Six months of 2011 have sailed by, and for Dan King, Yokohama Tire Corporation (YTC) senior vice president of sales and marketing, the journey has been defined by varying currents, which at times has included navigating through choppy waters. The company has had to deal with ramifications from the March 11 earthquake and tsunami that devastated parts of Japan, home to Yokohama’s parent company, The Yokohama Rubber Co., Ltd. (YRC). The earthquake, along with a shortage of raw materials, has exacerbated an already tough global fill-rate problem. Despite all, King says Yokohama’s mark of continuous growth is on course, with 2011 showing to be a strong year and the outlook on the future even stronger.
Question: Can you give an update on how the Japanese earthquake and tsunami affected YRC? Also, how has it affected YTC in the U.S.?
Dan King: We all know it was devastating to the country and people of Japan, and it has impacted all the people at YRC to some degree. We’ve been lucky: most of our employees in Japan and their extended family members were not seriously hurt.
We did lose some facilities and witnessed some downtime with a number of our Japanese plants and testing facilities. Not surprisingly, we experienced a shortage of raw materials and products. We tried to minimize the impact in North America – where the demand is so high.
It did have an effect, though, especially within our commercial tire division where we received less inventory than we anticipated. However, we were able to work through it and move forward. We were very fortunate within our consumer tire division as well, as a large portion of demand from there is filled in our plant in Salem, Virginia, which we are currently expanding and will be finished in September.
Question: Do you see any long-term effects?
King: No, we don’t see any issues based on where our plants are in the region. The raw material shortage will last a bit longer, but we don’t see that as a long-term situation.
Question: Supply shortages seem to be an industry-wide problem. Do you see that situation for Yokohama improving in the next six months?
King: The OE segment remains in high demand. With respect to the replacement market – though it is showing a slight leveling off this year – the segment is expected to see industry growth next year, in 2013 and 2014. We expect to see worldwide growth as well, especially in China, India and Brazil. It’s going to have an impact on the industry’s capacities, and we are addressing that with the Salem expansion and a major expansion in the Philippines. We’re looking at other parts of the world, as well.
For Yokohama specifically, we feel very good because our demand is high. We’ve always prided ourselves on working closely with our customers and having very strong fill rates, but we haven’t been able to do that right now. We are increasing our supply and bettering our fill rates, and we expect this to improve even more next year.
Question: Is the Salem expansion on target in production output?
King: It’s definitely on target. We’ve been able to get more production each month than we had originally planned.
Question: We’re midway through 2011. Business-wise, is YTC where you projected?
King: It’s been a good year for Yokohama. We have very strong demand and, as mentioned, our biggest challenge is making sure our customers are taken care of. We’re not always going to be the biggest supplier, but we strive to be the best and most efficient. We want our customers to love selling our product and to have confidence in us. That’s why we’re working so hard to eliminate the fill rate situation.
From an industry standpoint, we saw growth in the first couple of months of the year, but we’re now starting to see it trail off. We have to watch consumer demand closely because as gas prices increased, we saw a pullback. The economy is still a concern for consumers.
Question: Is the presence of cheaper tires from China and other countries still a factor?
King: There are a lot of brands in the U.S. It’s a large and growing market, so a lot of manufacturers want to have a presence here. However, the raw material cost increases have been significant, and those impact every manufacturer, including the Chinese. They’ve had to re-evaluate how they price in the U.S. There have also been issues with duties – the Chinese and Thailand tariffs. Those have had an impact on pricing in the U.S., as well.
Question: Yokohama has had a long reputation for performance and quality so you obviously do not compete on the basis of pricing alone. Are there any new consumer tires that you’ll be bringing out soon or any new sizes on your existing line-up?
King: We’ve launched several new sizes this year that have helped our dealers and we have some exciting new products slated for the beginning of 2012. One is a new passenger touring tire we expect to be class-leading. We’ll also introduce an eco-friendly tire that will push the envelope, even beyond where our current environmental tire, the orange oil-infused dB Super E-spec has gone.
Question: How are things going on the commercial side?
King: We feel there’s still a gap between supply and demand on the commercial tires, probably to a greater degree than the consumer. The demand on the OE commercial side is well above expectations.
The replacement side was extremely strong, but has leveled off a little. Our demand versus our ability to supply now is a much bigger gap than we’re comfortable with, so we are trying to get as much product as we can flowing through. Any product that hits the dock goes to our warehouse and is immediately moved to the customer.
We’ve recently introduced a premium steer product – the 101ZL – which we’re testing on a lot of fleets. The response is tremendous. We know we’re going to have more demand; the question is, how do we fill it? We’re working on that for this year, 2012 and 2013.
Question: As the highest-ranking American executive at YTC, what are some of your long-term visions for the company?
King: We’re working on an aggressive transition in the coming years. When it comes to how we service our accounts, we want to push our company forward in major steps, not small ones.
As I mentioned before, one of the things we pride ourselves on is being the best supplier. If we’re the best supplier to our accounts, then they know we’re an efficient partner and they can make good margins off Yokohama products. They’ll have confidence in our product and will to want to sell it. That’s what our focus is.
We have always been known for our products and we want to continue to push the envelope with new technologies. We expect to develop some of the best tires in the world.
Question: Any plans for building a new tire plant in the U.S.?
King: We’re always looking at matching our supply and demand, and that means evaluating capacity increases and allocation changes. We’re looking at all those possibilities, including pulling allocation from one area of the world and bringing it to North America.
We’ve already had plant expansions in Salem and in the Philippines. We’re still evaluating further consumer capacity increases, and that may mean a new U.S. plant in the future.
We believe a new U.S. facility would have significant benefits for us on the commercial side, too. Even though some of the cost structures are much higher in the U.S., compared to other parts of the world, there are advantages: the closeness to the market and the ability to service the accounts in a more efficient way. It’s a balancing act between costs and benefits, but our plan is to constantly evaluate building new plants for the future.