Changing the tyres of your luxury car just got tougher

If you are the owner of a premium car and are now scouting for replacement tyres, you may be in for deep disappointment. Six months after India’s government brought in tough measures to restrict import of tyres into the country, the aftermarket for superior quality tyres used in luxury cars is reeling under an acute shortage.

The dealers who used to import ultra-high performance tyres and served the replacement segment till recently are out of business now. Most of the tyres, having sizes of 17 inches and above, came from China, Thailand, Malaysia, and European countries. The June 12 notification from the Directorate General of Foreign Trade (DGFT) that imposed curbs on imports of certain new pneumatic tyres has raised a big question mark on the replacement market. The move, meant to promote domestic manufacturing, put tyres under the restricted category and it meant that an importer now requires a license from the DGFT for imports.

After a big hue and cry by Indian luxury car makers, the government relaxed the rules and agreed to let them import high quality of pneumatic tyres that are not being manufactured in the country. Makers of premium cars in India used to source tyres mostly from the four global giants— Michelin, Continental, Pirelli and Yokohama. "Since they do not manufacture these tyres in India, the premium car manufactures were importing them from European and Asian markets," says a tyre industry expert.

A senior Mercedes-Benz official says the company is struggling to cope with the tyre shortage. “At present, we have some clearance to import tyres for our requirement, but there is a lot of delay in deliveries. There is a serious supply shortage in the aftermarket,” he says.

When contacted, Mercedes-Benz India said in a statement, “We welcome the government’s decision of issuing license to OEMs for importing tyres which enabled us to import them in low volumes, designed specifically to cater to the safety, quality and performance standards of our high end cars. Any decision of extending this license to the tyre manufacturers would further benefit the end customers.”

A BMW spokesperson says that they are at present importing tyres which will fulfill their ongoing production requirements. He, however, refuses to talk about the aftermarket scarcity. BMW uses run-flat tyres for all their cars and sources them from abroad.

The pandemic and the economic recession in India have hit the domestic premium car industry badly. The sale of luxury cars is down 40% this year, according to the Mercedes-Benz official. In 2019, Mercedes had held on to the number one position for the fifth consecutive year. The Stuttgart-based company sold 13,786 units in India last year against 15,538 units in 2018, marking a fall of 11.3%. BMW managed to sell about 9,641 units in 2019, a 13.2% drop from 11,105 units sold in 2018. Audi sold 4,594 units in 2019, down 29%.

While the immediate requirements of OEMs are met, there are growing concerns about the acute shortage of the high performance tyres. A Mumbai-based dealer says they are finding it difficult to serve their customers. “Old stocks are fast depleting. In certain categories, tyres are just not available. In some cases, we have managed to source them from other dealers who were sitting on stocks for 1-2 years,” he says.

Rebin Sunny of Omega Trading, who used to import tyres from Maxxis (Taiwan) and Linglong (China), two of the world's top tyre manufacturers, said the aftermarket for luxury car tyres in south India is in complete disarray.

The sudden decision by the government to restrict tyre imports stemmed from an urgent need to prevent dumping of cheap imports into the country. A bulk of imports came from China, Thailand, and Taiwan. The luxury aftermarket is an unexpected victim of the government move, say industry officials.

“The government should not have any issue with the import of high-end tyres used in luxury cars. No Indian company is serving this market since the volumes are extremely low and the luxury OEMs insist on specifications that are tough to meet. Indian tyre companies are happily supplying to the low end of the market where volumes are very high,” says a senior industry official.

After sitting tight for a few months, India’s directorate general of foreign trade (DGFT) began issuing licenses selectively to Indian OEMs with riders 3-4 months ago. Sunil Kakkar, vice president at Maruti Udyog Ltd, who heads the supply chain division, says his company has received a nod from DGFT for importing tyres for cars that are being exported. “We export around 1.2 lakh cars annually to European and Asian markets. Our import is only close to 10% of our total requirement and we source them primarily from Japan,” says Kakkar, adding that imported tyres are never used in the cars sold in the domestic market.

With the government sticking to the import restrictions, domestic tyre companies are also studying the market viability for the superior quality tyres. “So far, Indian tyre companies stayed away from these markets since the specifications from OEMs were very stringent. It needed expensive high-end machines to produce such tyres. The fact is that the low volumes did not justify disproportionate capital expenditure,” says another industry official.

The current supply constraints are an opportunity for some Indian players. For instance, Apollo Tyres is looking at capitalising on the opportunity by bringing in their Vredestein brand, which is a premium brand in the European market. They have manufacturing plants in Holland and Hungary. The company says it is planning to launch the Vredestein brand in January 2021.

However, it may be quite some time before the premium car manufacturers approve Indian tyres. “To meet specifications of OEMs, Indian companies will have to upgrade their machinery and production quality. These high performance tyres need high level of consistency and special raw materials, making them very different from the normal passenger car tyres,” says the industry official.

While there are rumours in the market that the government may relax import rules, some industry officials are batting for a more stringent regime. The local tyre industry is seeking to introduce anti-dumping duty on imports from Thailand, where some Chinese companies have already set up plants. Recently, acting on an application filed by the Automotive Tyre Manufacturers Association (ATMA), the Directorate General of Trade Remedies has recommended that anti-dumping duty be levied on tyre imports from Thailand for five years. The directorate said in a notification that there is substantial increase in imports and the domestic industry has suffered material injury.