Tire Labeling

Heralded as the most significant event in the tire industry for 50 years, November 1, 2012 marks the enactment of EC regulations for tire labeling in the European community. Designed to inform the average European motorist about the tires that they consider for purchase in the aftermarket, this is not the only impact that the legislation will have in Europe or neighboring continents.

Rolling resistance is at the heart of the regulation, as the loss of energy due to friction can account for up to 30% of the fuel consumption in a vehicle. Therefore, a reduction of this – the European Commission hopes – “will contribute significantly to the energy efficiency of road transport and thus to the reduction of emissions by 2020”.

It is worth highlighting that this is not the first initiative of its kind. Japan has pioneered a similar scheme since 2010, as has South Korea since June 2011. The key differentiator is that these schemes are currently voluntary and cover two criteria: rolling resistance and wet grip. For the European version, the scheme is mandatory for all tire manufacturers, and there is a third measured criteria: noise generation.

The legislation in Europe does not stop at labeling however, as the enactment also coincides with additional statutes that set minimum standards by which these three criteria should be tested. This move has caused a stir amongst the fraternity of tire manufacturers. If these standards are not achieved, the penalty shall be the revocation of type-approval for that product, effectively ending its legal sale. The stakes couldn’t be higher in a market that accounts for approximately a third of global tire sales, of which 75% are in the replacement market.

This is compounded by many regions in the industry trending towards larger tires, and a rise in the cost of their raw materials-both of which have driven up retail prices. This has led in many countries to consumers changing their purchasing behavior and turning to price as their key motivational factor. In Europe, this shift in demand-criteria has coincided with an influx of budget brands from manufacturers in countries such as India and China, with the latter catalyzed to an extent by the US “tire tariffs”. These manufacturers can offer products that are, in some cases up to 85% cheaper than established brands, and they have capitalized on the vacuum created by supply constraints due to the difficulties in Japan and Thailand last year, plus the shift in buyer discretion. However, it should also be remembered that as dazzling as the price savings may be, so too can be the chasm in manufacturing quality and performance that they offer.

So it is somewhat ironic that it is with these increasingly popular tires that the legislation will impact most significantly, as many may not attain the minimum standards to be legislated without re-engineering, and will therefore be removed from the market altogether. Furthermore, with the enlightenment of consumers due to the labeling, a shift in purchasing can be expected. As a consequence, we can anticipate a rise in popularity of the mid-range tire brands with manufacturers such as Toyo, Kuhmo and Hankook poised to benefit from consumer realization that for a relatively small increase in outlay, respectable performance and fuel savings can be obtained.
However, that does leave premium manufacturers out in the cold, and some are at pains to point out that there are many more variables by which tires can also be measured. Longevity, for example. So, whilst under the impending criteria cheaper brands may appear to perform as well as premium tires, the more expensive option could perform better in other unadvertised areas.

Aside from the impact in Europe, the world will be taking note of the ramifications of this legislation as Korean labeling is to become mandatory in 2012. Similar legislation is expected from Brazil, China and the US in coming years. Therefore, Europe may very likely find itself being the template for many other schemes around the globe – which undoubtedly will send chills down the spine of many manufacturers the world over. As consumers wake up to the realization that investment in tires can, at best, result in fuel savings that outweigh their additional expenditure, and at worst, result in the loss of something much more valuable than money.