitomos Dunlop subsidiary. This has given it a strong secondary brand, but it has not been able
to take full advantage of this, as the resulting combined market share is less than when the two
companies were competitors. Pirelli has established a good niche with its high performance tyres
and with the vehicle manufacturers, but it has never been able to build on this. Bridgestone is in a
similar position, although it has not occupied a particular market niche. It had been gaining ground
gradually, but the repercussions of the Firestone recall in North America resulted in a setback. Its
aggressive plan to raise its share of the high performance tyre market in Europe, announced in
December 2002, was hoped to have positive overall market share implications but there has been
little sign of this so far.
The Other category comprises small European producers and imported tyres from independents
such as Hankook and Kumho. The small European companies such as Vredestein (Netherlands)
and Nokian (Finland) find it hard to compete against the multinationals with their economies of
scale. Some, such as Avon of the UK, have sold out to larger companies (in this case Cooper), but
the others are surviving by concentrating on niche markets and by entering into partnerships with
other companies. Nokian is a case in point. It has a good reputation for winter tyres and it has
allowed Bridgestone to take a 19% stake in the company.
The independent importers bring in tyres from manufacturers elsewhere in the world, particularly
from the Far East. These companies made dramatic market share gains when they first entered the
market, as the tyres were sold at significant price discounts to existing brands. This progress swiftly
slowed as the multinationals reacted by bringing in their own branded tyres from low cost
countries, particularly the Far East, but the independents are still making gains. Kumho and
Hankook have both made important advances by gaining small OE contracts that give them
credibility, and both Indian and Chinese tyre manufacturers are beginning to develop distribution
systems, though they still rely heavily on one-off contracts.

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9.4 Retailing
The key advantage that established companies have over importers is their control of existing
aftermarket distribution channels. In most European countries the manufacturers sell to wholesalers
who, in turn, distribute to retail outlets. Originally the manufacturers supplied tyres directly to
retailers, but wholesalers now have largely taken over this role. The widening in range of both sizes
and types of tyres as well as the proliferation of brands demanded by the market requires the supply
of small quantities on a frequent basis to all outlets. However, the multinationals have kept an
interest, as many of them have bought control of wholesalers. They still supply all makes, not just
that manufacturers own brands, but it gives the manufacturer ready access to the market.
The majority of retail outlets in Europe are specialist tyre fitting centres or tyre and exhaust centres;
only a minority of replacement tyres are sold by independent garages, and an even smaller
proportion by franchised garages. Michelin has estimated that, across the EU, 50% of replacement
passenger car/light truck tyres are sold through tyre specialists (independent, tyre manufacturers
controlled, chains etc.), 10% through car dealers, 20-30% through fast fit centres and the remainder
through a variety of outlets. However, these overall statistics for the whole of Europe mask big
national variations.
Independent tyre dealers dominate the aftermarket in Germany, Italy, Scandinavia and Spain
whereas in the UK, Belgium and the Netherlands, chains of tyre centres predominate. In all
countries the independent dealers are consolidating into larger groupings, such as buying groups, in
order to negotiate with the manufacturers.
In France the channels split roughly into four. Independent dealers account for 27% of aftermarket
sales, franchised dealers and garages 23%, autocentres 21% and equity chains 20%. In Germany
the situation is rather different. Independent dealers in various groupings represent 48% of the
market and franchised garages have a relatively strong position with 24%. The equity chains of the
tyre manufacturers account for only 9%. The UK is different again, as wholesalers and their
associated retail outlets control 46% of the market, whilst franchised garages have virtually no
significance. The tyre manufacturers own chains represent 18% of the end user market (or about
11% if truck tyres are excluded). The fast fit sector in the UK is the most advanced in Europe and
has 25% of the market.
These channels are not static; new businesses are constantly entering or leaving the market and a
few have original business plans which can upset the status quo. Internet sales are a current threat
to existing operations but new threats can come from old competitors. The OEMs are once again
eyeing the market more actively. For some years they have been encouraging their dealers to
establish fast fit and menu service operations and now Vauxhall (GMs UK brand) is using its
buying power to supply tyres at low prices to its dealers. This has been tried before by Vauxhall,
Ford, Renault and others but the dealers have made few inroads into the market so far.
Throughout Europe, and particularly in the four largest countries, the large tyre manufacturers are
important players in the retail market, owning their own chains of fitting centres, or equity chains
as they are known. Some of the manufacturers such as Goodyear and Michelin have had these
outlets for many years, as they were regarded at first as a good way of keeping in touch with the
market. However, this developed into a method of maintaining or improving market share. As this
grew in importance, other manufacturers became involved, and they too invested in their own
chains of fitting centres when they had the opportunity and where market conditions required.
Inevitably this approach did not result in profitable operations, and none of the multinationals make
a satisfactory return on their equity chains. In the 1980s and 1990s that was regarded as less
important than marketing goals, but greater financial realism has come into the industry. All the
companies are striving to make their chains profitable but where they believe this is not possible
they have sold out as Continental did with its 550 centres in the UK. Goodyear is looking for
economies of scale where possible by merging Dunlops 96-strong Holert Konz chain with its own

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outlets and it is also culling the unprofitable outlets. It is not leaving the retailing business,
however, as in early 2004 it consolidated its partial ownership of the Swedish chain, Dackia.
The one company that is going against the trend is Michelin, possibly because it is market leader
and it can obtain better margins than its competitors. It has brought all its European outlets together
under the Euromaster brand, and it took a major expansionist step in early 2003 when it announced
its intention to acquire the tyre distribution business of Group Viborg. This purchase added 465
tyre outlets to Euromasters existing 1,200 outlets. Viborg is a specialist tyre dealer active in
distributing and servicing tyres in northern Europe, especially Germany and Denmark.
The acquisition will be particularly valuable for Michelin in Germany, where Euromaster has a
weak network. According to Michelins estimates, Germany is Europes largest market for
replacement tyres, with just under 25% of the passenger car and light truck tyre market, and Viborg
has more than 300 retail outlets in the country, whereas Euromaster previously had just 35 points of
sale. Michelin also estimates that the combined network will account for a share of about 8% of the
European market for light vehicle tyres. However, Michelin has more in mind for Euromaster than
just helping to build market share. It is an essential part of Michelins plans to service vehicle fleets
and it is also being used to support other marketing initiatives by the firm such as its tyre guarantee
programme.
Bridgestone was rather later entering the retail business as it is much weaker in Europe than in Asia
or North America. As a result it developed a franchise rather than investing directly in a chain, and
this gave it the luxury of being able to pick and choose outlets to a limited extent. However, in
order to give it a feel for the market it bought a small chain of 16 outlets in 2004, Kingsway Tyres.
Despite this apparent change in direction, the partnership approach is now regarded as the most
viable strategy for most tyre manufacturers because they do not have to commit capital and it offers
a method of increasing market coverage in a cost effective manner. Tyre manufacturers own or are
in partnership with over 37% of the 5,500 genuine fast fits now operating in the UK. These outlets,
whether equity-owned or a franchise, are usually free to sell any make of tyre, although they should
give preference to their principals products. In practice, because so many are independent
businesses and because tyre marketing is so competitive, it is quite possible to find, for example, a
Pirelli tyre being sold on special offer at a rival chain cheaper than its price at a Pirelli-owned
outlet. What does seem to be lacking is an imaginative approach to tyre retailing. All the chains are
basically similar and all sell mainly on price. There are few attempts to differentiate the chains or to
educate the customer. The equity chains in Japan and the US are a little better and it would not be
difficult to cross-fertilise ideas, as the European chains certainly need an external stimulus.
The real growth in the European tyre market is found with independent groups, usually led by an
entrepreneur. The biggest success story has been KwikFit in the UK, which has built up more than
700 outlets by expansion and acquisition, and it is developing in continental Europe from a base in
the Netherlands and Belgium. This success attracted the attention of Ford, which was looking at
maximising revenue over the whole life of a car, and it purchased the company. However, a change
of management and of strategy led it to sell KwikFit two years later although still retaining a 20%
equity share.
Other groups such as Midas in France are following the same pattern. The common factors with the
successful chains are a good location in the cheaper part of a busy area, a standard appearance for
both the outlet and the employees, and a heavy advertising spend. They are price competitive, with
a number of well-promoted lines, but margins rise with other, more specialist products. The overall
impression to the customer is of an efficient organisation giving good value for money. Most of the
independent chains have their own private brand because they can obtain higher margins. Although
they are cheaper to buy, they are not necessarily sold at a cheaper price. KwikFit, for example, has
its Centaur brand made by Firestone, yet it sells it at a higher price than Firestone tyres because it
believes the KwikFit name can command a premium.

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Eastern Europe is still behind developments in the west but is catching up rapidly in many areas.
The most dramatic change has been in production rather than domestic market growth.
Nevertheless, although much of this extra production is for export to Western Europe, the domestic
markets are also growing rapidly, at about double the rate in the west. In order to service this
market, the multinationals are gradually developing retail outlets. Rather than establishing equity
chains, the multinationals are encouraging local companies to establish fitting centres, providing
them with training, not just in technical matters but also in running a business.
9.5 Russia
Russia has always been something of an enigma to the West and so it has proved since the
economy appeared to open up after 1990. The break-up of the Soviet Union appeared to promise
enormous opportunities for Western tyre manufacturers. A relatively sophisticated economy that
had been starved of consumer goods was opening up to foreign investment in order to attract
capital and technical expertise. However, although the multinational tyre suppliers were very quick
to invest in the countries of Eastern Europe, they were much more reluctant to do so in Russia
itself. They all established sales and liaison offices in Moscow and experienced some success in
selling imported tyres, but it took a long time before any company was prepared to invest in
manufacturing. This caution appeared well-placed when the economy collapsed in 1998 but since
then the economy has performed well, mainly because of high commodity prices, particularly oil.
But it is not just a better economy that the tyre majors have been waiting for. If they are to invest in
the country they need confidence that such basic requisites for commercial undertakings as a sound
legal system, clear property laws and a relatively efficient and honest bureaucracy exist. There are
no guarantees that these are yet in place but the situation has stabilised sufficiently for both
Continental and Michelin to make major investments. Goodyear and Bridgestone have not been as
bold but they have both increased their involvement by signing offtake agreements with Russian
tyre manufacturers. The market is beginning to open up but it is far from being a normal market
and there are likely to be various mishaps along the way. Nokian, a western company with
probably more knowledge of the Russian market than any other, has already had its fingers burnt. It
will not be the last.

9.5.1 Market
The Russian tyre market, including imports, is estimated to be in the region of 35 million tyres at
present. The central government still keeps precise production statistics but the problem is whether
these can be relied upon. Table 9.7 represents the most reliable estimates.
Table 9.7 Russian tyre market 2003 (m units)
Production
32.8
Plus imports
4.6
Plus smuggled
1.2
Less exports
3.7
Market
34.9
Source: Industry estimates
Production has been gradually increasing from a low point in the late 1990s and imports are
decreasing slowly because domestic production is becoming more reliable. Conversely, exports too
are declining as the manufacturers find it easier and more profitable to supply the domestic market.
There is a substantial foreign trade in tyres but this is mainly confined to trade with the countries of
the CIS. Most exports go to this area and about half of the imports are from the Ukraine and
Belarus. The big decline is in smuggled tyres, partly because the customs service is more efficient
but mainly because the profits are lower. However, the market is buoyant as the economy grows on
the back of higher oil prices. The market for passenger cars is likely to be healthy for many years as

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the level of car ownership in this country is far below capitalist economies. There will be no
explosion in car ownership as average incomes are relatively low, particularly in rural areas, but
there will be a continuing positive demand as consumers aspire to car ownership. Set against this
positive influence, the quality of tyres is likely to improve quite dramatically with the introduction
of some western technology and management methods (particularly quality control) as well as
increased competition between the producers. This will mean that tyres will last longer and fewer
will be needed to cover the same distances. The unrealised demand for vehicles is huge, and per
capita car ownership is among the lowest in Europe. There are 28m cars in the Russian parc, but
almost half of these are owned by official organisations. Only about 15.5m cars are privately
owned, which translates into one car for every ten people, compared with one car for every two
people in Germany.
Prices of Russian made tyres have fallen dramatically in the last two or three years as the main
producers fight for sales. Typically the price for a Russian tyre, depending on the manufacturer,
would be US$15-23. In comparison, a Michelin summer tyre would cost US$70-80, and a Michelin
winter tyre US$110. According to Amtel, a Russian-made R18 tyre sells for about US$15 whilst a
brand name western equivalent sells for US$55-65. Currently these western tyres account for about
1520% of the market for passenger tyres. Western tyres are without question better made and
much more durable, but there is also a certain cachet in using them for those Russians that can
afford them. However, the prestige value of western tyres cannot command such a premium across
all brands. As Russian tyres are simultaneously improving in quality, a typical less well-known
western tyre now sells for about three times its Russian equivalent rather than the extravagant
multiples of the past. A typical Russian tyre might last only 20,000 km, but some of the better
quality ones would last twice that distance; nevertheless, an imported tyre would last twice as long
again. These dramatic differences are already beginning to fall as Russian sourced tyres with
western brand names begin to appear on the market and this narrowing of the gap will continue for
several years.
The big problem for the market is the poor distribution of all products, not just tyres. The big cities
to the west of the Urals are well supplied but distances in Russia are enormous and rural areas,
particularly in Siberia, are very remote. This too is gradually changing but it will take decades
before a good distribution system is operating over most of the country.

9.5.2 Supply Structure

Before 1991 there was a planned economy, and all the factories had guaranteed sales at fixed
prices. Under the old system, production targets were set by central government, raw material
contracts were arranged for the plants, and distribution to the end user was carried out by other
agencies. The factories themselves were run by bureaucrats rather than by businessmen, and it was
a matter of fulfilling quotas rather than satisfying demand. All the plants were usually operated at
full capacity.
At the time of the break-up of the Soviet Union there were 18 tyre factories, producing most of the
countrys needs for passenger, truck and agricultural tyres. These plants are now in five separate
countries, twelve in Russia, three in the Ukraine and one each in Belarus, Uzbekistan and
Kazakhstan. However, because of their common legacy, they share many of the same problems and
characteristics.
When the change took place, this overall structure disappeared virtually overnight and the
individual factories were cast loose to fend for themselves. In a culture where everything had been
decided by the state, this was a traumatic shock. The breakdown in the traditional procedures left
the individual General Directors, who were the politically appointed factory managers, in a very
powerful position. They had absolute authority over their operation, no guidelines and no authority
to which to report. In these circumstances standard business procedures often broke down and
corruption was rife. Anything that could be stolen was stolen, and in particular many unusual
arrangements were set up to distribute tyres. In a collapsing economy, where there is little faith in

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money, any consumer goods become particularly valuable, and tyres were no exception. The
General Directors often appointed agents to distribute tyres in a particular area, and personal
arrangements were made to share the profits.
After this relatively short period of anarchy, all the tyre factories were privatised between 1992 and
1994. They were usually turned into joint stock companies and shares given to managers,
employees and outside interests, particularly local government. This usually meant the city or the
province in which the factory was sited. The factories carried on, but under people who were not
natural businessmen and certainly not entrepreneurs. Much of the revenue from sales was diverted
away from the business in one way or another, and the companies were not able to pay for their raw
materials, particularly synthetic rubber and energy. They consequently built up enormous debts
quite rapidly.
Both central and local government became aware of the problem, and in most cases the first
generation management teams have been replaced. Although these managers often had equity
control of the business, the accumulated debts were so large that in effect the equity had negative
value. Ownership was secondary to the size of the debt. Two companies in particular took
advantage of this to take effective control of many factories. Neftekhimpron (Petrochemical
Industries) was in a strong position as a supplier of raw materials, and it assumed a proportion of
the debts of several factories, in effect taking control, although not actually owning the plants. The
other consolidating force after 1996 was Rosshina (Russian Tires), a financial group rather than a
supplier, but with a number of top managers with a background in the tyre industry. This company
took similar control of five large Russian factories, Yaroslavl, Moscow, Omsk, Yekaterinburg and
Krasnoyarsk. However, along with shares in the various businesses, Rosshina also took on their
debts, and as it could not pay these, it was then taken over in turn by Yukos, a major oil company.
Many of the factories are now controlled by Sibur, a subsidiary of Gazprom, the monopoly gas
company but the other major player is Amtel, a diversified holding company owned by an Indian
businessman, Sudir Gupta. It has interests not just in chemicals and tyres but also in fast-moving
consumer goods. It has acquired interests over the last three years in Kirov, Voronezh, Krasnoyarsk
and Rosava (Ukraine) and it also claims to be the major shareholder in the Volgogradsky carbon
black plant as well as plants making tyre cord.
Table 9.8 Capacity of Russian tyre plants 2003
Plant
Capacity (m units)
Nizhnekamsk
12
Yaroslavl
6
Omsk
5
Moscow
3
Volzhsky
2.5
Vjatka (Kirov)
2.5
Voronezh
2.5
Barnaul
2
Krasnoyarsk
2
Uralsky (Ekaterinburg)
1
St Petersburg
1
Source: Industry sources
There are 12 tyre plants in Russia but many of them are small and all of them have relatively old
equipment. A few plants have machinery installed in the 1980s, but it has been badly maintained
and in many cases often lacks spares. This situation is beginning to change and Amtel in particular
has been investing in new equipment. According to its plans it hopes to double the capacity of each
of its factories over the next five years and change the emphasis to radial tyres and away from
cross-ply. In these circumstances capacity can be a notional figure, but the summary shown gives

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an indication of the notional capacity of the various tyre plants, arranged roughly in order. The
biggest by far is Nizhnekamsk, but Yaroslavl and Omsk are also large plants. The remainder are
medium sized or small and generally below what is regarded as an economic size for a modern full
range tyre plant. Michelins new plant at Davydovo is expected to have a capacity of 2 million
tyres when it reaches full production in 2005 (Table 9.8).
In general terms, the plants to the east of the Urals are smaller and older than those to the west, and
they also serve a more widespread population. Only about 40% of the population live east of the
Urals, and most of the industry is in the European part of Russia.
The Russian tyre industry is a bear pit for the unwary but it is gradually normalising. Amtel has
already sold a small stake to Templeton Investment, a western venture capital firm, and it is
preparing for a flotation in late 2005. The Sibur/Gazprom interests are stabilising now that
Gazprom has finished suing its subsidiary but the suspicion remains that senior management will
not give the tyre assets the attention (and investment) they need. Niznekamskshina is a giant
producer compared with the other Russian facilities and it is controlled by the Tartarstan local
government but it needs outside expertise. It is in contact with various of the multinationals and has
committed itself to considerable investment so it should be able to maintain its dominant position
in the Russian market despite the advances of some competitors.
The market leader with imported tyres is Nokian Tires. Finland has always had close ties with
Russia, and Nokian has been able to build on this to establish market leadership. Bridgestone too
uses the Finnish connections with Russia, and these tyres are imported using the Marubeni and
Mitsui trading houses. Bridgestone is currently selling tyres worth about 4 billion in Russia but it
plans to raise this to 10 billion by 2005. To do this it is trying to build up a network of 200
franchises. It has also arranged a contract with Rossava in the Ukraine to produce 200,000 tyres
annually. In general terms the Japanese and South Korean companies are stronger east of the Urals,
whilst the European brands predominate in Russia west of the Urals. In particular they are
concentrated on Moscow and St. Petersburg as this is the main concentration of private cars.
The four biggest selling brands are Nokian, Continental, Matador and Bridgestone, but all the other
major tyre companies have a presence in the Russian market. Goodyear was one of the first
companies into the field, but initially it supplied the market from plants in Turkey and the quality
of the tyres was not as good as the Russians believed a western tyre should be. Goodyear acted
quickly to change the source, and it has now made a concerted effort to establish one of the best
distribution systems in the country. Goodyear tyres are widely available, and the market share
should improve significantly, particularly now that the company has raised its presence to an
officially approved entity from a representative office. The offtake agreement with Yaroslavl
should give the company more product with which to establish a sales network throughout Russia
but the company is being careful to use a private brand, Medeo, for its locally-made tyres. These
are studdable winter tyres but the company is now building on this experience to extend the
agreement into summer and all-season tyres. Production of these tyres uses Goodyear technology
and Yaroslavl moulds.
However, the recent very public row between Yukos, the biggest oil company in Russia, and the
government has given foreign investors much to think about. It raises the spectre that the
government might be willing to allow some renationalisation and immediately raises the question
as to whether other firms are safe. In a wider context it puts into doubt the current perceived role of
the state vis--vis the economy. Many in government believe that their job is to defend the states
interests against business, not to aid business in achieving its aims. As a result, Russia faces
continued conflicts between the bureaucracy and businesses, fought out through a biased judicial
system.
Whatever trust has been built up between business and the state is now being undermined and will
encourage local politicians and officials to use the same methods, thus delaying the creation of a
neutral and fair judicial system even further. This should not affect the operation of Michelin too

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much as it is in partnership with the European Bank for Reconstruction and Development, an
organisation that carries considerable influence with the Russian government. However, joint
ventures such as those established by Continental and Nokian would seem to be far more
vulnerable to these political shifts. It is little wonder that the movement of the big tyre companies
into Russia has taken so long and explains the tardy progress of such companies as Bridgestone and
Goodyear in establishing their own manufacturing operations in this country.

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10 Asian Market
10.1 Overview
As a market for tyres, North America is relatively homogeneous and Europe is rapidly moving in
that direction but Asia is a geographic term for a wide variety of different cultures, climates and
countries. In economic terms it ranges from the rich but mature market of Japan to some of the
poorest countries on earth. It may be a geographic region but for the companies involved in selling
tyres it has to be considered as many separate countries. Together they account for more than 60%
of the world population and six of the ten most populous countries are in Asia but they still remain
very distinct. A number of trading blocs have been established to foster free trade in the region but
they have made little progress and cannot be compared with the North American Free Trade
Agreement (NAFTA) or the EU. However, it is growing very rapidly as a region and the tyre
market is growing with it. All the major companies must be active in the area or they will miss out
on vigorous growth rates in most of the countries and enormous potential markets.
Japan is the dominant economy in the region, but it has far more in common with Europe or with
North America than with its Asian neighbours. It is a mature and sophisticated market and is only
growing slowly. After the Japanese miracle of the 1960s growth continued strongly for two
decades, but by 1990 the rigidities in the economy became clear and the country has virtually
stagnated since then, despite huge amounts of investment in infrastructure projects in the misguided
belief that this would kick start the economy once more without the painful experience of reducing
public subsidies, increasing competition and writing off the heavy load of bad debt carried by the
banks. In the last twelve months the first encouraging signs have appeared and the Japanese
economy could once again be on a growth path. Japan is also the base for four major tyre
manufacturers with international interests Bridgestone, Sumitomo, Yokohama and Toyo. South
Korea and Taiwan are also relatively sophisticated economies, although much smaller than Japan.
Kumho and Hankook are based in South Korea and Taiwan has several smaller tyre manufacturers
with a strong export base.
China and India are the two largest nations, not just in Asia but in the world. In economic terms
both these countries have been largely insulated from the rest of the world until the last decade
when they both changed direction and began to open their economies to outside influences. As a
result they have both shown extraordinary growth, particularly China, and have become magnets
for outside investment. The potential for growth remains huge and they offer a tempting market for
all tyre manufacturers. Each of them has a large indigenous tyre industry but in need of investment
and new technology. Other countries in Asia are smaller but they too are growing rapidly and
present attractive high growth markets for companies which have only low growth prospects in
their existing markets in the developed world.
In total Asia offers a combined market almost equal in size to that of Europe or North America but
with much better growth prospects (Table 10.1).
Table 10.1 Regional market for light vehicle tyres 2003
North America
Europe
Asia
Other
million
%
million
%
million
%
million
%
OE
80
29
89
32
96
34
15
5
Replacement
250
35
236
33
150
21
79
11
Total
330
33
325
33
246
25
94
9
Source: Bowfell Associates

World
million
280
715
995

Table 10.1 shows only light vehicle tyres but if truck tyres were included Asia would be even more
significant as it is the largest market for these higher value products. As it is it absorbs more OE
tyres than either North America or Europe thanks to the large vehicle manufacturing operations in
Japan and South Korea and a growing demand in China. It is not yet such a large market for

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replacement tyres but this is increasing year by year as the car park in these countries grows.
Overall the OE market is expected to grow at 6.2% annually until 2008 but the replacement market
will grow at a somewhat lower rate of 4.1% because the large, slow-growing market in Japan will
counteract the rapid growth in China, India and southeast Asia.
Many of these countries are classed as developing markets but they demand tyres which are as
sophisticated as those in the developed countries. The market for cross ply tyres is declining rapidly
as radials are becoming available and almost all new investment is exclusively for radial tyres. As
in North America and Europe there is a trend towards larger tyre sizes as wheels get bigger and the
demand for high performance tyres is actually higher than in North America (Table 10.2).
Table 10.2 Asian market by type of tyre 2003
million
%
Mass market
118
48
SUV
25
10
Light truck
49
20
Performance H
22
9
Performance V & Z
32
13
Source: Michelin
10.2 Japan

10.2.1 Introduction
The Japanese tyre market is more like the European or North American market than that of any
other Asian country. It is urbanised, mature and slow growing as in the west, but there are some
major differences. It is a much newer industry than in the west, having grown from virtually
nothing in the last 50 years, mainly because of the rapid expansion of car manufacturing in that
period. It is also much more export oriented than most developed economies though this is
becoming less important as the Japanese OEMs establish transplants in North America and Europe.
Overseas production by Japanese car manufacturers is expected to top 10 million units as early as
2005 and surpass their output in Japan. The converse of this is that the market is less exposed to
imports of tyres though this too is beginning to change. Finally the Japanese market is unique in
having such a large proportion of K cars (small cars under 600 cc) because of the local tax
structure. More than a quarter of the park is comprised of these mini cars and this leads to smaller
tyre sizes being in strong demand.

10.2.2 Market
The maturing market in Japan has provided a growing demand for replacement tyres, and the tyre
industry has become less dependent on OE supply. In 1975 OE demand accounted for 60% of the
Japanese market for tyres; by 1988 this had fallen to 47% and in 2003 it was 33%. This is still
higher than the proportion in North America and Europe where it averages about 30%, but it is a
clear indication of the maturation of the Japanese market. The total domestic market of about 150
million light vehicle tyres (OE + replacement + imports) has hardly grown at all in the last decade
because of this decline in OE demand. Replacement demand has grown steadily, averaging 2% per
year, and has now reached 67 million but a smaller market for OE tyres has negated this steady
growth. Until recently, a substantial rise in exports has been largely cancelled by a similar
proportionate rise in imports, so domestic production has only risen by 0.5% per year.
Sales to the OE manufacturers are usually conducted directly, and supply contracts average about
four or five years, the production run of a particular model. In Japan, until very recently, almost all
important businesses have been members of keiretsu. These are large families of companies,
usually led by a bank and a trading house, which can cover most areas of the economy. The
companies are closely bound together with both formal and informal ties and they usually give as

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much of their business as possible to other members of the keiretsu. These organisations have in
the past, dominated supplier relationships and they still exert a significant influence in Japanese
business though the travails of the economy over the last decade have broken down many of these
relationships. Atypically for the automotive components industry, the tyre manufacturers are
largely independent of the traditional keiretsu structure. Nevertheless, there are still extensive
cross-shareholdings that are designed to cement relationships. For example, Bridgestone owns
shares in nine of the 11 domestic automakers and, in turn, Toyota owns 0.5% of Bridgestones
equity. All of the vehicle manufacturers buy from all of the tyre producers, and over time the
purchases are similar to the market share each company holds. Consequently Bridgestone is the
largest supplier with almost 50% of the market, followed by Yokohama (23%) and Sumitomo
(19%).
However, this cosy structure is beginning to break down. The keiretsu system has been under
pressure for some time as international competition has forced OE manufacturers to seek out lower
cost suppliers, and the influence of Renault on Nissans management has accelerated this process.
So far this has not had much effect on the tyre manufacturers, but it is likely to strengthen
Bridgestones position as the leading Japanese producer.

10.2.3 Supply Structure

Four Japanese manufacturers are in the top ten global companies Bridgestone, Sumitomo,
Yokohama and Toyo and these firms dominate the market in Japan. Bridgestone alone has a
market share of 46% and Yokohama and Sumitomo have shares of 23% and 19% respectively
(Table 10.3).
Table 10.3 Tyre production facilities in Japan 2004
Plants
Bridgestone
9
Yokohama
5
Sumitomo
4
Toyo
2
Others
3
Total
23
Source: Tire Business
The Other category in Table 10.3 comprises a plant owned by Inoue Rubber , a small Michelin
plant and a joint venture for large tyres between Toyo and Goodyear. The other major international
producers are now strengthening their presence in Japan. As part of its alliance with Sumitomo,
Goodyear has given the former firm full control of its marketing in Japan and this is already paying
off in the form of increased volumes in both the OE and replacement markets. Sumitomo has also
strengthened its presence in the market by taking full control of Ohtsu which is resulting in cost
savings and a more focused sales strategy. The formation of a joint venture between Continental
and Yokohama to co-operate on technology and tyre production in Japan could give a similar boost
to Continental. The company that appears to be left behind in this is Michelin though it has long
had a joint venture in Japan selling tyres in the replacement market. Michelin Japan Group has now
taken complete control of its former joint venture and this could suggest that Michelin wants to
take a more active role in the Japanese market.
Imports are always a sensitive subject in Japan as foreign governments apply pressure to dismantle
the non-tariff barriers to imports. Until 1986 the Japanese market was essentially closed to foreignmade tyres, but in that year the vehicle manufacturers instituted voluntary programmes to import
US-made parts under the Market Oriented Sector Selective (MOSS) agreement. Tyre imports rose
quickly after this to a level of about 14m tyres each year, but they have stabilised at this level ever
since, rising to almost 17m tyres in 1997 but then falling away again. In relation to the domestic

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market for passenger car tyres, imports have remained fairly steady at between 11% and 15% over
the decade, the 2003 sales level representing 12.9% of the market.
After 1986 the first imports were made by the OEMs as the domestic tyre makers had a strong
control over the replacement market. However, an independent retail chain decided to move into
own brand tyres. Autobacs Seven, which specialises in automotive accessories and parts, tried to
persuade each of the Japanese manufacturers to supply it with an own brand tyre but was
unsuccessful. It then approached Cooper Tire in the US and has been importing ever since. More
recently the major Japanese companies have been importing their own foreign brands such as
Firestone in order to service the segment of the market that regards imported tyres as having a
special cachet.
The European sources have made little headway into the Japanese market, and South Korea is also
finding the market difficult, but tyres made in Taiwan are gaining market share. Chinese imports
are also significant, and the rapid rise in this is largely attributable to Japanese joint ventures in
China. Toyo has had a joint venture with Cheng Shin Rubber for ten years, and Bridgestone has a
small joint venture with Shenyang Tire. The key development in the last few years has undoubtedly
been the acceleration in tyre imports from Thailand and Indonesia. In 1992 imports from Thailand
amounted to 268,000 units, a figure which had risen to 3.2m units in 2003. For Indonesia the
figures were 232,000 and 2.6m respectively. Thailand is now the third most significant source of
imports, behind the USA and Taiwan. On the whole, imports from local factories in Asia of
Japanese tyre producers are on a firmly increasing trend.
Future growth in imports will favour the low cost countries such as China, India and South East
Asia as growth is likely to come with private brands for the replacement market. Speciality stores
are opening up which are more retail oriented traditionally the majority of tyre outlets have been
service-oriented. If private brands are successful, this should help the growth of passenger car tyres
as imports. These have stagnated over the last decade, whereas imports of truck and bus tyres have
increased.

10.2.4 Retailing
The distribution of automotive tyres in Japan is divided into three channels: original equipment;
replacement; and exports. Distribution channels for replacement tyres are particularly wide-ranging
and complex, with vehicle distributors which have taken a leading role until recently, having now
been overtaken by speciality stores (Table 10.4). The chief distribution channels are roughly
divided into two types: direct sales and indirect sales. Direct sales are those under which
distributors sell tyres directly to some large users, such as transport, bus and taxi companies, and
government and municipal users. Indirect sales are those under which dealers supply tyres to end
users. According to Yokohama In Japan, the attitude toward buying tyres is different than in the
west. To the Japanese, new tyres represent the renewal of a car's life and it's a happy purchase for
people who like to drive.
Table 10.4 Types of tyre distribution outlets in Japan 2002
1988
2002
% of total outlets
% of total outlets
Auto speciality stores
22
31
Car dealers
30
25
Service stations
16
16
Discount/DIY
7
10
Independent tyre shops
7
9
Company tyre shops
6
7
Other
12
2
Total
100
100
Source: AM Network

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A marked feature of tyre distribution in Japan over the last decade has been the sharp growth in
discount and auto speciality chains such as Autobacs and Yellow Hat. The growth of these chains
has threatened to erode the pricing power of the tyre manufacturers, as they demand and receive
large discounts in return for bulk orders. The situation was made more difficult by the adoption of
the open price system. This was similar to the abolition of retail price maintenance in the UK many
years ago. Prices immediately dropped by about 10%, and the retail speciality stores have
maintained and increased their aggressive pricing policy since then. Autobacs is the oldest and
largest of these chains and it has now opened its first US Super Autobacs Car-Life mega store in
Orange County, California and another store in Shanghai.
In order to defend against the erosion of their channel margins and eventually their own sales
margins, all the domestic tyre manufacturers have developed a variety of both equity and affiliated
dealer chains (Table 10.5). Not only do these chains insulate them to some extent from price
pressure, but they can also ensure consistent branding, more efficient retailing and provide access
to market intelligence. The big manufacturers, Bridgestone, Yokohama and Sumitomo, have
developed several types of chain in order to address all segments of the market and at the same
time keep the competition at bay. Retail sites are difficult to acquire in Japan, and a further problem
is to find enough qualified managers with entrepreneurial instincts. Once a company has a site, it is
reluctant to relinquish it in case a competitor steps in.
Bridgestone has been particularly innovative in its retail strategy, and the other companies have
followed this lead. The Cockpit chain is focused on the young, high-spending enthusiast and sells a
range of wheels as well as low-profile tyres and other high margin products. The stores are bright
and clean, even offering coffee for customers. The managers are often the sons of existing
franchisees, thus retaining a loyalty factor but at the same time introducing new ideas and
enthusiasm. The Tire Kan stores are aimed at the more mature drivers who want a clean, quick tyre
change, whilst Mr. Tireman is a more traditional outlet. Bridgestone has introduced its own
Firestone brand in order to segment the market, particularly at the high end, but it has not launched
any secondary brands.
Company
Bridgestone

Yokohama

Sumitomo

Table 10.5 Tyre distribution chains in Japan 2003

Chain
Cockpit
Tire Kan
Mr Tireman
Grand Slam
Tire Town
Tire Garden
Autoland
Tire Select
Tire Land

Toyo
Ohtsu
Total
Source: Industry sources

Number
250
270
300
210
60
200
144
79
32
340
160
2045

Yokohama operates three separate chains. Grand Slam and Tire Town are made up of dealers,
partially owned by Yokohama through its sales subsidiaries. Tire Garden is composed of 200 of the
600 authorised Yokohama dealers who are grouped under the Yokohama Partner Shop banner.
The company set up Yokohama Franchise Center (YFC), a 100% subsidiary, to co-ordinate the
dealer expansion programme. Through financial support YFC encourages dealers to unify signage
and also co-ordinates regional marketing efforts between dealers. Yokohama has now taken the
major step of supplying a private brand, something it had previously refused to do. It is

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manufacturing the Idemitsu brand for a chain of petrol stations, and Ohtsu is following the same
route.
10.3 South Korea
South Korea has been taking an active part in the world economy for five decades and has taken
lessons from both China and Japan, developing a system of state capitalism that converted it from a
poor rural economy to a major manufacturer of sophisticated consumer products. As in Japan, the
tyre industry has grown alongside the burgeoning automotive industry, but it is not reliant upon it.
It plays an important role in the world tyre industry and the two indigenous tyre producers, Kumho
and Hankook, have established their brands with some success in Africa and South America as well
as the more mature markets.
The domestic market in Korea is still very dependent upon OE orders, but it is becoming less so as
the car parc develops and the economy matures. Koreans are becoming richer but car ownership is
still the exception rather than the rule. As a result the replacement market is only a little larger than
the OE market. In 2003 passenger car tyre replacements amounted to just under 10m tyres with
light trucks accounting for another 2.5m. The market for OE tyres was 6m passenger car tyres and
2.5m light truck tyres. Passenger car tyres are the growth sector of the market, growing at twice the
rate of commercial vehicle tyres as the car parc expands.
Although the nature of the market is changing the structure is not, as distribution outlets are tightly
controlled by the two largest companies Kumho and Hankook. Each have their own chains of
franchised operations and these are exclusive to the firm, selling only that companys brands. Even
though South Korea has now become a member of the WTO, it is not likely to see a flood of
imports in the near future. Distribution is the key to market share, and imported brands will not find
it easy to make inroads in this market unless there is government legislation to assist them (most
unlikely) or they come to some agreement with Kumho and Hankook to share distribution
channels. The one multinational which may be able to make an impact on the Korean market is
Michelin as it has now taken a 10% stake in Hankook. Although the alliance between the two
companies is mainly for Michelin to have access to modern and relatively cheap production in the
Asian region, it may be able to use Hankooks distribution network to gain access to the local
market.
Kumho and Hankook, dominate the domestic market as well as being major exporters. Their
origins, development and ambitions are very similar, so much so that they are intense rivals.
Hankook has a slightly larger share of the domestic market, whilst Kumho exports more. Both have
invested heavily in new factories and both have built plants in China. Indeed, both grew at a
remarkably rapid rate throughout the 1990s, helped by the similar rise in the Korean automotive
industry. Each company has two plants in South Korea which account for the bulk of their output.
They are relatively new and very large so they are very efficient. In January 2004 Kumho Tires
completed construction of a tyre plant equipped with an automated production unit in Pyeongtaek,
south of Seoul. The new factory can produce 6,000 tyres per day, with annual production capacity
expected at 2 million. The company's total annual production now is 36.6 million tyres.
However, high rates of growth put very heavy strains on the finances of companies, and it is
usually only possible to continue that rate of growth if the economy carries on growing rapidly and
if there is no change in external circumstances. Just such a change occurred in 1998 when many of
the Asian economies got into difficulties and South Korea faced major structural problems. The
problem was particularly acute for Kumho and Hankook as they had high levels of loans, and many
of these loans were denominated in dollars. In addition, many of the raw materials for tyres were
priced in dollars at a time when the won at one stage lost 40% of its exchange value. Both
companies were caught in a vicious circle. As the won depreciated, they needed to boost exports in
order to generate enough hard currency to service their foreign debts. In addition, in order to
finance the exports they needed to borrow still more foreign exchange. In the event, although

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exports slowed a little in 1997 they kept on rising, and the economy recovered more quickly than
most expected. The banking system was restructured and the big chaebol that dominated the
economy were put under pressure to focus on fewer industries and to unlock the web of cross
holdings in order to improve financial transparency. The Korean chaebol are similar in many
respects to the Japanese keiretsu but with the important difference that they were created with the
tacit support of the government. That was seen to be the best way to develop the economy quickly
and it worked. Now, however, Korea is a well-developed economy and the chaebol are believed to
be hindering free growth of new industries so the government is trying to reduce their influence.
Hankook survived and, although still heavily indebted, it remains independent although it has now
entered an alliance with Michelin. Kumho has not fared as well, as it was already more indebted
than Hankook and it was part of a small chaebol, which also contained an airline and a construction
business both cash-hungry industries. As a result, it has been openly for sale since 1998, not a
good atmosphere in which to run a business. Several economies have been made, such as selling a
plant in China and making limited redundancies, but the real problem has been financial, not
operational. Buying any Korean business is notoriously difficult, even when both parties and the
government want the proposed outcome. Much of the reason for this is technical, but there are also
important cultural difficulties as well. Quite apart from the debt burden, there are often inherent
obstacles such as licenses owned by western or Japanese companies and the internal dealings
between parts of a chaebol. Eventually a typically Korean solution was found with the army
pension fund buying control via a venture capital subsidiary.
The importance of Korea for the world tyre industry is that it is the home of two aggressive and
ambitious manufacturers. The domestic market is significant, both for OE supply and, increasingly,
for replacement tyres but it is still smaller than several European countries. In addition the market
is particularly nationalistic and outsiders have a very difficult time establishing any sort of
presence. Michelin may have created a foothold for itself by purchasing 10% of Hankook, the
market leader, but its motives were almost certainly on the export potential of the company rather
than its domestic position.
Both companies have established a large export trade, particularly in the small but difficult markets
of Africa and the Middle East which the majors have found almost impossible to penetrate. They
have both expanded rapidly but in doing so they have taken on far too much debt. This did not
matter before the Asian financial crisis as both companies could rely on sympathetic treatment by
the banks but in the last five years the economic climate in Korea has changed markedly. The
chaebol are no longer the favoured sons and the government is trying to develop smaller companies
and to diversify the structure of business. An added disadvantage is that Korea is no longer a lowcost location for tyre factories.
10.4 India

10.4.1 Introduction
India has had an automotive industry for more than 50 years and a tyre industry for almost as long,
but it is only in the last decade that the economy has begun to open up to the world industry. Until
then it was very much a closed market and a restricted one at that, with all manufacturers requiring
licenses and tight controls placed over production volumes by central government. In 1991 these
controls were loosened, and there has been progressive deregulation since then. This has had the
effect of attracting many new vehicle assembly operations and in consequence many of the
multinational tyre manufacturers have shown a new or renewed interest in the country.
These developments in the Indian tyre industry have not been painless for the existing
manufacturers. Many of them have grown to a substantial size; indeed four of them are in the Top
Twenty producers worldwide. However both the Indian market and the world market are changing
rapidly and some companies, particularly the smaller ones, are finding it difficult to come to terms

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with the changing circumstances whilst others are seeking new opportunities both within India and
in the export market. Of the 47 tyre factories in India four are currently shut down.
The tyre industry has doubled its output since 1992 to 51.5m tyres in 2003 but this figure is rather
misleading as most of these are two-wheeler tyres. Passenger car tyres only represent about 17% of
the total though it is in this area that the real interest lies.
Whichever coalition is in power, the general opening up of the Indian economy is likely to
continue, and this is not just because of the developments in the global economy. India is big
enough to be able to resist these changes if it sets its mind to such a course, but over the last decade
regional parties have become much more influential in Indian politics as the power base of national
parties such as Congress has crumpled. In general these regional parties are investor-friendly.
Under the old command system of socialism the central government in Delhi decided who could
invest how much and where. However, deregulation since 1991 has created competition between
the states in attracting investment from within India as well as from foreign business. Having tasted
economic power, the regional parties are now determined to retain it.
However, despite the huge market it represents, India does not yet present an attractive destination
for automotive related industry. It is more attractive than it was ten years ago, but most of its
regional neighbours have done much more to increase their relative attraction. Of the 16 countries
in the east Asian region, the Economist Intelligence Unit (EIU) ranks India in the bottom quartile
and it is not making the key reforms that would alter its attraction to foreign business. Change is
taking place, but only very slowly.

10.4.2 Market
With an annual value of almost US$3bn, the Indian tyre market is significant by any standards, but
it is unusual in the balance of products. In most countries passenger car tyres are the most
significant product, but in India production of these is dwarfed (in value terms) by output of truck
and bus tyres. Moreover, in terms of sheer numbers, far more motorcycle and scooter tyres are
manufactured than any other type. The balance of products in the market is shown by production
figures in Table 10.6.
Table 10.6 Product mix in the Indian tyre market 2003
Product
Quantity (million)
Truck and bus
9.9
Passenger car
8.5
Light commercial
2.8
Jeep
1.4
Tractor (front)
1.1
Tractor (rear)
0.8
Tractor (trailer)
0.5
Animal drawn cart
0.5
Scooter
9.9
Motorcycle
15.7
Moped
0.2
Industrial
0.3
Off road
0.1
Total
51.6
Source: ATMA
The light vehicle sector consists of passenger car tyres and light commercial tyres. In the context of
the international market Indian jeeps would not be classed as using this type of tyre.

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Looking at light vehicle tyres more closely, the market is rather smaller than simple production
figures would suggest as some of these tyres are exported.
Table 10.7 Indian market for light vehicle tyres 2003
Production (million) Less exports (million)
Market (million)
Passenger car
7.5
0.3
7.2
Light commercial
2.4
0.6
1.8
Total
9.9
0.9
9.0
Source: ATMA original data
In total the Indian market for light vehicle tyres is smaller than South Korea but it is still an
attractive market for international producers because it is a much more varied market than just tyres
for light vehicles and it is growing rapidly. In the last decade production rose dramatically at first
with an annual average growth rate of 11%, and then the new automotive plants stimulated
demand. However, since 1996 the growth rate has slowed significantly, despite the high
expectations. 2003 seemed to demonstrate renewed growth of 19% but this is unlikely to be
repeated in the short term (Table 10.8). Several manufacturers have anticipated growth and made
significant investments but they are likely to be disappointed. Even Michelin has reneged on an
announcement to build a new greenfield factory and instead has decided to form a joint venture
with Apollo Tires.
Table 10.8 Indian tyre production 1992-2003
1992/93
21.9
1993/94
24.4
1994/95
28.6
1995/96
30.7
1996/97
32.4
1997/98
33.9
1998/99
37.0
1999/2000
41.4
2000/01
42.4
2001/02
43.5
2002/03
51.6
Source: ATMA
Most sectors have shown some growth over the last five years but the real growth has been
concentrated on motorcycles and passenger cars. Truck and bus tyres, which comprise 62% of the
industry by value, have grown very little. In the early years of the last decade exports grew
strongly, a mark of a robust industry. Unfortunately these have shown signs of levelling off in
recent years, for two reasons. Export markets were showing a preference for radial tyres, a product
which Indian tyre makers had largely ignored, and the exporters have faced increasing competition
from rivals in southeast Asia and especially China. However, the industry is fighting back as it now
makes significant numbers of radial tyres for passenger cars and certain exports grew significantly
in 2002 and 2003. Over the last decade the output of the industry has increased by 180%, whereas
exports have increased ten times. In 2001/02 exports amounted to 7% of total output and 10% of
light vehicle tyres. Of this North America accounted for 20% and the remainder was mainly
targeted at the Middle East and southeast Asian countries.
Traditionally, cross-ply tyres have dominated the Indian market. Originally this was because radial
technology was new and few companies saw the need to invest in manufacturing these tyres when
they could sell all the cross-ply that they could make. However, two other factors have maintained
the dominance of cross-ply tyres in the market place. Radial tyres initially cost about 30% more
than cross-ply tyres a significant premium in a country where the average annual income is about

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US$250. This premium has now shrunk to about 15-20% but is still a deterrent. Even more
important though is the generally poor state of the roads and the endemic overloading of vehicles.
A vehicle designed to carry 9 to 12 tonnes frequently carries up to twice that load and bias (crossply) tyres are much better at withstanding this type of abuse.
This situation is changing as the multinationals have entered the market and the indigenous
companies have changed their product mix to accommodate the new automotive production. Six of
the major tyre producers already in India have made considerable investments in radial production,
including all the biggest companies MRF, Apollo, Ceat, Modi, JKI and Goodyear. In total this
amounts to capacity for an additional 8m tyres. However, the investments have proved to be
somewhat premature all manufacturers now have surplus radial tyre production capacity. Despite
this there are no real regrets, as each company is merely taking precautions to ensure that they do
not lose market share when demand really does take off. There are signs now that this longpromised take off is now becoming a reality.
There is a gradual but accelerating move towards radials because of the influx of new cars, but
estimates differ as to how fast this is proceeding. The key was the adoption by Maruti of a radial
tyre as standard, as this company accounted for over 70% of all new cars assembled in India. By
1997 radial tyres for passenger cars accounted for about 30% of production, up from a mere 8% in
1990. However, domestic demand lagged behind the pattern of production so some of the radials
were exported. Nevertheless, both the tyre companies and the retail trade promoted radials
vigorously because of the higher margins. In 2003 it is estimated that 75% of the passenger car tyre
market (PCT) is accounted for by radial tyres as all new cars now have these fitted as standard
(Table 10.9). Customers replacing tyres on these cars now choose radials automatically and it is
estimated that 85% of the PCT market will be accounted for by radials by 2006. The final 15% will
take a long time to convert as there is a large park of old Ambassadors and similar car models that
will require cross-ply tyres until they are finally scrapped.
Table 10.9 Spread of radialisation in India 1996-2003
Truck & Bus (%)
Light commercial (%)
Passenger car (%)
1996
1
3
28
1997
1
5
31
1998
1
5
37
1999
1
6
49
2000
1
7
51
2001
2
8
65
2002
2
10
70
2003
2
10
75
Source: ATMA & Bowfell

10.4.3 Supply Structure

According to official records, the tyre industry in India comprises of 40 tyre companies, operating
53 factories. However, many of these are not operating and 12 companies account for over 85% of
total unit production. Capacity utilisation is estimated at 72% across the industry.
The industry began with subsidiaries of western companies but after independence many of these
withdrew from the market and local companies took over their operations. For many years the
Indian market was insulated from the outside world and these companies concentrated on
supplying their home market, though they bought in technical assistance from time to time both
from equipment suppliers and from manufacturers such as Pirelli which were willing to sell
technology. In the last two decades the Indian market has gradually opened itself to influences from
the outside world and in the last ten years this movement has gathered pace as the government has
gradually freed the economy.

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This opening up of the market and the move towards higher technology has contributed to the
increasing interest of the multinational tyre producers, but the real catalyst has been the
establishment of vehicle manufacturing plants. Until then Goodyear India struggled for years to
make its presence felt in the market, but it is still outside the top five. Michelin was forced to sell
its stake in MRF some years ago by the management of the Indian company. However, these
experiences have not deterred a renewed interest in the market.
Goodyear established a 50:50 joint venture with Ceat, South Asia Tyres, to concentrate on radial
production but bought out its partner in 1998 because there were conflicting strategies. Continental
has examined various ventures in recent years but has settled for providing technical assistance to
Indian partners. It now has links with JK Industries, Apollo Tyres, Modi Rubber and Metro Tyres.
The agreement with Metro was announced in October 2002 and involves the Indian company
manufacturing motorcycle and scooter tyres under license. These will be sold under the Continental
brand name, with 300,000 units targeted for 2003, rising to 1.5m tyres by 2007.
Bridgestone announced that it was entering the Indian market in early 1996 by way of a 51:49 joint
venture with Indias Associated Cement Companies. The original plan was to produce 2m steelbelted passenger car radials each year. The plant at Khera in Madhya Pradesh began production in
March 1998, but the downturn in the market scaled back production plans. In addition the two
Indian partners, ACC and Tata Engineering Locomotive, scaled back their commitment to 26%
from 49%. Bridgestones share has risen to 64% and Mitsui and Co has taken up the remainder.
Despite the curtailed ambitions Bridgestone has made a success of its market entry and it has been
able to develop the perception that it is a high quality brand. In consequence it can now charge a
premium for its tyres, something that Goodyear has never been able to achieve in this market.
For a long time Michelin was the only one of the Big 3 without any direct involvement in the
Indian market but it was not for want of trying. It has had discussions with almost all possible
partners but eventually decided to enter the market on its own with a greenfield site. It had almost
chosen a suitable location in 1998 when the problems in the economy ruined the business case that
had been constructed. In 2003 it finally came off the fence and announced a joint venture with
Apollo Tyres, at the same time taking a 15% equity stake in Apollo. The official reason for this
investment was that Michelin now thought the market for radials was large enough to justify the
investment, but it is likely that it thought a joint venture with a local company would be both easier
and safer than a go it alone strategy.
However, this entry into the Indian market initiated some marked reactions among its competitors.
The company most directly affected was Continental which had had very close technical
agreements with Apollo. These were immediately terminated and Continental is now thought to be
discussing an equity link with JK Tyres, one of the other leading Indian players. Even if this does
not materialise, Continental has detailed knowledge of other Indian companies such as Metro.
Both Goodyear and Bridgestone responded by increasing their investment in manufacturing and
Bridgestone took the opportunity of a relaxation of the law to increase its holding in its subsidiary
to 100%. Pirelli is believed to be discussing making its present arrangement of tyre supply with
Ceat into a closer relationship. MRF, the largest indigenous company not involved in talks with the
multinationals, announced that it too was increasing its investment.
At present the largest firm in India is MRF, followed by Apollo and JK Tyres which are very
similar in size. These are followed by Ceat and, some way behind, Birla and Modi. According to
Goodyear, India is one of those markets where medium-sized players will co-exist with the larger
ones. It probably is not going to be a scenario where the big four dominate the market. What we do
see, however, are more technology partnerships. A more likely interpretation of the recent changes
in the market is that, with the loosening of regulations in the economy, the larger and more
successful are looking to develop close relationships with the multinationals to help them with their
technology and to build up their export markets. In return the multinationals gain a foothold in the
Indian market one of the largest in the world and certainly one of the fastest growing. It is to be

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hoped that this new realism in the Indian market will improve companies efficiency as, even in
good times, profits rarely exceed 3% of turnover.
This might be just in time as the country is beginning to see tyres imported from China as a threat.
They are considerably cheaper than home-produced tyres because the Chinese have access to lower
cost rubber and cheaper labour. One of the biggest competitive advantages, however, is the lower
cost of finance in China. Indian companies have to pay much higher interest on loans and it is
difficult to get long-term loans at fixed rates whereas the Chinese companies have ready access to
adequate low-cost finance.

10.4.4 Retailing
The Indian market is huge in geographical terms but hindered by poor infrastructure. Although
there is an extensive railway network the highways are inadequate, crowded and generally in a poor
state of repair. As a result it is very difficult to achieve a truly national presence though
improvements in the road network and a realisation by the companies of the value of a national
network are changing this situation rapidly. The key elements in the distribution are clearing and
forwarding agents (C&F effectively wholesalers), multibrand dealers and exclusive dealers. C&F
agents act as a stocking point for a companys tyres at a particular location in the market. They
supply the dealers and also provide credit.
Exclusive dealers are committed to one manufacturer and some manufacturers have made a policy
of encouraging exclusive dealers. MRF, JK, Ceat and Goodyear probably have the largest networks
of exclusive dealers. This can be a major advantage in terms of displaying product but the
companies which use multi-brand dealers counter this with various promotional measures aimed
both at the dealer and the customer. The mechanics in the workshops have a real influence over
which tyre a customer chooses and they are often included in these incentive schemes.
Despite the advantages of close collaboration with the manufacturer the exclusive outlets are losing
market share and a number of these are now going over to a multi-brand strategy. The market end
user is becoming far more sophisticated and is demanding a better choice. Education is helping
develop awareness and the continual publicity about radial tyres is making every user more
conscious of their tyres. JD Power is now conducting surveys of customer satisfaction in India and
both MRF and Bridgestone have come out well.
10.5 China

10.5.1 Introduction
China has become the Great White Hope for the tyre industry, like many other global industries, in
the last fifteen years. It is a land of superlatives enormous population providing a potentially huge
market as well as a source of unlimited cheap labour. Chinas progress since it first opened to
foreign investment and reform in 1978 has been dazzling. Over the past 25 years, its real gross
domestic product has expanded at an average of 9% per year. Growth in foreign trade has averaged
15% annually since 1978. Chinas trade surplus with America is now twice the size of Japans.
Chinas economy is now well integrated with the rest of the world and it is the sixth largest with a
GDP of $1.4 trillion.
That has been the overall achievement but the reality for individual western firms has proven much
more difficult to achieve. Most of the big multinational tyre suppliers are now established in joint
ventures in China, but progress has been slow and difficult and it is likely that continued
development will take a considerable time. Just as the automotive industry is now having to adjust
to reality after the first flush of enthusiasm, so too is the tyre industry. The expatriate companies
are experiencing the nature of the Chinese market and the Chinese companies are beginning to
adjust to the competitive threat posed by the newcomers.

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According to the Ministry of Chemical Industry, there are over 100 tyre factories in China in the
commercial sector. In addition, the Chinese Peoples Army, which in many ways is a state within a
state, operates more factories for their purposes, although it is under pressure to give up its
industrial interests.
Many of these establishments would not be recognised as tyre manufacturing plants by western
companies. They were originally developed as part of a nationwide policy to make all regions selfsufficient. Although the Chemical Ministry gave authorisation for all the commercial plants (nonArmy), only the larger plants were established and controlled by the central government. The
smaller plants have always been the responsibility of regional government. Every major city or
regional centre had its own rubber company to supply local needs, and these plants would produce
everything made from rubber, ranging from shoes to farm tyres. This policy proved disastrous, with
wide variations in quality and uneconomic production runs, quite apart from the lack of technical
development. Inevitably many of these plants began to specialise, and those concentrating on low
technology consumer goods became much more successful producing, for example, shoes for the
export market. Tyres needed a much higher technological input, and most operations did not have
the resources for this input as they were working from a very low technological base.
An attempt was made by the Chemical Ministry to upgrade some of these factories. The larger
companies came directly under the control of the Ministry in the early 1990s and were classified as
strategic suppliers. However, the regional governments were loathe to see part of their
responsibilities taken away, and wherever possible they tried to maintain control and on occasions
encouraged these plants to develop by making direct contact with western companies.

10.5.2 Market
The development of passenger car production in China is relatively new, and consequently the
current production of tyres is strongly influenced by the composition of the vehicle parc where
there is a predominance of commercial vehicles and two-wheel personal transport. As a result, tyres
for commercial vehicles dominate total production. Passenger car tyre sales are growing rapidly,
but they still only account for a minority of production (Table 10.10).
Table 10.10 Tyre production in China 2003
Product
Million units
Truck tyres
72.5
Passenger car
22.3
Farm & industrial
27.6
Motorcycle
19.8
Bicycle
126.0
Total
268.2
Source: Industry estimates
Of the 95m vehicle tyres, about 10% are for OE use, a further 33% are exported and the remainder
are for the replacement market.
Production is spread throughout the whole country, but passenger tyre production is concentrated in
the coastal provinces, particularly in the regions around Beijing and Shanghai. In contrast,
agricultural tyres are mainly produced in the inland provinces. Trucks of all sizes are the ubiquitous
means of commercial transport, and tyres for these are made in all regions. However, the large
companies account for the bulk of production. This proportion is becoming greater, as the small
companies find it difficult to compete and are gradually exiting the industry or concentrating on
niche markets.

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One of the major advantages of large firms is that they have been able to introduce western
technology, and this has brought a rapid rise in the production of radial tyres. This has been the
particular case with passenger car tyres as the vehicle manufacturers insisted on this specification
for vehicles assembled in China. This in turn gave a halo effect to the technology and influenced
the replacement market. Currently about 90% of the passenger car tyres produced for the Chinese
market are radials, and that figure should reach 100% by 2005. However, a significant number of
cross ply tyres are still made for export by the smaller and less sophisticated manufacturers.
The market for tyres is growing rapidly at about 6-7% per year, but there are too many
manufacturers and they are all trying to survive. As a result there is a glut of tyres, many of them of
poor quality, and no one appears to be operating profitably. The western multinationals have the
advantage of being able to charge a significant premium, usually about one-third more than
indigenous brands, but they are still not profitable.
They at least have considerable financial reserves and are determined to stay in the market for the
long haul, but the Chinese companies are not without resources. Their local governments, which
are usually majority shareholders, are keen to retain these companies as major local employers, so
they encourage high levels of production. It is these firms that are mainly responsible for the glut of
tyres elsewhere in Asia, with Chinese imports often undercutting prices of locally produced tyres
by 30-40%.
The entry of China into the WTO has exacerbated this competition in the market, but it is a
situation that cannot last. The smaller companies will eventually fade out of the market, but it will
take several years for this to happen and they are likely to continue operating unprofitably in the
meantime.

10.5.3 Supply Structure

Chinese tyre factories fall into three broad groups.
The majority are still old, traditional local factories. A typical example would have a collection of
buildings in a walled compound, often a long way from good communications. Each building
carries out a separate processing operation curing, mixing, tyre building, etc. Conditions are
usually quite primitive, with poor construction, flooding at times of rain, no heating and a
disorganised workforce. There is often a lack of warehousing, and tyres ready for shipment are
stacked in the open air. Some of these establishments are quite large and have a substantial sales
turnover, despite the manufacturing conditions, but the quality of production varies tremendously
even within a single batch, and the technology of the tyres is very low.
The second group is comprised of about a dozen factories that have recognised their problems and
purchased western machinery in order to improve the processes. Usually these were regional plants
with ambitious regional government owners wanting to develop their own local industry
independently of the Chemical Ministry. A number of western companies were prepared to sell
equipment to these factories, but it was invariably a simple sale no joint venture or technical
agreement was established. Typically these plants are in new buildings close to one of the old
factories and they cost US$100m-US$120m to build and equip. However, although the equipment
is new, the technology is not; it was out of date when the machines were first installed. All of these
factories have a capacity of between 500,000 and 750,000 tyres per year. Viewed from a global
tyre industry perspective, this size of plant is just not large enough to be economic, and the position
is made much worse by the large debts that have been incurred and which now have to be serviced.
In the words of one observer, they are too big to die and too small to live.
A modern tyre factory needs to produce at least 3m tyres each year in order to achieve economies
of scale. Low labour costs in China do not affect these economic facts of life to any great extent, as
the main expense is capital investment. Although some of the equipment in these turnkey factories
is capable of much larger throughput, there are often bottlenecks in the process line, such as an

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inadequate extrusion line or too few tyre building machines. All of these plants are burdened with
so much debt that they are effectively bankrupt, and many have ceased production. One company
even obtained OE approval from one of the western vehicle manufacturers, but despite this, it has
not been able to supply any OEMs in China because it cannot produce on a regular or consistent
basis.
The machinery cannot be sold as the debts are on the books and they would have to be written off.
This would cause great loss of face and possible recriminations. The companies are too small, too
burdened with debt and too inefficient to compete with modern plants, so the only solution would
appear to be finding a joint-venture partner. Unfortunately almost all the multinational firms
wanting to get established in China have already found partners. A number of other Asian
companies are also looking for Chinese production facilities, but they are unlikely to want to get
involved with heavily indebted companies.
The third group comprises both Chinese and western companies: the large domestic Chinese
companies which have been identified by the Chemical Ministry as key companies and western
companies which have established plants in China, either as joint ventures or as sole investments.
In the list of the largest 75 tyre companies in the world published by Tire Business there are 17
Chinese tyre manufacturers plus a further 5 from Taiwan (Table 10.11).
Table 10.11 Major Chinese tyre manufacturers
World ranking Company
Tyre sales ($m) 2002
12
Cheng Shin
(Taiwan)
646.5
13
Shandong Triangle Group
629.5
14
Shandong Chengshan Tire
525.0 (est)
18
Grandtour Tire
371.3
22
Shanghai Tyre & Rubber
257.1
23
Qingdao Rubber Group
252.2
26
Hangzhou Zhongce Rubber
236.0
28
Kenda Rubber
(Taiwan)
229.4
30
Qingdao Huaqing Tyre
222.0
34
Guizhou Tyre
187.2
37
Henan Tyre
164.5
41
Hwa Fong
(Taiwan)
142.1
45
Shandong Linglong Rubber
133.5
50
Nankang Corp
(Taiwan)
125.9
52
Federal Corp
(Taiwan)
124.3
54
Yinchuan CSI
113.8
58
Dong Fen Tire
91.8
63
Double Happiness Tyre
71.8
64
Pearl River Tyre
69.8
65
Hualin Group
68.6
73
Shandong Zhongche Tyre
48.3
Source: Tire Business
Not all of the companies in the table are regarded as key companies by the Chinese government; in
fact it does not expect more than five or six to survive as internationally competitive in the longer
term. China recognises the need to reduce the states role and to build up the private sector as it
moves away gradually from central planning towards a market-based economy. It sees many state
firms as unable to compete unless they shed themselves of government management. However, this
is complicated by the fact that although central government sets the overall policy, it is usually the
provincial governments that own the companies. In the past the central government and some of the
provincial governments have sold off some shares, either privately or by allowing the companies to

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list on the stock exchange, but they have still retained control. More recently share sales have been
aimed at making a meaningful dent in government control of these companies.
For example, Shanghai Tyre and Rubber, one of the larger Chinese companies, is now largely
independent. Quoted on the Shanghai Stock Exchange, it is forming partnerships with
multinationals (first Bridgestone and then Michelin) and linking up with Chinese competitors to
develop overseas markets. It joined with Guizhou Tire and Xuzhou Tire to buy a Californian
importer of tyres, CMA. However, it made inappropriate investments for expansion and made
several years of losses, so it is now going through a consolidation phase.
Guangzhou (Pearl River) Rubber, a much smaller company, is now majority-owned by two
Malaysian-based companies with listings in Australia and Hong Kong, although Guangzhou
municipal government still retains a 30% stake. This also illustrates the increasing involvement of
the Chinese diaspora in industrial ventures in the homeland.
The Hangzhou Zhongce Rubber Co. has come to an agreement with Cooper Tire in the USA to
manufacture certain sizes of tyre for that company. In 2004 it will produce about a million entry
level passenger car radial tyres for Cooper as well as a smaller number of light truck tyres. Rather
than exporting under its own brand it has entered into this contract with Cooper. The significance
of this is that it demonstrates the quality capability of the larger indigenous companies. Hangzhou
Zhongce is part of China Enterprises, formerly China Tire Holdings Ltd. It considers itself the
largest producer of bicycle tyres in China. However, Cooper is building its own plant in China, in
conjunction with Kenda Rubber of Taiwan. This is due to open in 2005 and Cooper may then be
able to source all its requirements from its own plant.
The Taiwanese companies are obviously not controlled by the Chinese government but they are
important as they often have close links with the mainland and in a few cases actually manufacture
there. Cheng Shin, the largest Taiwanese manufacturer has three factories in China making both
passenger car tyres and motorcycle tyres. Indeed Cheng Shin claims that its Kunshan plant is the
largest in China with a capacity of 8 million tyres.
It is these small- and medium-sized companies that are causing the most concern in international
markets at present as they are taking advantage of the low labour costs and relatively cheap interest
rates to build up exports. In some areas, particularly other Asian markets, this is disturbing the
current equilibrium, as these exports are severely undercutting local products. Little attempt is
made to develop brands or to produce consistent quality, but this is of no consolation to the firms
that are under pressure from the competition. Many of the other companies are moving forward as
they recognise that they must either expand or be taken over. However, public relations is not yet a
skill that has been absorbed by many of these companies and information is both sporadic and
inconsistent.
In contrast the western companies are very good at public relations but they too are strangely
reticent about their activities in China. Most companies took a long time to establish partnerships in
China, partly because they had to feel their way into an unknown market and partly because the
negotiations were difficult, with the Chinese companies often having rather an inflated idea of their
own contribution.
The agreement between Goodyear and Dalian Rubber General Factory in 1994 was a breakthrough,
and since then most of the major multinationals have established ventures in China, although they
have often encountered problems, and few of them are making a profit, even now. Goodyear
appeared to have made a favourable agreement, as it was not only allowed to take a majority (75%)
share in the venture, it was also allowed to market one of its own brand names in China. However,
perhaps building on this, both Hankook and Kumho of Korea established joint ventures with a
higher level of control.
Bridgestone and Michelin were much more cautious in entering the market, and it was not until
1999 that Bridgestone bought a majority stake in Shenyang Santai Tire Co., which produces radial

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tyres for trucks and buses, although it had bought several other non-tyre rubber companies in China
before that. Six months later it took advantage of Kumhos financial problems to buy out one of the
two plants Kumho had established. This was a brand new plant with a capacity for 3.5m radial
passenger car tyres and a network of sales outlets, so it was a shrewd purchase by Bridgestone. It
has now gone further and is constructing a third, wholly-owned plant in Wuxi, due to open in late
2004.
Michelins first venture into China was in 1996 when it formed a joint venture with Shen Yang
Tyre Factory in Liaoning in northeast China, relatively close to Beijing. This was quite a small
operation with a capacity of about 1m mixed tyres each year, but Michelin kept talking to other
Chinese manufacturers, particularly Shanghai Tire and Rubber, at the time the biggest indigenous
tyre manufacturer. In 2001 it agreed a 70:30 joint venture with Shanghai that took over some of
Shanghais productive assets including a passenger car tyre plant, a steel cord plant, land use rights
and the Warrior brand name a business with a turnover of US$80m. The two companies put a
further US$80m cash into the joint venture and guaranteed debt and other finance. Michelin is
supplying radial tyre technology to the joint venture and establishing an R&D facility in Shanghai
to support its development.
Hankook and Kumho of South Korea were early investors in the Chinese tyre industry although
Kumho had to curb its ambitions when it ran into difficulties and sold one of its plants to
Bridgestone. Since then the company has recovered somewhat and it has confirmed its confidence
in the Chinese market by commissioning a further plant. Hankook already has two operations in
China and it is investing 250 million US dollars in the two plants by 2010, thereby tripling annual
production capacity to about 20 million units,
The Japanese companies have also committed large investment in Chinese manufacturing plants.
The first investor was Toyo with a joint venture with Cheng Shin on the Chinese mainland but it
has since been followed by Bridgestone (with three plants), Yokohama and, most recently by
Sumitomo.

10.5.4 Retailing
The multinationals have not just built factories in China but they have also had to establish retail
networks from scratch as these hardly existed in China. Each of the companies has set up
distribution points feeding a network of distributors but no one has attempted to cover the whole
country. Most are concentrating on the coastal provinces, partly because that is where the factories
are based but, more importantly, because this is the area with the most income. The average per
capita GDP in these provinces is $2200 compared with a figure for inland China of $750. No doubt
the networks of distributors will eventually stretch across the whole country but for the present the
companies are concentrating on the areas where there are cars in use.
Yokohama is typical in that it has already built a network of 148 distributors and 1,018 retailers,
and aims to have 1,200 retailers in the thriving Yangtze Delta by the end of 2005. Sumitomo
Rubber Industries is a newcomer to the market but it intends to establish a sales network of more
than 400 stores in order to achieve its sales targets. These, however, are independent dealers with
no long term commitment to the company. Bridgestone is adding to its existing network of
independent dealers by establishing over 200 company owned stores by the end of 2006. The
company opened its first tyre store in Guangzhou in 2003 and is designing the new stores on the
basis of what it learned from that operation.
Even with its economy slowing, China is still a very popular business destination. However, doing
business in China is far from easy and often not very profitable. An increasing number of joint
ventures and other types of collaboration are turning sour. For example, a proposal for Shell, Exxon
and the Russian firm Gazprom to build a pipeline with PetroChina fell apart. After three years of
difficult negotiations the two international firms had to walk away from the deal leaving enormous
detail of their designs, field-development and technology.

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Similarly Thames Water pulled out of a waste water plant it had built and was running because the
fixed annual return on investment that had been agreed was now declared illegal.
There are, of course, overseas firms making good profits in China but there are still too many
problems, not just for new businesses but also for firms that are well-established and which think
they know the local market. Some of the worst problems are:

Navigating the countrys opaque bureaucracy and maze of ever-changing rules

Finding trustworthy local partners
Understanding that Chinese officials at the highest level believe that foreign firms deserve little
in return for their investments
Piracy
Fraud

These problems have been in existence for a long time and improvements, if any, are being
introduced only very slowly. They continue to take up more time, energy and money than in any
other major market. The global tyre manufacturers have been slow to enter the Chinese market but
their problems are far from over now that most of them have joint ventures and are producing tyres
in China. Many of them will use their Chinese facilities to make tyres for export but they will also
want to establish a presence in the Chinese market. This is the area that will prove most difficult for
the western tyre manufacturers, even though the market is growing so rapidly.

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Abbreviations and Acronyms

AIMST
APU
ATMSS
ATV
BIRD
BLIC
BR
C&F
CAGR
CCM
CIS
DAE
EIU
ELT
ELV
ETRA
FOA
GDP
HBU
HP
IIR
IMPACT
IR
ISTEA
ktpa
MIRS
MMP
MOSS
NAFTA
NHTSA
NR
NSBR
NTB
OE
OEM
OENR
PAH
PCT
REACH
RFID
RMA
RV
SBR
SUV
SWT
TDF
TPMS
TREAD
UHP
USP
VIN
WTO
YFC

Automated Inspection Modular System Technology

Advanced Processing Unit
Automated Tire Manufacturing Synchronised System
all-terrain vehicle
Bridgestone Innovative and Rational Development
Bureau de Liaison des Industries du Caoutchouc
butadiene rubber
cleaning and forwarding
compound annual growth rate
Continuous Compound Mixing
Commonwealth of Independent States
distillate aromatic extract oil
Economist Intelligence Unit
end-of-life tyres
end-of-life vehicle
European Tire Recyclers Association
Flow Oriented Approach
gross domestic product
heat build up
high performance
halogenated butyl rubber
Integrated Manufacturing Precision-Assembled Cellular Technology
isoprene rubber
Intermodal Surface Transportation Efficiency Act
kilotonnes per annum
Modular Integrated Roboticised System
Modular Manufacturing Process
Market Oriented Sector Selective
North Atlantic Free Trade Area
National Highway Transport Safety Administration
natural rubber
styrene-butadiene terpolymer
National Tire & Battery
original equipment
original equipment manufacturer
oil extended natural rubber
polycyclic aromatic hydrocarbon
passenger car tyre market
Registration, Evaluation and Authorisation of Chemicals
radio frequency identification
Rubber Manufacturers Association
recreational vehicle
styrene-butadiene rubber
sports utility vehicle
sidewall torsion
tyre-derived fuel
Tyre Pressure Monitoring Systems
Transportation Recall, Enhancement, Accountability and Documentation
ultra-high performance
unique selling proposition
vehicle identification number
World Trade Organization
Yokohama Franchise Center

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ISBN: 1-85957-484-X

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