India’s tyre manufacturers are worried. During the period between April and September 2015, export figures of Indian tyres have fallen considerably. Passenger car tyre exports fell by 22%, while those of medium and heavy commercial vehicle (M&HCV) tyres fell by 9%.
Naturally, this has led to a decline in production - light commercial vehicle tyre production fell by 14%, whilst M&HCV tyre production fell by 2%. During the same period in the previous year, both export and production figures had risen. The impact is felt even more deeply because, according to Dr Raghupati Singhania, the Chairman of ATMA (Automotive Tyre Manufacturers’ Association), the “M&HCV segment accounts for 55% of the tyre industry revenues”. Passenger car tyre production has also slowed from an increase of 13% (2014-15) to just seven percent between April and September 2015.
Intense competition from cheap Chinese imports has hit the industry hard and dramatically reduced capacity utilisation levels. The ATMA blames this squarely on India’s skewed import duties (25% duty on import of raw rubber compared to seven percent or lower on imported tyres), which enable tyre importers to undercut OEMs. ATMA estimates that a customs duty of at least 30% (rather than the current 10%) is needed - as well as an anti-dumping fine - to establish parity between locally manufactured and imported tyres.
Imported tyres are also cheaper because they do not conform to India’s BIS and FESR standards. Industry experts point out that initiatives such as ‘Make In India’ and investments worth Rs 36,000 crore in the tyre industry will be wasted should the government take no action against cheap, substandard imports. Currently, 40% of M&HCV replacement tyres are imported. Furthermore, even though the price of raw rubber has recently declined, Thailand and Malaysia are curbing production and increasing domestic consumption; further decline is unlikely.
In January 2015, the USA imposed an anti-dumping duty of more than 80% on Chinese tyres. Meanwhile, India lifted anti-dumping duty on Chinese tyres the following month in response to ‘an appeal’ by India’s tyre retailers. Chinese radial tyres for buses and trucks are nearly 30% cheaper than their domestic counterparts.
Imports have grown by more than ‘70% year-on-year from the fourth quarter of fiscal [year] 2015’ and accounted for ‘20-22% of domestic consumption’. Operating margins and profits will suffer, especially for operators such as JK Tyres, which has a large share of the M&HCV segment.
Did tyre manufacturers collude to maintain profits?
ATMA, led by the Chairman of MRF Ltd and President of Apollo Tyres, is an active national industry association and counts the eleven largest national and international tyre companies amongst its members. These account for more than 90% of domestic tyre production. So when five of its members (with 83% of the market) meet in secret ‘without any record of their proceedings’, and manage to maintain strong profit margins in a weak market, India’s Tyre Dealer Federation and the Competition Commission of India (CCI) sit up and take notice. There is a concern that these five tyre companies – Apollo, Birla, Ceat, JK and MRF — ‘acted in collusion to control market prices’ during fiscal years 2013 and 2014. The CCI swiftly launched an investigation and has asked the companies to clarify their positions. Commentators have suggested that companies compete on quality and innovation rather than forming cartels to maintain market share and profits.
Meanwhile, auto tyre companies are ploughing on despite the challenges of the Indian market. More specifically they are expanding into other lucrative markets such as premium motorcycle tyres. This market has been growing rapidly over the past few years and is expected to double by 2020. Michelin Tyres has launched two premium ranges of two wheeled radial tyres for high performance and super bikes aiming for better breaking in wet conditions, whilst Apollo has launched tyres called actiGrip,
actiSteer and actiZip, targeting both front and rear wheels, and are ‘best suited for [India’s] diverse road conditions’.
Going forward, auto tyre companies are hoping the budget for 2016 will hold the solutions to their problems. The policies detailed for rural development, irrigation, health and development are expected to drive demand for M&HCV’s passenger cars, tractors and motorbikes. Director of TVS Srichakra, P. Vijayaraghavan, believes the demand for scooters in urban and semi-urban sectors - as well as that for motorcycles - will also grow as the rural economy grows. Separately, the Society of Indian Automobile Manufacturers (SIAM) revealed that the demand for passenger cars has been growing consistently for the 14 months leading up to December 2015.
Overall, it’s a mixed bag for India’s tyre manufacturers – two steps forward, but at least one step back.
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