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Yokohama gaining ground within OTR category

Sunday, September 21, 2008 - 23:00
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Yokohama is featuring four new sizes for its off-the-road (OTR) tire models at the 2008 MINExpo tradeshow, a mining industry exposition held every four years in Las Vegas.

Sponsored by the National Mining Association (NMA) and billed as “the mining industry’s premier exhibition of mining equipment, technology and services,” this year’s Sept. 22-24 extravaganza at the Las Vegas Convention Center is the largest show ever produced by the organization. More than 1,200 exhibitors will be showcased throughout 593,000 square feet of space, attracting some 30,000 attendees from around the world.

Yokohama promises a large presence for its large OTR tires at the event.

The RT41 tire, launched in late 2007 with a 26.5R25 offering, is now available in two additional sizes; 29.5R25 and 23.5R25. The RB31, on the market since 1997, will also add two new sizes, 26.5R25 and 29.5R25, to the currently available 17.5R25, 20.5R25 and 23.5R25 lineup.

Both tires feature Yokohama’s flexible OTR belt wire and four layers of steel belts, said to be the industry’s strongest belt package that “does everything from improve wear and durability to increase stability,” according to Gary Nash, the company’s director of OTR sales.

“The RB31 and RT41 have an incredible amount of technology built into them,” says Nash. “These advancements translate into improved performance and longer tire life, which means equipment spending more time on the job making businesses profitable.”

Distinctive features of the RB31 and RT41 include a new tread compound – using an exclusive mixing process – that provides outstanding wear and cut resistance; high turn-up carcass construction and buttress side protection to guard against exterior damage; a unique nylon cord providing inner liner protection and a longer casing life; and a convex belt/concave carcass line that allows contact pressure to be disbursed more evenly, he explains.

The RT41 was designed to be a single tire suited for two deep tread applications. “We created the RT41-E4 specifically for articulated dumps,” says Nash. “Its non-directional block pattern provides excellent traction on soft, rocky surfaces, along with great abrasion resistance. For wheel loaders and dozers, the RT41-L4 tire was created with a three-tread design that excels on soft surfaces.”

In the regular tread-depth category, the RB31-E3 is suited for articulated trucks and scrapers and can perform on any surface. Yokohama also offers the RB31-L3 specifically for front-end loader and dozer applications.

Yokohama executives note that while the OTR division is not the most high-profile area in the tire company’s hierarchy, it’s one of the most profitable. While they produce and sell the world’s largest and heaviest tires, the consumer – and even commercial – divisions get most of the limelight and ink.

Nash, a 40-year veteran of the OTR segment, and his crew have survived global shortages and other obstacles to pave a road of success for Yokohama’s OTR efforts. Nash and one of his top aides, National Sales Manager Nelson Richards, recently discussed the inner workings of Yokohama’s OTR department, the marketplace and the future of OTR.

When did Yokohama enter the OTR market and what were some if its first entries?

Gary Nash: Yokohama entered the OTR market in 1973. It was one of the first world markets for Yokohama to enter. That’s where the big trucks were – there are not that many big trucks in Japan – so Yokohama came to the USA first and has enjoyed a very good business here. We first entered the market with the Y67 which is still our flagship tire for scrapers and loaders – 37.5/39, 37.25/35 29.5/35s, 29.5/29s – all for scraper and construction type sizes. And then we had 35.65/33, Y524 L4, L5 for the 988 loaders. But mainly it was a construction-based move into the United States. Construction was strong here and the opportunity was here so that’s why we moved here.

Do you remember how many you sold the first year?

Nash: It was very small at first but after the product was proven in the construction industry then it was placed into the mining industry, where it really took off. Our strength from the very beginning has been on the technical side. The products are well engineered and they’ve done quite well.

What are some of the differences between OTR and commercial and consumer? Is it more competitive? It’s obviously a whole different market from advertising to marketing.

Nash: It’s more difficult to sell a highly-engineered product because it has to be fitted to the proper environment. It has to be sold where the product will perform to expectations.  A person with limited experience could not be successful in the off-the-road industry. You have to have many years of experience to sell OTR products because they’re heavily engineered and require technical skills.

Consumer products could be considered more forgiving. Even the commercial products – truck tires – could be more forgiving with a misapplication. But in OTR, they would definitely show up quickly as being a nonperforming product if you misapply it.

As far as the competitive aspect of the business, definitely truck and consumer are all highly competitive, but when you get into off-the-road tires, you’d have to say that they are sold more on the strength of the performance of the product more so than the actual cosmetic appearance of the tire. OTR tires are not considered to be beautiful. They’re considered to be rugged and strong. These tires do a particular job at a particular mine site or a particular construction project.

Is it easier to sell an OTR tire than a commercial or consumer because it’s so specialized? Or does that make it tougher?

Nelson Richards: OTR is so application-specific. I think you have to be well-versed in what the applications are and what they mean and how it relates to the product that you’re selling. So in that regard, yes, it’s a little bit more difficult to sell. It takes years of experience to understand OTR until you’re good at it. If you just try to sell it over the telephone, it’s not going to work.

So there’s probably a lot less venues or places to sell an OTR tire. I’m sure the market’s a lot smaller.

Nash: Off-road tires – particularly a loader tire – last as long as four to five years. So you’re not going to be able to sell the tire as frequently as you would a truck or a passenger tire. Some hauler tires can last maybe three to four years. But you only get one opportunity to sell the product and when you get that opportunity you have to make sure that the product is going to be suitable to that particular mine site or you probably will not get a second chance.

Is the OTR division one of the more successful, profitable divisions at Yokohama?

Nash: The off-the-road division at the present, on a percentage of sales to net income, would probably be the most profitable of the divisions. However in the past, it probably was not. Our success today is due to our products being well engineered and being placed correctly. Everything that we do depends on the expertise of the person that’s selling the product. I would say in the last 10 years Yokohama has been a very successful company because of the strength of the people that we have placing the product.

How many people do you have on your OTR team now?

Nash: A total of 10 people, and that includes the sales team that handles OE and national accounts. We are a small group in comparison with the commercial and the consumer divisions, but as far as the return on investment, OTR’s probably the best.

Is there still a worldwide OTR shortage?

Nash: There’s still a shortage of off-the-road products in some sizes. There’s still a big backorder for large and extra large tires. And it looks like this will go on for probably several years, maybe as long as five to 10 years. There’s still a shortage of some sizes of small and medium tires. However, it seems to have caught up somewhat other than your niche market tires such as special construction tires. There seems to be a pretty good supply of radial products in the smaller sizes. And there seems to be a decent supply of the small and medium bias tires, with the exception of select sizes.

Why is it so difficult to make these large and extra large tires?

Nash: It’s not that difficult to make the tires. It’s just the demand far exceeds the supply. This is driven not only by the USA market being strong in the mining industry, but the “BRIC” countries – Brazil, Russia, India and China. There’s still a strong demand and growing every year and increasing each year. And even with all of the changes and improvements that tire manufacturers are making to their production facilities, they still are not able to supply the demand of the large and extra large tires.

Richards: The production facilities that the manufacturers have as a whole can’t adequately meet the demand and there is a finite number of how many tires they can produce. Once you reach that and you still can’t meet demand, there will be a shortage in supply. And the worldwide demand is phenomenal.

Nash: Since 1990 there have been many peaks and valleys in the OTR industry. There’s either an oversupply of tires or there’s an undersupply of tires. There have been so many peaks and valleys in the industry that people were not willing to invest to upgrade their facilities or build new ones because of the risk factor. In 2003 the market started to grow so fast and everyone had a short supply of product. No one’s ever been able to catch up. But if you go back historically, in OTR it’s very cyclical: Five years of good business followed by five years of bad business. So no one would invest in it and prices were eroding. Then all of a sudden everything took off.

Yokohama’s invested in OTR. Hasn’t it upgraded and expanded its Onomichi plant in Japan?

Nash: Yes. Yokohama built a new radial factory in November 2006. It started mass producing starting April 2007 with 2,000 additional tires per month, plus increasing monthly.

Richards: And we’re actually still adding new building machines to that facility for larger hauler tires, but the focus of that plant was for radial product sizes 17.5 through 29.5R25. The building machines that they’re installing now will take us into the future.

Nash: The third Onomichi plant expansion has already been completed. It will begin production in November of this year and the first tires will be received in January 2009. It’s right on target and at the same time that the Barack joint venture is going on, we are doing a third expansion of underground mine and individual factory. And then Phase 4 will be the continued radial products, the 27/49s and sizes 24/35, 18/33s that will continue into November 2009.

Any idea how many OTR tires Yokohama produces a year?

Richards: That’s a hard number to estimate because it’s all about rubber tonnages, not so much about units. For an example if we produce 10 4000-57s then with that same amount of rubber we could have produced 200 20-25s. So it’s really relative to the production schedule for that month.

Nash: I think we start at 1,100 rubber tons per month. And that equates to about 7,500 units per month. Now we would be at probably 1,600 rubber tons per month with the new factory. Then the plan will be to go to around 3,000 rubber tons per month over the next three years.

Are there any OE fitments Yokohama has right now?

Richards: We’re OE on Caterpillar. Our OEM sales manager, Tim Easter, worked very diligently with Caterpillar to get a position there. And we have achieved that. We’re OE with Taylor Machine Works, too. We have a good bit of that business now. Same with Kawasaki and we are OE on Komatsu Japan. It’s just the OE fitment here in the U.S. that we haven’t achieved yet but we are working on it.

What do the OEs look for?

Nash: All OEs have basically the same requirements. To secure a fitment you have to test and evaluate. You have to be approved by the OE fitment engineers to be listed in their catalogs. It’s a long, drawn-out process. It can take up to a year to evaluate your product and get placed on their approved list.

Richards: They want very stringent engineering data and we need to be very cognizant of their questions about engineering and how it fits their product.

Nash: Most OEs will tell you in advance what their demands will be in the future. Sometimes that’s years away. Having a position with OE would also give you an idea of what the market may look like five years from now as far as what their plans are. Is it going to go bigger? Is it smaller? This is what their idea is on the future of the construction and mining industry. So there are a lot of things to be gained by being OE fitment. Plus the product recognition you get after it’s in the field is very important, for replacement sales.

Any new OTR sizes or any new OTR tires on the horizon?

Richards: The mass production of the 2400R35s and 1800R33s.

Nash: And then we’ve got all those metric sizes that are coming for radials.

Richards: In September the new building machine for the 2400R35s and 1800R33s is to be online and we’ll have two different tread designs.

Nash: In the last 10 years we have introduced more than 50 new products and specification changes. In the last two years we’ve probably introduced as many as 10 new radial sizes and types. Today there’s as many as eight to 10 new radial sizes that will be introduced in the next year. And there are a lot of tires that we’re working on for niche markets. They’re specialty tires. Right now we have two that we’re planning: the 1800 x 33 and the 2100 x 25, plus several underground mine sizes. Next year we’ll have as many as five more new products that could be either bias or radial.

We build tires based on the requirements of our particular customers. If they go bigger like Taylor Machinery, with bigger container stackers, then we have to build a bigger tire.

Are there any new OTR technologies?

Richards: Yokohama is known for the compounds that we put on the tires – that’s one of the things that we’re best at. At our new factory, each one of our radial tires that comes out of the plant is X-rayed for the quality of the tire. Nothing gets out of there that has a substandard quality. We’re always making improvements in the new building machines and how they cure the tires. Our new radial factory has all the latest equipment.

How do you go about increasing your market share? Do you produce more tires? Chase more accounts? What’s your game plan?

Nash: The ideal way to increase your market share is through existing business with your dealers, national accounts and OEMs. Signing new dealers in weak markets will help as will new OEM accounts. We like to go after OEMs that have special requirements. Yokohama is a niche market player. If a customer wants the tires built especially for him, Yokohama is willing to work and build special tires for the special application. We haven’t really attacked the underground mine market. We plan on increasing the share in underground mine tires thanks to the new factory, which produces those tires.

We’re adding to our line of underground mine tires so we can offer a complete lineup of tires to a specific dealer so he won’t have to go out and buy other products. We’re always looking to improve the in-house share with our dealers. Unfortunately, during the last four years we haven’t been able to do that because of the short supply of products so we’ve been restricted to try to grow our existing dealers. Our idea has been since the short supply is to maintain those existing dealers and offer them products similar to what they’ve had in the past without sacrificing any of their business by going after new dealers.

Does a soft economy like we’re in now affect the OTR market at all?

Richards: The construction side of the business is definitely down. The housing slowdown that we’re experiencing now has dramatically impacted site preparation jobs which typically take very large earthmover equipment. On the mining side, though, I don’t think it has been much affected.

Nash: The demand of gold, copper, coal, silver and nickel today continues to make the mining industry boom. When the construction industry slows down, everyone feels it. When it sneezes, everyone catches a cold. So right now the mining industry is extremely strong but it’s strong in the market where we have the shortest supply of product. The homebuilding on the other hand is slowed down and we have an oversupply of product.

What are some of the unusual applications for Yokohama’s OTR tires, including the largest?

Richards: The 4000-57 which is 12-foot tall and weighs between 7,500-8,000 pounds. At one time it was the largest tire in the world and it was built first by Yokohama. One of our biggest challenges was producing tires for a system that moves the oil rigs around at Prudhoe Bay, Alaska. Eight tires carry 2.2 million pounds worth of equipment from site to site and they can travel as much as 40 miles. We tracked a 10-mile haul one day and it took 12 hours to move the rig.

Nash: It’s a specialty tire: Eight tires carrying a heavy, heavy load and most people back away because they feel like the load is not suitable to the tires. However, we’ve engineered the tire and it’s been running successfully for the last six years. And this is in Prudhoe Bay where the temperatures reach -57 in the wintertime. And even in May when we were there it’s -25. So these are special application machines. We do extremely well if you give us a project to work on that requires special engineering. The other would be to build specialty tires for underground mines, where there’s a cutting, severe cutting problem on the side of the tire. We built the tires for underground mine loaders with severe side-wall cutting. Also slag haulers.

Richards: Slag is hot steel and it comes out of the mill you have a slab of steel and they put it underneath, next to two tires and they run it down the road while it’s still hot. Our tires are the ones that work the best in those applications.

How do you ensure that quality and how do you translate that to sales? In short, how do you get the word out to your customers that Yokohama has super-high quality?

Nash: In Japan, the OTR person in charge is Henry Sakurabayashi, who’s been in the industry for 30 years. He’s probably one of the best engineers in all the companies that I have worked for at looking at a problem, analyzing the problem and coming with a product to satisfy the customer. I think he’s instrumental in putting Yokohama where they are today, singlehandedly. Naturally he has to have a lot of support staff around him, but Henry has put Yokohama on the map as a highly technical company.

Our next big challenge is how we go forward: which direction do we go? Do we go to the bigger 63-inch tires? Or do we stay where we are and take a look at how we can improve what we have and let our competitors go after that market?

Do we have the technology? Yes. Do we have the money? Probably yes. Do we have the desire to enter that market?  It takes lots of people because it’s sold in the field and you have to have lots of engineers and everything. Right now our schedule goes through 2012. From 2012 to 2018, there are a lot of unanswered questions which we’ll have to decide on.

What’s the most difficult challenge in OTR?

Nash: Transportation, raw materials, social cost and the uncertainty of petroleum related products.

Richards: Keeping up with the manufacturers and what they require for tires: new and different sizes. The engineering is a challenge.

Nash: Keeping up with OE manufacturers is on the list and we try to do a good job with. The biggest challenge is understanding the market because it fluctuates so much. We’ve seen five years of feast but we don’t know if we’re going to see five more years of it or if we should walk with caution. We will study the market longer than other people.

If we can’t build a tire with the best technology and the best results after, we’re not going to build it. It’s as simple as that.

Is price an issue in OTR?

Nash: Not in the market today. Our dealers are very savvy as to the product quality. They will not succumb to the cheap prices offered by other companies. They know that if one tire is going to deliver 8,000 hours and another one is going to deliver 5,000 and they’re paying pretty close to the same price, they’re not going to be swayed by the lower price.

As far as the market goes, what countries are being targeted for Yokohama to sell OTR tires to?

Nash: Brazil, Russia, India and China – very high demand. Infrastructure is being built now in all those big countries. There the demand is going to be great. And it’s going to take a lot of product away from the U.S. production wise. Mexico-Yokohama (YTC) just expanded into Mexico and we are looking forward to working with our neighboring country.

Richards: And don’t forget Australia, which has a tremendous amount of construction going on right now.

What’s the size of Yokohama’s OTR dealer network?

Richards: We’re around 350 dealers now.

Nash: That includes a lot of dealers who have multiple locations.

Are you planning on expanding the OTR department?

Nash: Our long-range plan, which goes through 2017, calls for us to increase our head count to 15. It depends on the market and supply. Also, our dealer network now includes Mexico so we will have to add manpower to support us. This is going to require lots of sales training and visits to the mine sites where we can get familiar with their needs. In the next couple of years Mexico will be a big market for us.

Is there anything else you’d like to add about the OTR department?

Nash: The only thing that I can say is that it’s a very interesting business. It’s a business where you’re proud of what you do. It’s a business where you feel like that you’re offering a good service to your customer. It’s a business where people look at you as a quality-driven company. It’s a business where people admire you for what you do.

Without the technology that Yokohama has, we would be another small company. We may be small in size, but compared to the rest of the industry we’re probably the most technical company out there.

(Yokohama Tire Corp. is the North American manufacturing and marketing arm of The Yokohama Rubber Co., Ltd., established in 1917 and based in Tokyo. It has a network of more than 4,500 points of sale in the U.S.)

For more information, visit www.yokohamatire.com. Details about the MINExpo are available at www.minexpo.com.

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