Business in the tyre industry
The value of global tyre sales is nearly USD 190 billion. We have seen the strongest growth in the markets for winter tyres, summer tyres with a high speed rating, and SUV tyres. There is a statutory obligation to use winter tyres in the Nordic countries and, in recent years, similar regulations have spread to new geographical areas.
The key factors that affect the consumer sales of passenger car tyres are the sales volumes of new cars, development of purchasing power, and consumer confidence. Winter tyre sales are also affected by the weather conditions: the more wintery and slippery the conditions, the greater the need for new winter tyres. Tyre manufacturers’ sales to distributors are also affected by the distributors’ remaining tyre stock and the price of financing.
The demand for heavy and truck tyres varies in cycles that follow the trends of machinery manufacture and businesses’ general investments.
Tyre seasons are critical for succeeding in Nordic conditions
One special characteristic of Nokian Tyres’ core market is that the sales of passenger car tyres are strongly built around two seasons. We sell most of our summer tyres to consumers a few weeks before and after Easter. Consumer sales of winter tyres peak between September and November depending on the weather conditions: we sell some 30% of our winter tyres in the first 10 days after the first snowfall. Predicting sales and production several months in advance is a demanding task, as tyre manufacturers typically offer more than a thousand different combinations of tyre models and sizes. Our extensive distribution network and effective logistics and information systems play a key role during the busy peak seasons.
High utilization and productivity support profitability
Due to logistics and other business reasons, tyre manufacturers usually establish local factories in their most significant markets. Payroll and energy costs vary by country but raw material costs are generally on the same level globally. The most important raw materials include natural rubber, synthetic rubber, filler substances (such as soot), plies and cables, and various chemicals.
As tyre manufacturers have high fixed costs, profitability requires optimal utilization of the full production capacity while minimizing interruptions. For tyre manufacturers, continuous improvement of profitability through investments and process developments is a prerequisite for success.
A strong brand guarantees a high price position
The tyres on the market are divided into two or three segments by their price depending on the market. The manufacturers of premium or segment A tyres emphasize the improved road safety, comfort, and environmental aspects of higher quality in their marketing and communication, whereas segment B tyres are only manufactured for consumers looking for the lowest purchase price. Distributors typically offer their customers alternatives from all the price ranges.
In the tyre industry, the regional market leader is usually also the price leader. Pricing power is increased by a strong brand, product reputation, reliability of distribution, and success in objective tyre tests by the automotive media.