Competition from off-shore tire manufacturers, the continuing rising cost of raw materials and a takeover of Bandag were hot topics at the Bridgestone Firestone commercial tire business conference, Bizcon 11. The conference, attracting about 900 North American dealers, was held in San Francisco.
Mark Emkes, chairman and CEO of Bridgestone Firestone North America Tire, said the company’s net sales were up 11% last year compared to 2005. However, operating income fell by 11% due to skyrocketing raw materials prices and more competition from Chinese tire makers. Art Campagnoni, vice-president, North American commercial sales, said the cost of raw materials continues to be a challenge for tire manufacturers.
“Our hope was that raw materials would level out, but no such luck at this point,” he told the gathering of tire dealers at Bizcon. “Natural rubber and other key components continue to rise in price.”
In fact, he said supplies of natural rubber are projected to remain in short supply until 2012. Rubber growers in Thailand and Vietnam have been planting more trees to meet the demand, but Campagnoni said it takes five years for those trees to mature. Since 2002, the price of natural rubber has more than doubled, he pointed out.
As a result of the rising costs of raw materials, Bridgestone Firestone is projecting its 2007 profits to decline by as much as 53%.
“I can tell you as a sales guy, that the difficulty we’re facing in being profitable – it’s not for lack of sales,” Campagnoni told dealers. “It’s simply the cost of raw materials and the inability for most tire manufacturers to pass these corresponding increases into the marketplace.”
Exacerbating the problem is that China’s demand for rubber is siphoning off some of the supplies. And now, manufacturers from that part of the world are flooding the North American marketplace with new commercial tire offerings.
“Another factor virtually everyone is talking about right now is the growth of Chinese truck tire imports across the US and Canada,” said Campagnoni, adding the influx of off-shore products has recently slowed but is still trending upwards.
“Those Chinese tires hitting our market can sometimes be very realistic looking copies of ours, but they don’t really have the technology or the quality,” added Kurt Danielson, vice-president, commercial tire marketing. “And are you convinced that these Chinese manufacturers will be around next year or five years from now? If you have a real problem with these tires, who will pay?”
Bridgestone Firestone officials said they will not be ‘reactive’ in the face of an influx of Chinese products. Instead, the company said it will continue to invest in its own products and focus on delivering “total tire solutions” to fleets.
One way the company plans on providing total tire solutions is through its acquisition of Bandag (the acquisition was finalized at the beginning of June).
“With ever-increasing operating costs, as you know, fleet customers are now focusing on comprehensive total tire management solutions rather than just the price of the tire,” said Emkes. “To keep pace with the market and prepare for the future, it’s critical that our business model continually evolves. By combining our businesses, Bridgestone Americas and Bandag, we can better service our mutual customers by offering a total tire solution backed by a complete line of replacement and retread truck tire offerings.”
Campagnoni said Bridgestone Firestone dealers who offer retreading services from companies other than Bandag will not necessarily have to change their processes as a result of the acquisition.
Campagnoni also said existing Bandag retailers will not likely be forced to carry Bridgestone Firestone products. It will depend on what best benefits the company’s customers, he stressed.
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