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Goodyear Tire Idea Proposal (GT)

Goodyear Tire Idea Proposal (GT)
 

Is Goodyear’s higher margin sustainable? Will tire demand continue to lag?

Report Available:July 6, 2017

 

Blueshift’s initial research shows GT experiencing a decline in tire sales in both its original equipment and replacement businesses as demand for tires weakens and auto production slows. Still, GT is seeing positives from the increasing emphasis on higher-profit larger tires and two price increases so far this year. It also is expected to benefit from the growth in miles driven associated with shared transportation services and autonomous cars which will boost replacement tire sales.

 

Observations

  1. GT beat earnings expectations for its Q1, but fell short of revenue, which was about even with the prior year. Tire unit volume fell 4% year to year as original equipment volume dropped 8% overall and 13% in the Americas on lower auto production in the U.S., and replacement tire shipments declined 2%.
  2. Of concern for GT, the U.S. Tire Manufacturers Association expects limited growth in total U.S. tire shipments this year. Original equipment tires are projected to grow more than 1% while replacement tires are expected to grow by less than 1%. The Rubber Manufacturers Association noted weak shipment data in April. And there is a slowdown in the pace of auto sales in 2017, with one projection showing a decline in the coming years to 2013 levels, a 20% drop from the peak, because of falling used car prices.
  3. GT has benefitted from the trend toward cars featuring larger tires. Tires 17 inches or larger doubled from 98 million in 2010 to 220 million in 2015, a figure expected to double again by 2020. GT saw 8% growth of these larger tires in Q1. Larger tires are also more profitable than smaller ones, with an average gross margin of $9 for tires smaller than 17 inches and $25 for those 17 inches and bigger. GT is building up production of these tires in anticipation of the replacement cycle in three to four years. GT also put through a price increase 1 with another one May 1.
  4. The tire replacement cycle is predicated on miles driven, which are expected to rise with shared transportation services and even autonomous cars, which should provide a boost to GT and its competitors. CTTAY raised its sales forecast after a strong first quarter as sales grew 9.5% with a big contribution from its auto divisions as revenue from its commercial tire business was up 15% year to year. Tire sales climbed 2% in its North America segment and are expected to maintain this level of growth because of increases in the number of miles driven.

 

What is the effect of the approaching downturn in the auto industry on tire sales? How sustainable are tire manufacturers’ profits? What is demand for tires? How sticky are price hikes? What are trends with the tire replacement cycle?  Why are year-to-date volumes weak? What are expectations for the second half of the year? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: Auto company executives, Tire manufacturer executives, Independent tire dealers and distributors, Tire store sales personnel, and Industry specialists.

 

Companies: Bridgestone (BRDCY), Cooper Tire & Rubber (CTB), Continental AG (CTTAY), Goodyear Tire & Rubber (GT), Michelin (MGDDY)

 

Research Begins: June 19, 2017