Tyre sales go down with auto; manufacturers look to exports

It seems like automobile manufacturers aren’t the only ones losing sleep over the current sluggish state of the Indian auto market. The drop in auto sales has also taken its toll on the tyre industry. And with auto sales not likely to improve in the near future, due to high fuel prices and interest rates, what about tyre manufacturers?

Market woes

Although the Automotive Tyre Manufacturers’ Association (ATMA) reported a 10% growth in tyre production in 2011-12, the last few months have reported a steady decline in sales. OEMs of most major car manufacturers have scaled down their operations due to decreased consumer demands. In addition, the much profitable "replacement market" that consumes half the supplies is also waning.

Then, there is the case of the weakening rupee against the dollar. In the last two months, the rupee has fallen by 15%, causing import costs of raw materials to rise heavily. High import costs could be passed down to customers in the form of an increase in tyre prices.

All this after what has been a fruitful year for the major rubber producing nations, which has brought down international rubber prices by 20%. This news came as a relief to tyre companies, but it won’t be the end of their woes. Rubber accounts for only half of the raw material that is imported. The costs of the other half of raw materials will still be subject to the weak rupee, hence pressurising the manufacturers' margins.

Hope abroad

But there is hope in the export market for manufacturers. Opportunities in overseas markets will allow domestic tyre manufacturers to avoid cutting down production and instead, focus on exporting excessive inventory. Exporting is additionally beneficial to domestic manufacturers due to the current value of rupee against dollar.

According to ATMA, tyre export volumes increased by a whopping 30% in 2011-12 against 2010-11.