The future of the retreading sector depends on quality
Fabio Cortesi, CEO of ITG, offers an in-depth analysis of the company and the tire retreading industry as seen from a supplier of materials
Based in Fusignano, near Ravenna, ITG has, for several decades now, been one of the largest Italian suppliers of materials for tire retreading, and successfully coped with the recent turbulent period for the entire sector through a synergy with the CM Manzoni group, rubber compound specialists, to retain its competitive edge. We talked about it with Fabio Cortesi, CEO ITG, the third generation of this family-owned business, who spoke about the history and prospects of the group without neglecting to reflect on the future of the sector as a whole.
When and how did the group come to life?
CM Manzoni began operating in 1965 in Fusignano, an area where shoe factories were numerous and the company was born to supply the rubber compounds used in making shoes, a production reality that, back in the 60s, represented one of the country’s crown jewels. In the following decades, however, the footwear industry relocated, but the company had already started to diversify its portfolio of products with rubber compounds for other sectors. Today CM Manzoni is a highly specialized producer of rubber compounds for technical articles, high pressure hoses, electrical cables, components for household appliances, for the automotive industry and for the building sector. During the 80s CM acquired Sage in Empoli and then, in the early 90's, ITG (Industria Toscana Gomma), with its trademark Paltread, which marked the company’s entrance also in the retreading sector.
What is the current size of the group and how is it organized?
Today the CM Manzoni group in Fusignano has a production facility of 60,000 square metres and about one hundred employees. In 2018 we opened a subsidiary in the USA, where we produce rubber compounds. The group also includes Evercompounds, our mixing specialists who, thanks to cutting-edge technologies (the last mixing line was installed in recent months and the oldest is about 2 years old) is always at the forefront of innovation. The group is growing both in terms of volumes and turnover, which exceeds 120 million, and as far as compounds for third parties we are certainly among the largest in Italy. Within the group, ITG has 15 employees, and that may not seem much, however some of our specialists and functions are shared within the group, for example labs and administration: vital synergies that promote lean structures and low costs, which means enjoying the advantage of having direct access to raw materials (which account for 70% of the total cost of the product) and to research and development activities carried out by our group. On the other hand, the fact that we are a small company in the retreading sector means that we are extremely flexible towards our customers, offering a level of service that is perhaps more difficult to obtain from larger companies.
How is ITG positioned in the retreading market?
We work with at least 70% of Italian retreaders. The Italian market accounts for 50% of our turnover, which means that we are very active in foreign markets as well, in central Europe, for example, as well as Scandinavian countries, either through local distributors, or directly. The approach is the same: we take to heart our customer's needs, being very flexible in supplying our goods, in our offers, delivery times and the quality traditionally associated with Italian companies in the sector. In 2018, things looked slightly better compared to 2017, and a little growth was recorded, however, considering the tough times we had to deal with, a countertrend was observed, even though, looking at the small volumes involved, just one important customer is enough to make a difference on sales volumes. We are satisfied with the results achieved so far, but we would like to enhance ITG’s position in the market, and for this reason we have hired new, highly specialized sales staff. Speaking of products, instead, ITG can supply everything needed for tire retreading: such as retreading compounds, pre-cured treads, strips, sheets and cushions, not to mention its own pre-cured line under the Paltread brand.
How do you see the relationship between hot and cold curing processes today?
Between the two, pre-cured products seem to be suffering the most, but this may be ascribed more to our approach, and to a competition that is becoming extreme, and the race to offer the lowest prices has greatly reduced margins, not to mention the average quality of the products, with detrimental effects on customer loyalty: nowadays people go for the best deal. From the point of view of retreaders, however, the demand for pre-cured products remains high, perhaps because it is easy to export, and less demanding from a technological point of view than a hot curing process, and therefore more affordable for everyone. This is one of the reasons why pre-curing has grown in recent years compared to hot retreading – but that was probably a typical Italian tradition, before pre-curing methods took over. As ITG, therefore, we keep updating our pre-cured line, following the demands of the market, but on this ground we feel a little penalized as the current logic is all about price and credit. On the other hand, our hot-cured products are doing well, thanks to the synergies within the group, our compounds and our competitive quality/price ratio. Therefore, thinking about future investments, ITG’s focus will still be on hot-curing processes.
The Italian retreading industry, in fact, had to go through a long transitional phase.
True. Over the last 10-15 years the sector has changed tremendously. The low-cost issue and the direct presence of manufacturers, who crowded the retreading industry, have, in a sense, contributed to this distortion, an across-the-board competition that has legitimized the sector, but changed market flows at the same time. Within a few years we have witnessed a drastic decrease in the number of retreaders (not only due to market trends), but also positive changes as far as the quality of the products is concerned, new regulations and a search for certified quality, all of which have, in some way, contributed in making life more complicated for a sector often managed by small and medium enterprises. I am thinking of winter approvals and markings, which are necessary (probably too much) to certify the product, and represent an additional obstacle, especially in terms of costs. All this while low-cost imports invaded the tire market. The recent European provisions in terms of protection against dumping should restrict this phenomenon, at least as far as truck tires are concerned (in my opinion these measures should be extended to all tires). Road haulage is also subject to many other factors: supply in relation to demand, a huge offer by manufacturers, competition between operators, the financial difficulties many companies are experiencing and a failure to rationalise distribution channels. After all, the value of retreaded tires is appreciated only if these travel over great distances making it possible to assess costs/benefits. Unfortunately, the logic governing the tire market is rather short-sighted, low price and that is all. These factors have in fact triggered a process of “natural” selection among retreaders.
Encouraging signs are coming also the car sector.
The car sector was at one stage considered dead, but probably many companies have been saved by it, and today things are looking up, thanks to retreaders who have continued to invest money and other resources in new product lines and designs, survive a rather turbulent period. Other companies did not have the strength to invest and have abandoned the field, finding themselves operating only on the truck market, which is suffering the factors described above. The seasonal tire replacement, the fact of being present on the territory and therefore having tires available, low-cost imports affecting mainly truck and busses, allowed car tire retreaders the opportunity to find their space on the market. As ITG, we have made the decision to go back to care for the winter market with dedicated compounds, looking for greater performance. Our target customer has also changed, larger fleets, different sizes, the quality bar has risen and we clients are looking for hi-performance products. Nowadays, more people make use of these tires and are gaining considerable popularity, thanks also to the fine work of many retreaders. Casings are still an issue and many sizes are difficult to find, and current ELT management protocols have removed the availability of so much raw material.
What prospects are there for the future?
Perhaps figures will still be reduced. European excise duties are still to produce tangible effects, and there are still thousands of low-cost tires on the market, not to mention improvised distributors. It is true that retreaders are now receiving more requests, so the scenario is turning towards greater optimism, but the economic results are still a long way off. I firmly believe that the retreaders that will remain in business, will be the most organised, professional, qualified, cost-conscious companies in the world of tires resale and distribution. The value of the product is there to be seen, in terms of environmental sustainability, and economic value, and therefore we will continue to invest in retreading. Therefore, we want to be present on the territory as well as at specialized trade fairs, Autopromotec for example. We don't need flashy things, we have a sober style, focusing above all on the direct relationship with the customer, with the market and the quality of our products.