Tyre Industry in India: Analysis on whether its competition or a collusion

1. Tyre Industry in India
COMPETITION OR COLLUSION

2. Table of Contents
 Industry Overview
 Government Policy
 Evolution
 Present Situation
 How Does the Industry Work?
 Customer Segments
 Factors affecting Tyre Prices
 Top 10 Players
 Market Shares and Category wise
Production
 Structural Factors of Indian Tyre
Industry
 Case of Collusion (CCI)
 Companies under scanner
 Findings of the DG
 Result of the Case
 Competitive Scenario of Indian Tyre
Industry
 Porter’s 5 Force Model
 Change in Technology

3. Indian Tyre
Industry
Commercial
vehicles
Light
Commercial
vehicle (LCV)
Heavy
Commercial
Vehicle (HCV)
Passenger
Vehicles
Cars Motor Cycles
Others
Farm Vehicles
Industrial
vehicle

4. Industry Overview
Turnover of Indian Tyre Industry: Rs 43000 Crores
Tyre Production (Tonnage): 15 Lakh M.T.
Tyre Export from India (Value): Rs 4209 Crores
Number of Tyre Companies: 39
Industry Concentration: 10 large tyre companies account for
over 95% of total tyre production
Radialisation Level- Current: Passenger Car tyres: 98%
(as a % of total tyre production) Light commercial Vehicles: 20%
Heavy vehicles (Truck & Bus): 18%

5. Government Policy
Tyre Industry Delicenced since : 1987
Export (of tyres and tubes): Freely
Allowed
Import (of new tyres and tubes): Freely
Allowed
Import Policy for Used/ Retreaded Tyres:
Restricted from April, 2006

6. Evolution
 The evolution and
growth of the Indian
tyre manufacturing
industry from a state of
absolute domination by
foreign companies to its
present stage of
indigenization involved
different phases of
structural change
broadly reflecting
various policy regimes
in the economy.

7. Present Situation in Indian Tyre Industry
 Domestic growth of the Indian Tyre Industry had been recorded at a
modest 8%.
 Due to moderate demand, slowdown and decline in rubber prices
have led to the increase in tyre prices and are recorded at 4.5 % for
Q42012.
 Rates of tyres for heavy vehicles and buses are higher than those of
passenger vehicles.
 Tyre prices have increased at higher rates for truck/bus and
motorcycles, but at lower rates for four wheeler (4W) tyres
primarily because of higher imports in this segment.
 India’s automotive tyre demand has increased at a three year
annual average of 18% to 131 million in FY2012.

8. How does it work?

9. Customer Segments
 The tyre manufactures cater to the following major customer
segments either directly or indirectly through dealers/ marketing
agents:
 Original Equipment Manufacturers (OEMs)
 Replacement Market (aftermarket)
 Export Segment
 State Transport Undertakings (STUs)

10. Factors Influencing Tyre Prices
 The industry is highly raw material (RM) intensive.
 Raw material costs accounts for 80-85% of the total
production cost of tyres.
 Natural rubber constitutes is the major raw material used by
the industry and accounts for around 43% of the total cost.
 The other raw materials consumed by the tyre industry are
crude derivatives such as synthetic rubber (SBR – styrene
butadiene rubber, PBR – polybutadiene rubber), nylon tyre
cord fabric, carbon black and rubber chemicals.
 Therefore, rising crude oil prices increase raw material costs
and affect the profitability of the company.
“Major
components which
affect the prices of
tyres are the cost
of natural rubber
and the excise
duty.”

11. Top 10 Tyre Companies in India
1. MRF
2. Apollo Tyres
3. JK Tyres
4. CEAT Tyres
5. Balakrishna Tyres
6. Goodyear Tyres
7. TVS Srichakra
8. Falcon Tyres
9. Govind Rubber
10. Krypton Tyres

12. Market Share by Volume

13. Category wise Tyre Production

14. Structural Factors of Indian
• As few large players control majority of the market in
India, the market becomes oligopolistic in nature.
• There is a high degree of interdependence among firms.
• Each firm’s price and output decision anticipate the
probable actions of other firms at any given time.
Highly
Concentrated
Market
• A constant, predictable flow of demand from the
customers also tends to increase the risk of collusion.
• Nearly 42% of tyre demand is dependent on
automotive production, which due to its cyclical and
seasonal character is quite predictable.
Demand &
Supply
Conditions
• The products manufactured by these companies
are homogenous in nature and hence
substitutable. This structural factor may help the
manufacturers to collude than compete.
Homogenous
Product

15. Structural Factors contd..
• Trade associations remain vulnerable to stepping
beyond the limits placed by competition law because,
by definition, they involve meetings, discussions and
cooperation amongst various-often virtually all-
competitors in a particular line of business.
Active Trade
Associations
• OEMs procure tyres from domestic tyre
manufacturers and also import from various
countries based on their requirement.
• However, it is noted that the OEMs exert substantial
countervailing buying power.
Dependence
on Customers
• Significant entry barriers arise due to the high capital
requirements to setup a tyre manufacturing plant. As
per ICRA Report, a plant with an annual capacity of 1
million cross ply Truck and Bus Tyres cost around Rs.6
billion.
Entry
Barriers

16. The Inception Of the Case Of Collusion Against Major
Tyre Players in Indian Market
• All India Tyre’s Dealer Federation(AITDF) filed a complaint against
tyre manufacturers before the ministry of corporate affairs.
• The Ministry forwarded the case to the MRTP commission.
• Finally the case was transferred to the Competition Commission Of
India (CCI).
• The CCI directed the DG (I&R) to conduct an investigation into this
matter.

17. Major Companies under the Scanner
J K Tyre &
Industries Ltd. (J
K Tyre)
Apollo Tyres Ltd.
(Apollo)
Birla Tyres (Unit
of Kesoram
Industries Ltd.)
Ceat Tyre Ltd. (CEAT)
MRF Tyres Ltd.
(MRF)
Dunlop India
Limited (Dunlop)
Goodyear India
Ltd. (Goodyear)
Bridgestone India
Private Limited
(Bridgestone)
Michelin India
Tyres Pvt. Ltd.
(Michelin)

18. The Findings of the DG’s Report
ATMA
Apollo
Tyres
Ltd
MRF
Ltd.
CEAT
Tyre
Ltd.
Birla
Tyre
Ltd
JK Tyre
Ltd

19. Major Allegations Against The
Companies
 The benefit of reduction in excise duty has not been passed to the
consumers. (32% to 10% in the last 5 years)
 Price parallelism existed amongst the tyre companies.
 No reduction in the Net Dealer Price (weighted price) in proportion
to the actual production.
 Under utilization of full capacity resulting in limiting the supply.
 The companies have been able to earn positive margins in most of
the period under investigation.

20. Major Allegations Against The Companies
 The tyre companies have been inflating some miscellaneous
expenses into the cost of production to reduce the net profit
margins. Similarly, the analysis also explains that the change in price
of natural rubber had no impact on the cost of production and
therefore, it does not explain the possible reason for the increase in
price of tyres.
 The tyre companies are operating on high margins and the same is
not passed on to the consumers.
 The five domestic tyre companies occupy about 95% of the market
share of the total production. This high concentration made OEMs
and the replacement market highly dependent on these companies.

21. Results of the CCI Case
The fact that market concentration is
very high with entry barriers and the
product is homogenous, support
cartel formation.
But high bargaining powers of OEMs
due to the volumes, options to
replacement consumer to retread,
increasing radialization, imports
effectively being cheaper even in the
brief period of anti dumping duty go
against sustaining a cartel structure.

22. Competitive Scenario of Indian Tyre Industry
High Barriers to Entry due to huge
investment required on new plant
setup, advertising and branding
costs and in setting up of dealer
network. Due to these high initial
investments, the gestation period
remains very high.
Manufacturers have to rely on
rubber prices and crude prices
which are key determinants of
input costs. Sharp increase in
these costs lead to sharp dent
in profitability of the industry.
The market of Tyres is price
sensitive which makes it
challenging for Tyre Manufacturers
to pass on increase in input costs
to the end consumers. Margins
tend to remain under severe
pressure when input costs rise.
Industry is dominated by few
big names covering more than
95% of total market. This makes
it tougher for new entrants to
penetrate the market in any
significant rise.
Indian Tyre
Sector

23. Porter’s Five Force Model

25. Change In The Technology
Rubber Vulcanization Pneumatic
Cord tyresRadial tyres

26. Before The Advent Of Vulcanized Rubber

27. Vulcanization
In 1839 Charles Goodyear discovered that by adding sulphur
to melted latex the much sought-after attributes of elasticity
and strength were attainable.
This new vulcanised rubber was used initially as ‘cushioning
tyres’ for carriages and cycles.
Pneumatic Type Tyre:
In 1888, John Dunlop invented the air-filled or pneumatic tires,
however, his were for bicycles.
In 1895, André Michelin was the first person to use pneumatic
tires on an automobile, however, not successfully.
Cord Tyres
In 1915 the Palmer Tyre Company of Detroit pioneered the first
rubberised ‘cord’ fabric and made the first ‘Cord Tyre’. All the
strands of cord were laid parallel to each other and pressed
into sheet rubber. The tyre casings were built using sheets of
cord material, cut on the bias and laid across each other -
each ply completely separated from the next by its rubber
coating. The cross-ply had come into being.

28. Radial Tyres
 Michelin first introduced steel-belted radial tires in
Europe in 1948.
 Radial tires are so named because the ply cords radiate
at a 90 degree angle from the wheel rim, and the
casing is strengthened by a belt of steel fabric that runs
around the circumference of the tire.
 In radial tires the ply cords are made of nylon, rayon,
or polyester.
 The advantages of radial tires include longer tread life,
better steering characteristics, and less rolling
resistance, which increases gas mileage.
 On the other hand, radials have a harder riding quality,
and since they are technologically more complex than
bias-ply tires, they are about 45 percent more
expensive to make.

29. Technological Advancement In
the Recent Years
Run Flat Tyres
• One of the major recent
developments in the tyre
world has been the
continuing popularity of run
flat tyres.
• These allow a car to continue
to move safely despite its tyres
losing pressure - i.e. because
they have run flat.
• Latest available technology is
a gel tyre “bonded” to the
tyre that means the tyres
become similar to a run flat.
Eco Tyres
•So-called Low Rolling Resistance
tyres are made by adding silica
to the tread compound of a
tyre. This affects the amount of
energy a tyre can absorb while it
is turning or ‘rolling’. The less
resistance caused during rolling,
the less fuel your car requires to
move.
•What’s the end result for the
motorist? Well according to
Michelin, eco tyres can save the
average motorist £65.00 a year.
Nitrogen
•Filling your tyres with nitrogen may
seem odd but that’s exactly what
motor sport and aviation
professionals have been doing for
years. Nitrogen is completely safe.
•And by using it in a mixture with
oxygen to inflate your tyres the
theory is that it’s possible to negate
the issue of slow deflation, which is
caused by oxygen slowly infusing
through the tyre wall from the
atmosphere.
•Having a tyre that does not deflate
means you will improve fuel
consumption and will probably
improve safety standards too.

30. Thank You
Group Members:
Pallav Prasad
Pooja Kanjani
Raghvi Maheshwari
Ravi Kumar Singh
Rincy Sarah John
Rahul Arora