Here’s what’s cookin’ today in Transmission:
- The blimp has a new passenger: Cooper Tires
- Dealers prefer low volumes over excess inventory
- REE: The EV tech of tomorrow
The blimp has a new passenger: Cooper Tires
I spent 30 minutes brainstorming catchy tire puns to introduce this next segment. I couldn’t think of anything good so I’ll cut to the chase and save the bad joke: Cooper Tire sold to Goodyear Tires in a deal worth about $2.8 billion. There’s a solid chance the deal won’t close until the second half of 2021 since it still needs final approval from Cooper shareholders.
Here’s the kicker: China and the United States have the largest tire markets in the world, making up nearly one-third of global volume. This deal nearly doubles Goodyear’s footprint in China, granting it access to a wide variety of local manufacturers. In North America, Goodyear already leads in tire sales revenue, with last year’s total reaching $5.1 billion. Throw Cooper’s $2.1 billion revenues into the mix — good for fifth place in North America — and Goodyear will find itself even further ahead of the competition. Cooper Tires also came away with a win. It now has access to Goodyear’s original equipment as it continues generating strong growth in the SUV and light-truck segments.
Leveraging the capabilities of both companies will be a huge advantage, according to Goodyear CEO Richard Kramer. “As we develop business plans, we’ll start to take a look at what opportunities, including revenue growth and including how to better leverage the combined manufacturing footprint, we might be able to get,” said Kramer.
As in the wider automotive industry, the abrupt restart of production caught many tire manufacturers off guard. Pre-pandemic inventory levels aren’t expected to return until midway through 2022, according to Michelin CEO Florent Menegaux. With a combined pool of resources, Goodyear and Cooper can now continue rebuilding inventory with full confidence that they can quickly catch up to demand.
Dealers prefer low volumes over excess inventory
ICYMI: Dealerships are experiencing low inventory levels amid roarin’ consumer demand. Used vehicles are selling at high margins as dealerships provide alternatives to missing new vehicle inventory. Cars are selling off lots faster than ice melts on a hot day. In extreme cases, vehicles have been bought while they’re still traveling on the truck. The inventory shortage that was once a huge problem for dealers has now turned into the new normal, with a lot of dealerships not wanting to return to high inventory volume.
“I suspect that you’re going to see a permanent change in our industry,” said Jeff Dyke, president of Sonic Automotive, one of the largest automotive retailers in the United States. “I do not think that we’ll ever get back to the high, high levels of inventory and slower turn.” Dyke also shared in an interview with industry analysts that manufacturers are pushing to lower production to maintain high turnover.
Steve Hill, VP of GM North America, simply considers excess inventory waste. After all, if a product doesn’t move, it just sits in parking lots collecting dust. “You’ve got to have the right car, right place, right time,” Hill stated in an interview with Automotive News. “The closer we can match demand and supply and eliminate that waste, that’s a competitive advantage for the whole.”
Data-driven insights, like vehicle tracking software, can assist dealerships to get an accurate gauge of consumer demand. But as you can imagine, it can still be difficult to predict the exact make, model, year and vehicle features that a customer is looking for.
Does that mean automakers should explore a made-to-order strategy? The short answer is no. For now, OEMs are sticking to the basics: matching supply to demand. That way profits are maximized and customers leave satisfied. Japanese automakers have been stocking lower inventory levels for years now using past sales figures and advertising data. General Motors, on the other hand, practiced the opposite strategy, which consists of heavy production output. Consequently, steep discounts were often given to move products. This shortage is a chance for OEMs like GM to adjust normal output to actual demand rather than overproducing by using technology like tracking software.
But what about the future? A made-to-order strategy is incredibly difficult to implement. Tesla’s an EV industry leader and it still hasn’t mastered this yet. Forecasting future demand is difficult, and as in Tesla’s case, production bottlenecks can limit the amount of cars produced. So to recap, until automakers can apply data to consistently predict demand, just-in-time will remain the viable solution.
REE: The EV tech of tomorrow
Have you ever heard of REE Automotive? If you haven’t, there’s a good chance you’ll start seeing that name begin circling around the industry. Simply put, REE has created the next-generation EV platform that’s flat, scalable and modular. The auto startup recently announced the opening of its Engineering Center of Excellence in the U.K.
Before I venture further into the recent announcement, let me give a little background information to explain the purpose behind the company. REE’s cost-driven approach offers consumers various benefits, including increased energy efficiency, reduced maintenance costs and complete design freedom. REE is also responsible for two major innovations:
- REEcorner integrates all critical vehicle components (steering, braking, suspension and powertrain) into the arch of the wheel.
- REEboard is a flat, scalable and modular platform creating endless body configurations while providing more space at a fraction of the cost.
Back to the big announcement. The new Engineering Center will boost REE’s strategy to meet expected demand. It’ll serve as the testing grounds for both the REEcorner and the REEboard as the startup continues developing the innovative technology. And, thanks to a recent merger with 10X Capital Venture Acquisition Corp., REE now has the capital to start mass producing its EV tech.
What excites me about this company is the design principles behind the components. Current EV designs remain very similar to traditional ICE vehicles in that the powertrain lies between the wheels and the steering and braking components are mechanical. In comparison, the REEboard platform is completely flat and the REEcorner modules are controlled by wire. Here’s my point: Tesla is leading the way in the EV market because it thinks outside the box to deliver consumer value. Just like Tesla, REE has the consumer at the forefront of its mind. These cost-efficient designs are compatible with any body style and maximize energy efficiency. Don’t be surprised if, in the future, OEMs explore the possibility of calling upon REE’s industry-shaking technology due to the numerous benefits its presents for both themselves and the consumer.
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