NOTES FROM THE PRESIDENT 5

December 18th, 2020
NOTES FROM THE PRESIDENT 5

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What happens now in the tire business?

What a wild ride in 2020! As of the onset of the pandemic, we started looking for signs of how it would truly affect our business. Early calls started coming in from customers asking for extended terms on their credit lines. We all had decisions to make. Do we continue ordering tires? What’s the right inventory level we should have? How long is this going to last?

In the midst of figuring out all these questions, the United Steelworkers Union (USW) filed their complaint to investigate passenger and light truck imports from Thailand, South Korea, Vietnam, and Taiwan. This immediately turned the tables on our thinking. The same customers that called for extended terms, were now paying quicker and increasing their orders. Talk about a 180!

Manufacturers then scrambled to get their facilities back up and running, after their scheduled shutdowns. In the blink of an eye, manufacturers went from excess capacity and mounting inventories, to not being able to meet the markets demand, resulting in a global tire shortage. This swing really favored those who continued to order tires through March, April and May.

The reality is, consumer spending never took the hit most predicted. Consumers that maintained their jobs now had more discretionary income. They weren’t going out to eat 2 to 3 times a week, booking vacations, nor paying gym memberships. All activities were all cancelled. This meant money was staying at home and consumer goods sales began to soar. More importantly, tire sales began to soar. While tire purchases are a large ticket item for any household, the additional discretionary income allowed these purchases to come front and center. While miles driven to work decreased with more of the workforce working remote, the option to take road trip vacations, in lieu of jumping on a flight, made having a good set of tires on your vehicle important.

As I write this blog, we are waiting on the International Trade Commission (ITC) and the Department of Commerce (DOC) decision on the duty investigation. Being around the tire business all my life, I realize the key to navigating any disruption in the supply chain is to have inventory. Having inventory allows you the flexibility you need when there is uncertainty. The decision isn’t for the faint of heart, or those with a short-sided view on their own business. The reality is, while paying more for a tire now is tough to accept due to all the uncertainty, it may be cheaper than the cost of losing a customer to a competitor that had the wherewithal to continue ordering and having tires in stock.

Peace , love and happiness.

Joaquin Gonzalez
President
Tire Group International, LLC.

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