Commercial Tire Industry Report with Yokohama Tire Corporation's Dan King

FULLERTON, Jan. 20, 2011: The commercial truck tire market rebounded strongly in 2010. Maybe too strongly, as companies started to face fill rate problems. Dan King, Yokohama senior vice president of sales and marketing, discusses this issue and other industry challenges (e.g., rising costs of raw materials), and how Yokohama is responding, as well as what the market might expect in 2011.

Question: Despite the tough economic climate, the commercial tire industry weathered the storm, and for Yokohama, business actually increased. What were some of the factors that helped the company report positive numbers in 2010?

King: Simply put, demand increased. In 2009, there was a huge reduction in inventory levels almost across the board, including the tire industry, and the retail and consumer packaged goods. Fleets, for example, went so far as cannibalizing tires from their other trucks that were not in operation. Because of the recession, there was a lot of risk to carry inventory.

However, in 2010, the economy began to turn around and trucks started to get back on the road. It was this pent up demand that primarily contributed to a very successful year for Yokohama.

Question: Do more trucks carrying goods translate to more commercial tire sales?

King: Yes, actual vehicles on the road, miles being driven and freight being hauled are very good indicators of commercial tire sales and where the economy is going. All of those show signs of improvement and that we’re heading in a positive direction.

Question: From a pure industry perspective, how would you describe the 2010 commercial market?

King: 2010 was definitely much better than 2009, but it also came with its challenges. The biggest issue for Yokohama and the industry was fill rate. It started really in the middle of the year, and it’s been very difficult for us to reach our increasing demand. Yokohama had huge increases in demand – actually higher than the industry’s – and it’s been difficult for us to supply to that demand.

Question: Is having too great a demand good or bad?

King: It’s considered a good problem, but still a problem because we pride ourselves on having strong fill rates. Our dealers and fleets count on us. They like our products and want to continue to sell them, so we want to give them the tires they need on a consistent basis. It’s more efficient for our dealers, which is why they like doing business with us. But when we don’t have good fill rates, it becomes a major problem for us, and we work hard to correct it.

Question: How do you overcome and/or prevent a fill rate problem?

King: There are two primary ways: taking the existing production globally and reallocating as much as you can to a particular country or increasing capacity, which takes much longer. That’s an investment in the future. In 2011, we still expect to see some issues with supply, as will the entire industry.

Question: Is Yokohama increasing manufacturing and/or using more of the global supply and putting it in the U.S. market?

King: Both, we will allocate more production from Japan and will be expanding production at other plants.

Question: The spiraling cost of raw materials has to also be on the list of 2011 concerns...

King: Unfortunately, we do not see it letting up, especially through 2011. We’ve had to announce a price increase that started in January. Unfortunately for us, it’s not as high as what we’re experiencing in cost increases, so we can’t pass on everything. We’re willing to absorb that for right now, but we do believe raw materials will continue to escalate through 2011.

Question: Besides 2010 strong sales, Yokohama’s commercial division launched new products, introduced the SmartSolution™ communications program and had several tires verified by the EPA’s SmartWay program…

King: Yes, there were many positive endeavors in 2010. SmartSolution is a great example which helps explain all of the benefits Yokohama has to offer a fleet. When we started to look at the communications options, we even surprised ourselves at what a great product line we have, the great programs we have and the great customer service we offer. We provide the best combination of attributes that fleets want in a tire program.

So we created SmartSolution to help educate fleets to make a good, smart solution on their tire program; hence the name SmartSolution.

Question: On the environmental side, you have the SmartWay-verified tires, which fulfill your global initiatives and saves fleets money…

King: Yokohama is globally committed to environmental technologies, so whether the U.S. government mandates SmartWay or not, we believe it’s a very good program for us to invest in. It’s good for our fleets, saves them fuel costs and its good for the environment. We believe the government will mandate more SmartWay-related programs in the future. California has already mandated it, Texas is evaluating and we heard a couple of other states are looking into it, but we’re already there. We already have the product that meets the tough SmartWay criteria, and we’re going to keep pushing the envelope on new products.

Question: Your Zenvironment™ line is known for its eco-friendly benefits, especially low-rolling resistance. Does green help sell commercial tires?

King: Investing in green technology is the right thing to do. However, when we look at application in the marketplace, fleets care about how a tire program can save them money, too. Our tires can do both: help the environment and save money.

Question: How has the industry responded to SmartSolution and SmartWay-verified tires?

King: We recently launched the SmartSolution campaign and the response has been tremendous. We didn’t want to just say, ‘Hey, look at Yokohama. It’s a great product and program.’ We are proving it with test data, testimonials and tests with fleets. We’re backing up our claims and the fleets and dealers see that as very refreshing. It helps them make the best decision.

Question: Another new product is the Online Fuel Calculator. How does it benefit dealers, fleets and truckers?

King: We’ve had tremendous feedback on that as well. It’s put together very well and is easy for people to use. It’s extremely accurate and predicts the fuel savings between our commercial tires and those of our competitors. We also show the environmental impact, which is different than other fuel calculators. We’ve actually used some of our competitors’ calculators, which always picked Yokohama, but we decided we needed our own.

Question: What’s Yokohama’s stance on ‘super-single’ tires?

King: We have been testing a trailer and a drive super-single tire with various fleets. We will probably be launching the trailer tire sometime in 2011, and following it up with the drive tire.

That’s an interesting segment to watch. Some fleets truly believe it will save them overall costs because it reduces the weight on the vehicle and has tremendous fuel efficiency. Other fleets do not like the risk of having one tire go out causing more down time. Others do not want the expense of the conversion and don’t believe it’s a payback. We’re definitely watching it closely.

Question: Are there certain segments within the truck tire industry that are doing better than others?

King: One of the areas that improved in 2010 was long haul application – we’re seeing a little more demand there. We have a new long haul steer tire called the 101ZL™ that we’ve tested and are now ready to introduce in 2011. We think the timing’s good.

Question: Any other new YTC commercial product being released in 2011?

King: Besides the 101ZL and super-single, we have a new lower positioned economy steer tire that we’ll be evaluating for 2011.

Question: What’s on tap for Yokohama’s commercial division in 2011?

King: We’re in a great position and want to continue fortifying the Yokohama name in the marketplace. We think the SmartSolution provides a great way to explain who we are and the benefits we bring to the marketplace. We want to maximize that, including at trade shows, and within our public relations and advertising efforts.

Question: What’s the most difficult aspect of marketing commercial tires? Is it much different than marketing consumer tires?

King: It is much different than working on consumer programs. There are not as many avenues to advertise and promote and brand your name. A lot of it is done by proof, which we love. We enjoy asking fleets to give us an opportunity to prove who we are and prove our product, as well as show them results. It’s all about being able to educate our fleets and dealers and to prove how good we really are.