‘Not all manufacturers will manage to survive the crisis: experts forecast market decline
This year supply of products can drop by 45-50 million units around the world
The world economy has been significantly damaged by the coronavirus pandemic. A lot of sectors have been affected, including the tyre industry. Over 120 tyre factories have suspended production around the world: Continental, Goodyear, Bridgestone, Pirelli, Cooper Tire, Hankook, Nokian Tyres and others. This year supply of tyres will drop by 45-40 million units around the world, calculated Nizhnekamskneftekhim — the leading synthetic rubber producer and tyre supplier. Such a serious reduction in tyre production will lead to lower demand for rubber as well, which we wrote about in a review of this market. To support Russian synthetic rubber manufacturers, Vice Premier of Russia Yury Borisov has already tasked agencies with considering the possibility of purchasing SR for the Federal Agency for State Reserves. Read more about the situation in the tyre industry and the consequences for related sectors in Realnoe Vremya’s report.
Russian tyre producers and car industry amid decline
24,4 million tyres were made in Russia during the first half of 2020, which is by 16,5% less than a year earlier. There was a slight decline in production volumes in April and May due to coronavirus restrictions.
The whole automotive industry demonstrated the biggest reduction in industrial production in the country in May, the Russian Statistics Service said. The production of vehicles, trailers and semi-trailers plunged by 42,2% by May 2020. The service named the suspension of enterprises’ operation at the peak of the epidemic, an absence of imported components and lower demand as the reasons.
“Restrictions on the operation of enterprises and organisations in some sectors and segments of the economy as well as other measures taken to prevent the spread of the coronavirus infection kept influencing the economic activity in the country,” the Federal State Statistics Service explained.
By the Russian Trade Ministry’s estimate, car production in 2020 can reduce by 30%. The fall in the automotive industry gave rise to a reduction in the production in the tyre industry inextricably linked with car manufacturing. Like other enterprises, tyre factories suspended their operation at the peak of the pandemic, which significantly reduced production volumes. In January-May 2020, according to official statistics, 19,9 million tyres, or by 18% less than during the analogous period last year, were made in Russia. In May alone, tyre production volumes in the country turned out 40% below the May 2019 level.
The Tyre Manufacturers Association paid attention to the fact that the pandemic hit Russian tyre producers during the period of active sales — the “summer” season when winter tyres are replaced for summer tyres. In the end, the season has almost been lost, organisations of the wholesale and retail network didn’t create a financial backstop for the low season. Market players will likely face customers’ lower purchasing power during the “winter” sales season. A second wave of the epidemic isn’t excluded either. “Now it is hard to make forecasts, but by our preliminary estimate, the tyre market can decrease by at least 24% by the end of the year,” Executive Director of the Tyre Manufacturers Association Nadezhda Churmeyeva told Realnoe Vremya.
The decline in tyre production in Russia began as early as 2019 after the sector’s five-year growth. In 2014, Russian tyre manufacturers produced 52,4 million units, 57,6m in 2015, 60,1m in 2016, 65,1m in 2017, 67,5m in 2018. But tyre production in 2019 already reduced by 10%, to 60,5 million (over a billion tyres a year is made around the world). Moreover, the share of imports, according to the Federal Customs Service, is, in contrast, rose by 7,5%, to 34,4 million, or $2 billion in monetary terms. This excludes those tyres imported to our country with new cars, trailers, bicycles and any other wheeled mechanisms that also have spare wheels. Car imports in Russia, according to the FCS, also grew by 3,2% last year, to 302,500, the number of imported lorries increased by 13,7%, to 29,900. So another 1,66 million units were brought to our country (four wheels in the car plus a spare wheel): 1,51 million cars, 149,500 lorries.
Russian companies account for about 40% of the Russian tyre market, the other factories make products under foreign brands. Some of leading enterprises with plants in our country are Finnish Nokian Tyres (Vsevolozhsk, 17m tyres), Nizhnekamskneftekhim PJSC (Nizhnekamsk, 10m tyres), the Italian holding Pirelli with plants in Kirov (6m tyres) and Voronezh (a joint venture with Rostec SC, 4m tyres), the German concern Continental (Kaluga, 4m units), the Russian holding Cordiant (with plants in Yaroslavl (3 million tyres) and Omsk (a million)), the French holding Michelin (Davydovo settlement, Moscow Oblast, 2 million tyres), the Japanese concern Yokohama (Gryazinsky District, Lipetsk Oblast, 1,6m tyres), another Japanese company Bridgestone (Ulyanovsk, a million tyres) and others. Products of American Goodyear are also widely represented in Russia, though the company doesn’t have production sites here — only a representative office and a warehouse in Moscow, while tyres for the Russian market are made in Poland and Slovakia.
Shipping in tweaked plans
Tyre producers working in Russia are back to work after a shutdown of plants. However, the fall in demand for tyres, distributors and retailers’ overstocking had an impact on production plans.
The joint venture of Pirelli and Rostec, Voronezh Tyre Plant, suspended the production till the end of the month in March. The closure of the border and downtime of European car manufacturers at the peak of the epidemic made the Voronezh tyre producers tweak their production programme. During the same period, Pirelli suspended the operation of the tyre factory in Kirov but has already relaunched the production. Other enterprises also took a forced production pause.
“Our factory closed but resumed its operation on 13 April because according to a decree of the government of Kaluga Oblast No. 271 as of 6 April 2020, the president’s Order No. 329 as of 2 April 2020 didn’t apply to Continental Kaluga PLC,” the company’s PR manager Anna Dundukina told Realnoe Vremya.
“The factory Bridgestone Tyre Manufacturing CIS PLC in Ulyanovsk resumed the production on 17 June 2020. The production was suspended from 14 May to 17 June 2020 due to the necessity of optimising the balance between demand and supply. Moreover, most office workers of the factory in Ulyanovsk and all employees of the Moscow office keep telecommuting to provide their safety and minimise health risks. We are carefully monitoring the situation and taking necessary steps as it is unfolding. The Bridgestone company is doing its best to provide a sufficient stock of products in warehouses to meet clients’ requirements. Shipments in Russia, CIS countries and Europe are carried out in accordance with adjusted plans,” said a PR manager at Bridgestone Tyre Manufacturing CIS PLC Lyudmila Kharcheva.
The interlocutor of the newspaper thinks that the company continues “carefully analysing the market on a daily basis”. If needed, they are taking additional measures to optimise warehouse stocks and the business to provide the availability of products.
“According to the data we have, the domestic tyre market reduced by 7% in four months this year, including the car tyre market went down to by 15% at once. It is no surprise. Personal cars were used less during self-isolation. The population’s incomes also shrank, demand also did at the same time. Tyre production in the country fell by 12%. A decline has been registered in the biggest segment for car tyres again — by 19%. Other segments have demonstrated growth: tyre production for light lorries has risen by 26%, tyres for lorries — by 17%, for agricultural machinery — by 9%, industrial tyres — by 39%,” head of the Sales Monitoring and Analysis Department of the Sales Office at Nizhnekamskneftekhim PJSC Ildar Martyshev outlined the situation.
Analyst of FINAM GC Aleksey Kalachev thinks that the tyre industry can easily be considered one of the areas affected by the coronavirus pandemic. Demand for tyres depends on sales of new cars, which dropped by 70-80% in different countries during some months depending on imposed restrictions. The expert noted that neither was Russia an exception where a record fall in sales of new cars and commercial vehicles was registered in April — by 72,4%.
“Production of cars in Russia comparably reduced in April by 72,9% year on year. Together with the fall in output, of course, demand for tyres decreased as well. But the tyre market is dependent on the size of the car fleet and road traffic intensity because tyres should be replaced for new ones from time to time, which creates the main part of the demand. Moreover, the decline in sales of new cars is mainly a postponed decline. But in the regime of self-isolation and digital passes, people drove less, traffic decreased, tyres don’t wear out when cars stay idle, it isn’t postponed but lost demand,” Aleksey Kalachev stressed.
As a result of the downtime of tyre producers, commercial enterprises have suffered as well. Experts consider that the market of tyre sales is waiting for players to enlarge.
“It is clear that in the self-isolation regime the use of cars and mileage reduced around the world. Tyres didn’t wear out. Consequently, nobody rushed to change them. And if everything is quite complicated in the original tyre market, the replacement market must recover. The effect of postponed demand will even possibly lead to a rise in demand in the retail market. The problem is that tyre dealers abroad have accumulated a big amount of unsold tyres. And unless they sell out these excess reserves, we can’t wait for demand for new tyres to recover,” noted head of the Sales Monitoring and Analysis Department of the Sales Office at Nizhnekamskneftekhim PJSC Ildar Martyshev.
“The financial stability of the tyre producing network is concerning the most now, first of all, it is representatives of retailing. Not all manufacturers will highly likely manage to survive this economic crisis,” thinks Executive Director of the Tyre Manufacturers Association Nadezhda Churmeyeva.
According to her, the imposition of mandatory tyre labelling scheduled this year can be a deterrent. However, the Russian Ministry of Trade claimed they were ready to discuss a postponement of this requirement with tyre producers.
Tyre manufacturers are counting losses
During the first quarter of 2020, with the beginning of the coronavirus pandemic, almost all leading companies in the world reduced revenue. Some producers made a loss.
American Cooper's sales fell by 14,1% to $532 million, net loss totalled $12m. To compare, in January-March 2019, the company’s net profit was $7m. At the peak of the pandemic, Cooper suspended production in factories in the USA, China, Serbia, Britain and Mexico. The company’s management considers that it will be able to evaluate the consequences after the second quarter, which became the toughest.
Goodyear carried big losses, net losses during the first three months in 2020 amounted to $619 million. Sales decreased by 18%, to 31,3 million tyres. Sales in original equipment dropped by 21%, in replacement — by 16%. The company is cutting operating and capital costs, expenses on marketing and advertising, it has closed its oldest tyre factory in Gadsden, Alabama (USA).
Another tyre company in the States, Titan International, demonstrated a loss of $25,5 million during the first three months in 2020. The manufacturers’ sales plummeted by $68,9 million — to $341,5 million.
The total amount of tyre suppliers in the American market in 2020 will hit a record low in decades — 273,6 million units (-18% against 2019), thinks the US Tire Manufacturers Association. The association forecasts that car tyres in original equipment will decrease by 24,3%, to 35 million tyres, in light lorries — by 18,4%, to 4,8 million tyres, in lorries — by 30,7%, to 4,5 million tyres. Supply of car tyres in the replacement market will go down by 17,2%, to 184,4 million tyres, in light lorries — by 16%, to 27,3 million tyres, in lorries — by 7,3%, to 17,6 million tyres.
The Chinese tyre company Doublestar's losses during the first quarter of 2020 were $8,2 million, profit during the same period last year was $2,1 million. Revenue diminished by 28%, to $112 million. The situation in the Chinese tyre market in general was tense. Tyre exports from the Celestial Kingdom reduced by 11,3%, to 102 million tyres in January-March (data from the General Administration of Customs of the PRC). In monetary terms, exports went down by 13,2%, to $3bn.
Italy’s Pirelli significantly reduced capacities. The company’s sales in the first quarter dropped by 20% compared to last year’s analogous period and totalled a bit more than a billion. Net profit reduced to 38,5 million (101,4 million a year earlier). Pirelli tyre sales decreased both in the replacement care tyre market (-19,3%) on account of the population’s limited mobility in different countries and in original equipment (-22,7%) as a result of the car production decline. The company expects a new worsening of the numbers in this quarter, as demand in the world tyre market is forecasted to go down by 40%.
Continental from Germany also registered worse financial indicators. Sales in the first quarter decreased by 10,9%, to 9,8bn, adjusted EBIT — from 884m to 432m, while EBIT profitability did from 8,1% to 4,4%. In mid-March, the company suspended the operation of over 40% of its 249 enterprises in different countries of the world. Such a situation was novel for all players of the sector, noted Director General of Continental Elmar Degenhart.
Bridgestone’s operating profit in January-March decreased almost twice — by 48,8%, to 48,8bn yen ($400m), revenue dropped by 11,3%, to 752bn yen ($7bn). The Japanese corporation suspended the production in factories in Europe and the USA in the first quarter. Bridgestone sales shrank in all regions, more notably in China and in Asia-Pacific — by 25%, to 90bn yen.
Another Japanese tyre manufacturer Yokohama Rubber also reduced indicators. The company’s Q1 operating profit plunged by 90,4%, to 1,2bn yen (10,2m). Sales decreased by 13,6%, to 129,1bn yen. Losses totalled 258m yen, moreover, a year earlier the corporation ended the period with a profit of 9,1bn yen.
Nokian’s adjusted operating profit in January-March dropped by 71,%, to 16,3m, sales did by 17,8%, to 279,8. The Finnish concern’s tyre sales in Russia and Asia reduced by 39,1%, to 56,5m. The market of car and off-road vehicle tyres contracted more perceptibly — by 24,7%, moreover, 85% of tyres of this category were made in Russia. Measures for reducing the excess in distributors’ warehouses in Russia, reduction in economic activity against the backdrop of COVID-19 and mild winter are the causes of the decline.
Hankook's financial performance as well as all tyre producers’ numbers suddenly diminished due to lower demand during the pandemic, a decline in the world economy, smaller purchasing activity and a production shutdown in the company’s factories. Revenue in the first quarter reduced by 20%, to $1,202bn, while operating profit — by 29%, to $88,6 million.
Tyre manufacturers are expecting bigger losses after the second quarter of 2020. Goodyear calculated that tyre sales in April-June would fall approximately by 50% compared to last year’s analogous period, to 25 million units. Continental A.G. and Pirelli & Co. S.p.A. are making similar forecasts — they have claimed that consumer tyre supplies in Europe and America might go down by 30-40% in the second quarter.
“From our point of view, the world hasn’t faced similar threats in the last years. If we, for instance, compare it with the crisis in 2008-2009, that crisis was financial. It could be ‘put off’ with money, which was done. But this time we are dealing with a crisis that has affected the real sector of the economy around the world. Governments of different countries are trying to take the same road they followed previously going by the famous saying: ‘If the problem can be solved by money, it's not a problem’. But money injection in the economy will serve as temporary comfort in security markets. In the current situation, it will be of little help. It takes time for the imbalanced market mechanism to recover its previous working regime,” head of the Sales Monitoring and Analysis Department of the Sales Office at Nizhnekamskneftekhim PJSC Ildar Martyshev thinks.
“It is so far early to say production is resuming”
After a few weeks of downtime, and sometimes it lasted for a month, tyre producers began to return to work. But not all factories did it and have limited loads. China’s tyre enterprises that already went through the pandemic were the first to start running. American and European tyre manufacturers gradually relaunched the production in late April and early May.
In May, Cooper opened factories in the USA and Serbia where they had been staying idle for five weeks. Industrial facilities of the company in Britain and Mexico resumed the operation later, in the middle of June.
Continental Tire launched the tyre plant in Mount Vernon, Illinois (USA) in early May, other sites of the producer began operating later. Pirelli was the first to launch the car tyre plant in Georgia (USA) as well as in Settimo Torinese and Bollate (Italy), then it opened production sites of the company in Great Britain.
Kumho opened a consumer tyre plant in America. Bridgestone Americas resumed the production in two lorry tyre plants in Tennessee and opened other enterprises in North America by the end of the month.
Yokohama opened a lorry tyre plant in West Point (Mississippi, USA) in late April, later it launched a car tyre plant of the company in Salem (Virginia, USA).
A month after the suspension of production in Hungary and India, Apollo Vredestein began limited production of tyres. Another site in the Netherlands has been making agricultural tyres for all this time.
In early May, Finland’s Nokian launched the production in its plant in Dayton (Tennessee, USA) after a month-long downtime. The plant hadn’t been operating since 27 March. In late April, Hankook opened a plant in Tennessee (USA) after a three-week break. American warehouses of the company had kept working all the time. Giti’s plant resumed the production in South Caroline (USA) after a month of the shutdown.
By late May, Bridgestone from Japan opened its tyre plants in America, Canada, Brazil, Costa Rica, Mexico and Argentina. Michelin opened factories in Mexico, Canada and the USA in May-June.
“It is so far early to say production is resuming. If five out of 30 plants are put into operation, and the capacity is 20%, this gives almost nothing. Of course, NKNK is carefully monitoring the situation and is in constant contact with its purchasers. However, even they aren’t sure today how much feedstock they will need next month or quarter. Their plans are now made literally every day. This is why supplies won’t resume in a day. This process will last for a period during which their own outlets will be recovering,” Ildar Martyshev noted.
According to him, most plants abroad haven’t resumed production yet. Chinese manufacturers aren’t an exception, but they have got problems with demand. The Chinese tyre industry is designed for big export volumes, while exports to the PRC reduced. Chinese tyre producers turned out almost cut off from the USA — a big market for tyre producers from the Celestial Kingdom. The plants that resumed the production are operating with very low loads (20-30%). It isn’t excluded that there will be new downtime because of a second COVID-19 wave.
“The supply of tyre products will drop by 45-50 million units around the world”
Related sectors also suffered as a result of lower demand for tyres. For instance, synthetic rubber manufacturers for whom tyre companies are the main consumers had to reduce the load and bring forward major repairs.
Tyre manufacturers’ supplier, leading rubber producer Nizhnekamskneftekhim characterised the situation in the real sector of the world economy very uncertain in its Q1 2020 report (the enterprise hasn’t yet published the report for the second quarter). Logistic chains were broken, a lot of enterprises of the car industry and tyre sector suspended the production around the world due to a fall in demand. The producer indicated that over 120 tyre plants of different companies stood idle from late March to early May 2020: Continental, Goodyear, Bridgestone, Pirelli, Cooper Tire, Hankook, Nokian Tyres and others. In April, Indian authorities announced a 21-day lockdown, which was applied to local tyre manufacturers as well.
“In view of the above, demand for synthetic rubber has suffered very much. By our estimate, only considering the announced shutdowns of tyre plants, the supply of tyre products will drop by 45-50 million units around the world this year. This will lead to at least a 2% contraction of global demand for synthetic rubber in 2020. At this moment the situation is uncertain, but it is assumed the biggest decline in SR sales will be in the second quarter of 2020 — it is a period with the biggest number of shutdowns in the world’s tyre and car sectors,” reads NKNK’s report. Despite the worsened situation in the market, the world’s big tyre manufacturers maintained rubber purchase agreements. As Realnoe Vremya wrote in another analytic review, Nizhnekamskneftekhim managed to extend annual contracts with key consumers thanks to a high quality of its products.
The company took all measures to adapt to the new conditions. In particularly it brought forward synthetic rubber plants’ major repairs to reduce the supply of SR as much as possible during a low demand period.
State support for rubber producers?
Consequences of the reduction in tyre production will be quite serious for rubber manufacturers and enterprises from related sectors, experts warn. Nowadays Nizhnekamskneftekhim estimated the decline in the world’s synthetic rubber market to be at least 2-2,5%, or about 300-400,000 tonnes of SR. Moreover, NKNK stressed that the situation will affect not only SR manufacturers — a serious fall awaits producers of carbon black, artificial fibre, chemical additives used in tyres. Moreover, a decline in the world natural rubber market is plain to see where prices decreased to $1,000-1,100 a tonne.
Tatarstan President Rustam Minnikhanov voiced the problem with product exports, which is common for the Russian petrochemical sector, to Russian President Vladimir Putin. According to him, it is necessary for rubber and plastic producers to create equal competitive conditions with foreign companies importing their products to Russia.
“Our oil refinery, petrochemistry work, but the promotion of our products for experts is obstructed because our market is open, while foreign partners, unfortunately, impose duties, restrictive measures. We ask the government of Russia for some supporting measures for us,” the Tatarstan president named the sector’s topical problem.
In the current conditions, Russian polymer producers have to pay twice: taxes in Russia and an import customs duty in a country of export. While foreign rivals both take advantage of benefits in their homeland and enjoy support from the government and get to the Russian market without obstacles, therefore the Russian budget carries losses. Having listened to Rustam Minnikhanov, Vladimir Putin made a note and asked him to report on the situation in detail to consider the issue to take measures at government level.
Vice Premier of Russia Yury Borisov offered another supporting measure for petrochemical enterprises in early June. According to him, it is necessary to design an effective mechanism to update products of the Federal Agency for State Reserves, as it turned out to be ineffective during the crisis — it didn’t have necessary nomenclature. Borisov thinks that the Federal Agency for State Reserves can be used as a dumping mechanism during a crisis by temporarily purchasing products form companies when they are in low demand. He put an example of petrochemists’ offer made to the authorities to buy their synthetic rubber to make tyres for two years, its demand has fallen now. In two years the companies are ready to pay 5-6% more for their products.
“Our petrochemists supply about 80% of artificial rubber in the interests of foreign tyre manufacturers. Today demand has fallen there, feedstock is a strategic issue, and the Federal Agency for State Reserves has it in the nomenclature,” Yury Borisov reported on the producers’ problems in the absence of demand to the president of Russia.
“This, without doubt, is a good initiative that can really help SR manufacturers. Moreover, the products bought by the Federal Agency for State Reserves within its activity must be updated on time. This is a win-win situation, so to speak. If this initiative is taken, it will be an effective example of help from the government,” thinks head of the Sales Monitoring and Analysis Department of the Sales Office at Nizhnekamskneftekhim PJSC Ildar Martyshev.
The vice chairman of the Russian government tasked the Federal Agency for State Reserves with considering synthetic rubber purchases. The Ministry of Energy supported the idea and promised to create a mechanism. But Russian manufacturers need integrated support. In stiff competition, our car industry purchases tyres from foreign producers, not from Russian companies. Measures adopted by the government stimulating car engineers to purchase Russian tyres could help change the situation. This refers not only to car production but also trailers, bicycles and any vehicles on wheels. If car manufacturers and other producers buy Russian tyres, and tyre manufacturers, in turn, purchase Russian synthetic rubber, it will probably become possible to restore the sector faster, market players think.
Nadezhda Churmeyeva Executive Director of Tyre Manufacturers Association
Due to the new coronavirus pandemic, the Russian tyre market has a very tough economic situation. Tyres weren’t added to the list of essential commodities recommended at federal level whose sale is permitted during the period of imposed restrictions. This significantly complicated the operation for the whole tyre supply chain — from producers and importers to retailers. These difficulties persist in regions where the self-isolation regime hasn’t been lifted yet and where tyres weren’t considered by regional authorities as essential commodities. However, even in regions without legal roadblocks, consumers often simply don’t purchase tyres because of a reduction in their own incomes.
Aleksey Kalachev analyst at FINAM GC
The tyre sector can rightly be considered as one of the spheres affected by the coronavirus pandemic. As soon as sanitary restrictions are lifted, demand for tyres will bounce back, it will be followed by production as well. The forecast for a recovery of markets in the second half of the year looks optimal at the moment. If the world isn’t seized by a second wave of the pandemic in autumn, which, unfortunately, can’t be completely excluded now, factories will already go back to rhythmic work in the middle of the next year.
Ildar Martyshev Head of the Sales Monitoring and Analysis Department of the Sales Office at Nizhnekamskneftekhim
Demand for cars fell as early as 2018, and the beginning of the trade war between the USA and China was the reason for it. The situation repeated in 2019, and in 2020 it was aggravated by the coronavirus pandemic.
The trade war inevitably led to a slowdown of world economies, and not only in China, by the way. But in 2018 the trade war wasn’t the only reason for the fall in car markets. The Worldwide Harmonised Light-Duty Vehicles Test Procedure (WLTP) began to be introduced in the European Union in September 2018. The WLTP is a new method of research on fuel consumption. It has been mandatory for all new registered cars in Europe since September 2018. This method allows determining fuel consumption and the amount of harmful emissions of cars more accurately. The introduction of the new procedure caused the fall in the car market in Western Europe. Purchasers kept themselves from buying new cars because they weren’t sure if their car would meet the new standards or stop being made.
Tyre manufacturers don’t have another solution to the problem. On the one hand, a recovery of the amount of car production will help them. It is the so-called original tyre market. On the other hand, retailing should resume. In other words, the population should start replacing their car tyres again.
This year we will certainly see a decline in the world tyre and rubber market. Only the degree of the decline is debatable. Now we can hear some market players say that it will take up to 3-4 years the broken logistical chains to recover. Perhaps, this is true. We can just hope that this will happen earlier.
Yekaterina Fayzullina B2C Marketing Director at Michelin in Eastern Europe
The current crisis is different due to its global scale: it differently influenced almost all industries. The degree of consequences and speed of recovery will significantly depend on the economy, state of the market and change in consumer behaviour in every country. The tyre industry is an indispensable part of the car industry and nowadays it is considered one of the most sensitive ones to those changes happening around the world. Health, concern about financial well-being are now priorities for every person in every country. Lower demand for purchases of new cars, a temporary restriction on the population’s mobility, which directly influences the frequency of use and demand for tyres, is an additional challenge for the tyre industry. Nevertheless, there is potential to develop the car fleet and recover the demand.
The shutdown of factories that happened in many industries in April is a necessary measure taken on safety grounds and as the necessity of businesses to adapt to changing conditions. Nowadays optimisation can make some enterprises keep lowering production to avoid overproduction if consumer demand decreases.
As for the tyre industry in general, despite the decline in production, Michelin doesn’t forecast a deficit of tyres because the market in the beginning was provided with a certain amount in warehouses, which will allow responding to the resumption of consumer activity.
At this moment the Russian Michelin plant located in Davydovo near Moscow is operating in a usual regime with all sanitary rules and safety measures.
As for the recovery of demand to the initial level, the situation will directly depend on the development of the epidemiological situation in our region and possible restrictions that can have a greater influence on both purchasing power and reduction of mobility and restrictions on the use of transport and mobility. Nevertheless, we should note that a considerable part of the car fleet continues its activity even in the regime of strict restrictions, which will support demand in some tyre categories.
It goes without saying that the current situation has an impact on consumer behaviour not only now but it will also will after the acute period ends — it is expected that care about one’s health and greater attention to sanitary rules can encourage some consumers to prefer personal vehicles to public transport, which can potentially accelerate the recovery of the sector.
Despite the general decrease in consumer certainty, most consumers in the current conditions don’t change their mind and purchase tyres. Moreover, a big share of them still prefers the same brands and remain loyal to their choice even in the current difficult conditions. It is key to know your client and his expectations, which will allow complying with his preferences as much as possible.
Now the quality of a product in search of the best offer is going to the forefront like never before. Great tyres that can provide safety and confidence in any conditions throughout their use are not only a consumer’s investment from a perspective of durability but also confidence in their safety and care about relatives.
A resumption in consumer activity and return of demand for summer tyres in all regions was seen in May already. Without doubt, it is rather a result of the resumption of mobility like a shift of demand from April. The general market will be influenced by a reduction in purchasing power both in summer and in the next winter season as a result of a negative forecast for car sales in 2020. In any case, demand for premium cars and tyres, as a rule, is less sensitive to negative market changes.