A surfeit of Conti tires?
So, Continental is increasing tire capacity at its Otrokovice factory for truck and bus tires. That's obviously good news for the tire makers in Otrokovice and it's also good news for the Commercial Vehicle Tires business unit at Continental. For many years this particular tire business unit was bleeding red ink so it's good to see Continental Tire showing some confidence in the future for truck tires. In fact it's showing rather more than "some confidence" in the future for truck tires - it's showing an awful lot of confidence in the future for truck tires.
New truck tire capacity
Already this year Continental has announced two major expansions for truck tire manufacture. $129 million to expand capacity at Mount Vernon in Illinois and $135 million to increase truck tire capacity by 400,000 annually at Puchov in Slovakia. In 2012 it committed $71 million to add truck and bus tire capacity at Modipuram in India. That is a lot of truck tires coming on stream in a relatively short period.
Where are the tire markets?
Where are all these tires going to? According to Andreas Esser, the head of Commercial Vehicle Tires, "the plant will not only continue to serve Europe, Middle East and Africa: we will develop Otrokovice into a production hub for the Americas and Russia." That sounds all well and good but what about the extra capacity at Puchov; won't tires from there be going to Russia? And Mount Vernon in Illinois. Wouldn't it be sensible to supply the North American market with truck and bus tires from there?
Continental must have some very positive forecasts to justify all this investment in truck and bus tire capacity but it seems strange to concentrate so much investment in eastern Europe. Dr Esser justified this by saying "While our Puchov project is mainly targeting on mid-term growth in the evolving markets of Eastern Europe, Middle East and Africa, the Otrokovice invest is a strategic step based on long-term market growth." There are certainly some economies of scale in manufacturing tires and the Otrokovice plant is one of the biggest in Europe, but there are also significant savings to be made by not transporting tires so far; by making them nearer to their end use market. Perhaps the shareholders of Continental will not be quite so happy as the tire makers of Otrokovice.