DALLAS, Texas – The tire industry is facing several “inflection points,” and facing disruptive forces that must not be ignored.
Rich Kramer, Goodyear CEO
That was the message from Rich Kramer, chairman, CEO and president of Goodyear, when speaking to more than 2,000 dealers at the company’s No Limits customer conference here this morning.
“The changing world we live in can be uncertain, it can be confusing, and it can be pretty threatening,” said Kramer. “Those who don’t take a step onto that shifting ground are going to be left behind.”
Kramer cited four disruptive changes to the tire industry, which will affect the business in the future. For one, original equipment manufacturers (OEMs) are evolving their businesses.
“The tire is going to remain integral to a vehicle, there’s no substitute out there for a tire and a wheel,” Kramer said. But he added OEMs are “clearly pursuing different business models.”
He noted the sedan is being phased in favor of SUVs, crossovers and light trucks, where profit margins are higher.
“For 100 years, the car has been the backbone of the auto industry. It has sort of been the symbol of the American dream,” Kramer said. “And now those cars, those sedans, are no longer going to be produced. That’s an inflection point.”
He also noted the way vehicles are used is changing, due to ride sharing and a consumer base that values mobility more than vehicle ownership. Cars today sit idle 95% of the time, with a cost per mile of about $2 to operate. Kramer sees more fleets and less individual car ownership, with fleet vehicles driving hundreds of thousands of miles per year. They may be powered by electric powertrains or even be self-driving, with the cost per mile shrinking to about 50 cents due to increased usage.
“The point here is, whether owned or shared, demand for mobility will increasingly be driven by specific trip needs and supported by available options,” Kramer said. “I suggest the entire purpose of the car is at an inflection point and pretty soon it’s never going to be the same.”
The third inflection point Kramer described is competition. Traditionally Goodyear has competed against other tire manufacturers. However, more start-ups are entering the tire industry and looking to disrupt it.
“All they have is just an idea and what we might call a benign ignorance of what it really takes to get involved in the tire industry,” said Kramer. “They don’t worry about what can’t be done, all they’re thinking about is what’s possible. That’s a dangerous and different competitor…we ignore that disruption at our own peril.”
The fourth and final inflection point cited by Kramer was the changing consumer. He noted consumers are now buying mattresses in a box – something that was unthinkable just years ago.
To guard against disruption, Kramer said tire dealers must be willing to adapt, but to “adapt with balance.”
“We also don’t want to forget what the market needs right now from all of us,” he said. And he added the tire business remains in a strong position, despite all the changes the industry is facing.
“Your business is really strong and it’s going to be for a long, long time,” he told dealers. “All vehicles – whether owned, shared, electric, gas, autonomous – are going to need tires now and going to need tires tomorrow.”
In fact, he noted, all indications are that total vehicle miles will increase, resulting in greater tire consumption and the need for more tires. But he also warned against being complacent.
“Our job, and it’s a tough one, is to simultaneously balance and manage both of these,” he said. “On one hand, our current business isn’t going anywhere. By everybody’s estimation, vehicle miles traveled in the future is only going to increase. On the other hand, the change we see driven by inflection points doesn’t manifest itself until later on, but we need to prepare now.”
Kramer left tire dealers with an upbeat message. “I’m as optimistic and energetic as I’ve ever been about our industry,” he said. “All together we can turn that inflection point into a springboard to a new generation of success.”