| Tough
competition in tyre market
Tyre
makers must be gloating over the state of the island’s
roads. |
Despite
stringent standards set by the government for oil and lubricants
in the local market, there are no such rules for tyres, and really
no consumer protection. The result is that the market is flooded
with cheap imports of low quality, says Associated Motorways. In
this interview, Sivaji De Zoysa, Director AMW, gives an account
of the current state of play in the tyre market.
By
Suren Gnanaraj
* What is the current trend in the domestic tyre market?
Is it retreads or new tyres that is more popular?
Generally both. Those who can’t afford a new tyre go in for
retreads. There was an interesting debate in the car industry recently,
where we saw a 7-8 percent growth in the new tyre market, year on
year, whereas in the retreads there was only a growth of around
three percent. The retread market is very unpredictable, because
the economy could be booming but the retread market could be depreciating.
The reason being when people can afford it, they prefer to go in
for new tyres rather than cheaper retreads. When the market declines,
usually the demand for retreads could go up. Given the positive
outlook for the economy, I don’t see a growth potential for
retreads. The new tyre market should continue to grow by 7-8 percent
whereas the retread market will continue to grow at around 1-2 percent,
or maybe remain constant.
* Is
it because there is a big difference between the prices of retreads
and new tyres?
A new tyre on average costs around Rs.9,000-10,000. A retread
tyre costs around Rs.2,500-3,600.
* How
durable are retread tyres? Do they need to be constantly changed?
For a commercial user the longer his tyres last, the time
he spends off-road is lessened. Re-capping a tyre could mean a loss
of a day’s revenue, because truck and bus tyres take a long
time to replace. There are two schools of thought in our industry
and trade at the moment. There is one belief that re-treading should
continue to be developed, and there is another school of thought
that re-treading should not be. A reason why the retread industry
should be developed is because it is environmentally friendly and
is not immediately disposed. However, they cannot match the performance,
the safety and the durability of a new tyre.
* Is
there no way of improving the technology for retreads, to make it
more durable and safe?
The technology has improved, but the technology used in manufacturing
new tyres has far eclipsed the technological advancement rate of
retreads. Therefore if a user can afford a new tyre it is clearly
the better option.
* AMW
has to be one of the few companies that actually thrives on the
fact that Sri Lanka’s roads are not developed, considering
the fact that tyres get wasted much faster. Is there any truth in
that?
I don’t think so. We represent the largest tyre company in
the world, Goodyear, which manufactures some of the best tyres money
can buy. The problem is, given the road conditions here, the full
performance benefit would not be easily noticed by the user. Given
the low average speeds our vehicles run at, most flaws of poor quality
tyres are hidden and thereby our market is flooded with such types
of tyres.
It is only in
an emergency that these inferior products are shown up, as they
would fail. Our tyres are engineered to perform optimally in our
local conditions. Over the years the government has allowed the
market to open completely and not used a process to check the standards
adopted by manufacturers. There were just 10 good brands in the
market before 1990, but now there are 40-50 brands in the market.
In lubricants and oil, the government has set stringent standards
which the manufacturers and the importers are compelled to follow
and they were issued special licenses. Unfortunately for tyres,
any substandard product can be marketed and there is really no consumer
protection.
* So
the fact that there are poor quality roads, hasn’t increased
your sales volume?
Not really as these conditions have always been the same, and not
got any worse.
* Can
you describe the evolution of the tyre industry in Sri Lanka?
In the 1980s, Kelani, the state-owned tyre company had
70 percent of the bias ply market and 10 percent of the radial tyre
market. During that period there were just 10 reputed brands, such
as Goodyear, Yokohama, Pirelli, and no Chinese or Indian products.
In the late 1980s Kelani experienced product, labour and service
problems, which eventually led to its closure after a long strike.
During this period, AMW seized this opportunity in the bias ply
market, by joining hands with CEAT in a bid to manufacture light
truck tyres, and formed Associated Ceat Pvt Ltd (ACPL). Quickly
ACPL became the market leader in this segment by capitalising on
Kelani’s misfortune and their market share rose from 0-70
percent. When ACPL needed to expand, and since Kelani had all the
necessary components to make this possible they joined hands in
forming CEAT-Kelani in 1999.
* So
when did the imported tyres dominate the local market?
During the period where Kelani was in difficulty and ACPL had just
begun its operations. There was a huge vacuum for new tyres especially
radial and truck, and that’s when tyres from India, Indonesia,
Malaysia, Taiwan, Korea and China entered our market. The government
allowed imported commercial tyres to be brought in duty free, because
high transport costs affected the cost of living. Due to their low
prices the Chinese products became the largest country of import.
Most of these tyres were of very poor quality and many lasted less
than a rebuilt tyre. In the last 5-6 years their market share grew
and then it declined somewhat due to their quality problems, but
they are still strong in the radial segment. The current status
of the
domestic market is that CEAT-Kelani has 60 percent of the new bias
ply market and all the radial tyres are imported.
* So
why hasn’t Kelani manufactured radial tyres?
They stopped, because their technology was quite old and
these products would be very hard to sell today.
* So
hasn’t CEAT looked at bringing in new technology?
They are looking at the possibility, but radial tyre technology
is extremely expensive and they are trying to see if it would be
feasible.
* Have
tyre prices settled globally after the Asian economic crisis?
During the Asian economic crisis, prices came down drastically,
and countries like Sri Lanka benefited from it, but it did affect
the local manufacturer CEAT-Kelani. Many of the Asian plants in
Malaysia and Indonesia had to be kept running at all costs, so they
were forced to sell their tyres at a low price. Ever since China
opened up its market to the world, tyre prices have never been the
same. Countries that were recovering from the Asian crisis, were
unable to increase their export prices as China was selling their
tyres at a much lower price. Chinese manufacturers are able to sell
at very low prices due to government subsidies on raw materials
and due to its national economic strategy to maximise foreign exchange
revenue.
* Under
the Indo-Lanka Free Trade Agreement, is AMW planning to export tyres
to India?
Indian tyres are so much cheaper than Sri Lankan tyres
due to the quantity manufactured. This FTA is definitely going to
be one sided.
* When
the Prime Minister visited the USA, he made an appeal to allow Sri
Lanka to export tyres to the USA. What has been the outcome of this
appeal?
It would be extremely hard for our products to compete on price
with other products from Asia. Besides, the US market is predominantly
a radial tyre market and Sri Lanka does not produce these tyres.
We also cannot match the marketing budgets of other Asian manufacturers.
* How
did the shortage of rubber in the recent past affect local tyre
prices?
There has been no rise in tyre prices despite the shortage,
but we feel that if rubber prices go up in the future CEAT-Kelani
will be forced to increase prices.
* What
about adding value to your tyres. Any plans to set up a rim factory?
No. At the moment, 100 percent of all rims in the market
are imported. They come from countries like Japan, Philippines and
Malaysia. We looked at investing in such a plant, but realised that
given the size of our market it would not be feasible and we (AMW)
lacked the expertise to market these products globally.
* How
do you dispose old tyres?
In the past we gave them away to race tracks to be used
as safety barriers, but after the Dengue epidemic its use for this
purpose was banned. Some factories burn old tyres and use them as
a fuel, but we do not allow our tyres to go this route given the
adverse effects on the environment.
* What
is AMW’s plan for Jaffna?
We feel the retail market for tyres in Jaffna is still not adequately
established and the 20 percent tax levied by the LTTE has also acted
as a barrier. We have however identified Jaffna as having the highest
growth potential in the future and we are hoping that conditions
in the area would improve.
* With
the peace process blossoming, what type of future do you foresee
for the domestic tyre market?
We are encouraged by these signs and expect the tyre market to grow
not only in volume but also in quality. We feel that people will
become more quality conscious and pay the premium for it. We are
aware that the retread business will live on, but it will never
be a growth industry as long as the economy prospers. We believe
that the government should enforce anti-dumping laws such as in
India to protect the local industry. |
