Auto Industry

Wheels of fortune

How the Michelin man’s conquering Chinese roads

Wheels of fortune

Retreading carefully: around 15 million get recycled in China annually

In 1839, after several years of searching, the American inventor Charles Goodyear finally discovered a way to make rubber strong enough for widespread use. Bad luck in business meant that Goodyear died mired in debt. But his invention transformed the industry, turning rubber into one of the most sought-after commodities in the world.

That’s still the case today. China’s own industrial revolution, especially over the past three decades, has turned it into the largest rubber consumer in the world. But like so many other things essential for its growth (like water and electricity), China is starting to find that supplies are tightening.

Prices reached a record high on the Shanghai Futures Exchange last week, hitting Rmb31,800 per tonne – 30% above the start of the year. Poor weather in China’s rubber-growing provinces is partly to blame, but a bigger factor is demand for tyres to feed the country’s booming car industry.

That’s bad news for motorists, but some tyre-makers have found a way to turn the crisis into an opportunity. Their answer: ‘retreading’.

The technology for recycling used tyres into (almost) good as new was first brought to China by French firm Michelin five years ago. The number of retreads sold this year is expected to pass 15 million, and demand for recycled tyres has been growing twice as fast as that for brand new ones.

Retreaders can resurrect a tyre three or four times before it has to be broken down for scrap. The process works by stripping away the original tread, and binding a new layer of rubber onto the original.

That saves a lot of material (like steel, rubber and oil) from being used to make new tyres. It also cuts costs in half: the retread version of a Rmb3,000 Michelin tyre costs Rmb1,430, according to CBN Weekly. Customers who bring in their own worn versions can have them converted even more cheaply.

“Our retreading service has taught drivers the value of used tyres,” Gao Ran, an executive at Michelin China, told CBN. That’s particularly true for bus and lorry operators, for whom replacing tyres can make up as much as 6% of operating costs. Gao claims that a retread tyre can get 90% of a new tyre’s mileage before needing to be changed.

Industry observers say that one challenge is overcoming customer concerns about safety – particularly those who worry about how their tyres will perform at high speeds. Another is sourcing enough tyres in good enough condition to be recycled. Perhaps that’s why Michelin takes in any tyre that passes muster, regardless of whether it is Michelin made or not. But Gao says the business is good marketing for the company, since customers learn to buy high quality tyres to start out with, knowing that they can save later on by retreading.

The French firm isn’t the only tyre-maker in the retreading game – Bridgestone and Goodyear have also entered the business. “Competition in the market has been very intense, almost as intense as the new tyre market,” one industry insider told CBN. In a bid to win market share, Bridgestone has been charging just Rmb800 to retread (almost a third less than Michelin). But Michelin’s Gao thinks there’s enough business to go around. “Customers always replace their tyres,” he explains, “so it’s a lucrative business for both of us.”

With the country’s new car sales expected to hit 17 million vehicles this year, a 25% increase on 2009, perhaps he can afford to be sanguine for now.

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.