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Analysis: Tire plants close across Europe, Americas

March 22nd, 2020 | by Tire Industry Research
Analysis: Tire plants close across Europe, Americas

by David Shaw

It happened sooner than we expected, but it happened just as we predicted a week ago. Tire factories across the developed world are closing, albeit temporarily, as OE demand for tires plunges. The announcements came like a firestorm in the second half of last week (18-21 March)

Driven by falling OE demand

The primary reason is that vehicle factories are also closing across Europe and the Americas. A secondary reason is protection of employees’ health and requirements from governments to close factories to reduce spread of the coronavirus epidemic.

Because most tire factories in the high-cost countries of Europe and North America are designed to serve the vehicle factories in those regions, closure of vehicle factories has a direct and immediate impact on requirements for tires coming out of OE-oriented tire factories.

Replacement demand is mainly served by factories in relatively low-cost countries, such as India, China, Thailand, Russia, Romania and elsewhere.

Vehicle plants close, because no-one is buying cars

In the Americas, the ‘big three’ of GM, Ford and Fiat-Chrysler announced on Wednesday (18 March) a coordinated plan to slash production and protect workers against the epidemic.

The same was happening in Europe, but in a less coordinated way. In each case, the vehicle makers announced a temporary shut-down at least until the end of March, but with heavy hints that the closures would last into April and possibly beyond.  

The tire makers’ responses came within hours of the auto makers’ announcements. As with the auto makers’ announcements, the tire makers said factories would close at least until the end of March, but possibly beyond. At this stage, we expect that closures at auto makers and tire makers will continue well into April.

We will update readers as more information comes available.

In the April issue of our Global Tire Intelligence Report, we will give estimates for the number of tires affected by the shut-downs.

As a rough estimate, however, car production in Europe is around 19mn units, driving annual tire demand of some 80 million units each year, or 1.5mn per week. A two-week shut-down represents some 3mn tires in Europe.

Car production in North America is a little less, at 17mn units, driving tire demand of some 70mn units, or 1.3mn units/week.

Combined, the two regions drive demand for 150mn units per year, or 3mn tires each week.

What’s next?

As we predicted a week ago, the next stage is a steady decline in demand for replacement tires, as individuals limit their private car journeys, and the industrial system gradually shuts down, leading to lower demand for freight transport, and a consequent fall in demand for tires. Border controls and shortages of drivers will further accelerate the decline in truck-miles.

The only bright side of this will be an increase in light tires for local delivery vehicles and regional tires for distribution vehicles, as people self-isolating at home seek deliveries of food, medicines and other goods.

These effects will steadily impact the demand for replacement tires.

There will be some temporary relief because the supply chain of tires coming from SE Asia was interrupted during February, as the disease took hold there and the supply pipelines emptied. However, those factories are now back on stream, the supply pipelines are rapidly filling again.

We expect tire prices to fall, as demand drops, and companies battle to retain their share of shrinking sales. Meanwhile the supply of low-cost tires is being restored, with the factories in S E Asia seeking to recover revenues lost during their own crisis.

Looking further beyond

On Sunday, India tested its response to the virus with a mass curfew of a billion people. While the virus is not rife in India today, the government is clearly preparing for the time when it will have to confine people to their homes.

China controlled the virus with measures that few democracies are prepared to impose on their people.

Japan and Korea have controlled the virus with extensive testing, contact tracing and then isolation of all potential carriers

The response outside China, Japan and Korea has been relatively weak and uncoordinated. We therefore expect that there will be significant damage to the economies of Europe, North America, Latin America and, eventually, India.

This is the impact on sales of PCR tires in China during February:

OE demand for tires fell by 80%; replacement demand by 60%

Europe and North America are likely to see the same pattern during April, and possibly into May.

New maps show which factories are idled

Here at Tire Industry Research, we have been geo-locating all the tire factories in the world (outside China). Our maps are still being updated and corrected. If you spot any errors, please let us know.

On the full versions of the following maps, you can zoom right in on each plant and use satellite view to see the size of the factory and street view to see the environs. We’re steadily adding meta-data on production, employees and investments to each marker.

The maps embedded below are very basic, but they show the kind of thing we have been developing. In particular, they show which factories are being closed for the next few weeks.

Factories that we know are being temporarily closed (furloughed) are shown in yellow. Those we believe to remain open are in purple. You can select by company using the drop-down menus at the top of the map.

We have limited the amount of data on these public maps, but we are offering the full maps and data for sale. Contact us to see some samples and for pricing.

Article courtesy of: Tire Industry Research

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