MilePost Online ... Transcript of July 14, 2009 Luncheon Presentation

Yokohama's Dan King Brings Oranges to Luncheon

Charlie Vogelheim: We’re very excited to have Dan King, vice president of sales and marketing from Yokohama. He’s a great guy. He’s a local guy, born and raised in Southern California, Mission Viejo. We have a local guy and a tire guy here. He worked actually in the family tire company in Mission Viejo, started when he was 12. Went to Fullerton, got his Masters at USC…

Oh, never mind. I was going to say something about Trojans, but I won’t. Good thing, I’m showin’ restraint.

Anyway, he’s been at Yokohama for 21 years now, just about. Ladies and gentlemen, Mr. Dan King.

Dan King, VP sales and marketing, Yokohama Tire Corp.: Thank you, Charlie. Well, since you brought up the Trojans, I just found out that all of Charlie’s kids went to Notre Dame, so I don’t think a Notre Dame guy can actually say anything about the Trojans… [Laughter.] Come on! You gotta win some games first!

Thank you again for inviting Yokohama to participate today. We really appreciate it. We appreciate you guys taking time away from your business. We know it’s really tough now, with the economy the way it is, to take time away, so we definitely appreciate that.

Now my understanding is, everybody in the room is somehow associated with the automotive industry, whether you work for it, whether you write about it. Hopefully there’s some good auto enthusiasts in here, which probably means you know a little bit about tires. You probably know the importance of tires on your vehicle.

Unfortunately, the average consumer really doesn’t. They don’t realize that that tire is probably the most advanced part on that vehicle.

They probably also don’t realize that it’s the only part on the vehicle that’s produced in a plant that starts with raw materials on one end and ends with finished goods on the other. So we actually start with the chemical mixing on one end of the plant, and at the other end of the plant the finished good leaves.

So it’s a very unusual process because it’s a complex process, and I don’t think people quite understand that.

So in a lot of ways we think that maybe the tires are a little bit like the Rodney Dangerfield of the automotive industry. It’s the only product on that vehicle that actually touches the road, but it doesn’t quite get the respect that we hope it would.

At the same time, that product needs to hold up to extreme heat, extreme cold, potholes, gravel, extreme braking. So we believe we develop some really good products in our industry, maybe so good that maybe the average consumer, these products go a little bit unnoticed with them.

But what we believe and what we’ve seen is, every once in a while there’s products or technology that doesn’t go unnoticed. That people take note of it. It actually changes the industry.

Now I hope that some of you know a little bit about Yokohama. We’re not the largest tire company in the world. We’re definitely not the smallest tire company in the world. We’re the seventh largest in the world.

But what we’re known for is product innovation and technology innovation. So if we look a little bit in the past, those of you that are familiar with directional tires, directional performance tires, Yokohama was one of the first innovators of that type of product.

We were the first in the U.S. to market an asymmetric performance tire. That’s a tire where that outside look of the tread is a little bit different than the inside look of the tread. We were the first to introduce that.

In fact, some of you in this room, definitely some of you are old enough to remember maybe the A008, which was introduced in the Eighties and actually changed the performance marketplace from that point forward. It created a whole new performance market that everybody had to follow from that point forward.

So we also had performance SUV. Yokohama was the first to introduce performance SUV tires in the U.S. That ushered in things like we see today, which is very large-diameter SUV tires, 18-inch, 20-inch tires, 22s, 24s. There’s even 30s, 32s that are out there. We were the first to actually usher in that kind of product.

But today what I want to talk to you about is that we believe we have a product and a technology that will change the industry.

So I talked to you a little bit about times when we can develop something where the industry would take notice; this is it. This tire here, which we introduced July first of this year, is a dB Super E-spec, And probably the most interesting part of this particular tire is that it combines natural rubber and orange oil in a new, revolutionary compound.

So we’re the only ones that’s mastered this. It’s the only one in the industry is that tire right there.

Now it’s not necessarily taken from the actual juice of the orange. Instead, it’s taken from the oil extract from a peel—which actually fits our company mission, because our company mission is to push environmental technologies. So we’re actually using a byproduct, which is even better for us.

One of the major advantages of this product is, the first thing we look at is, by having this kind of compound it enables us to produce a tire that is 80 percent petroleum-free. So it’s the very first benefit that we’ve gained from this.

The other benefit is that it reduces rolling resistance by 20 percent over the leading tires in the industry.

Now for those of you that might not know what rolling resistance is, it’s a measurement to determine the energy it takes to propel that vehicle forward. So there’s a certain amount of resistance that can be caused by the tire.

So as an example, let’s say you were riding a bicycle, and the bicycle had flat tires on it. You’re pedaling that bicycle. There’s a certain amount of energy that you’re going to have to exert in order to move that bicycle forward. If the tires were properly aired up in that bicycle, much easier to move that bicycle forward.

It’s the same basic philosophy, that the lower the rolling resistance number, the easier it is to move that vehicle forwards, so therefore there’s less energy needed to move the vehicle forward. Less energy means less fuel used. Less fuel, of course, means savings for the consumer.

I don’t really want to talk a lot about competitors today, but I did want to bring this up. We had independent testing done on this particular tire, and this is for rolling resistance measurements. So this [chart] shows that the Yokohama Super E-spec, which is here, is rated 11 percent better than the Michelin Hydro-edge [Sp???] and 22 percent better than the Goodyear Integrity.

These are tires that you will see on some of the OE applications on things like Prius and other Hybrids. That’s why we chose those particular tires.

Now one of the big dilemmas when it comes to rolling resistance technology is, whenever you better the rolling resistance, usually what you have to give up is grip. So it’s a tradeoff that the industry has struggled with for some time. We have to then develop this balance between the amount of grip that you want to give up for the better rolling resistance.

What we set out to do with this technology is to not have that give-up. We did not want a tradeoff with this. We wanted to see if we could develop a technology that would allow us to actually better the rolling resistance and better the grip.

So what we’ve been able to do with this technology is actually better both, grip and rolling resistance.

And I just wanted to show you one slide. This is a micro-view of a tire hitting the road. Now there is a certain amount of undulation in the road surface. Even on the smoothest road surface there’s a certain amount of undulation. Even on brand new freeways here in California there is. So when you see this rubber hit the road, there’s a certain amount of white space that you see. That’s actually where the rubber is not in contact with the road.

This is the new orange oil compound, which we call Super Nano-Power Compound, and there’s much less white spot that you can see. So it allows us to actually better the grip of the tire while still reducing the rolling resistance.

There is no other tire in the market that’s like this, and it’s the orange oil compound that allows us to do this.

Now the orange oil compound is not the only technology that we think is a breakthrough in this particular product. We have another, and that’s an advanced inner liner that we think will also change the industry. The inner liner, for those of you that might not know, if you looked inside that tire, if you took it off the rim, looked inside, you’d see a rubber liner inside, or a membrane, inside that tire. And that’s basically what holds the air in the chamber.

What we’ve been able to do with the new, advanced inner liner is that we created an inner liner that was one-fifth the size of a normal inner liner, which helps to reduce the weight of the tire. Reducing weight also helps with bettering the rolling resistance.

But at the same time, we actually increased the potential to maintain the air pressure. That’s the really unique part of this technology.

And if we look—this is just an illustration, to convey this—this is an illustration of a conventional liner. There’s a certain amount of air that leaves the air chamber over time. It can happen when the tire heats up, as a lot of you know, and then cools back down. It can also happen when you’re just stagnant with the tire. Over time, there’s a certain amount of air that will leak out.

This is an illustration of the advanced inner liner. It’s much thinner, but what we’ve done that’s very unique is that we’ve combined rubber and plastic molecules in that liner.

So what it does is, those molecules actually help the air from impeding [sic], so it stops it from moving through the liner, so less air is leaving the inner liner.

Now I don’t know if you guys realize this, but air pressure is the number one deterrent of tire performance in our industry. If you don’t maintain your air pressure, you’re not going to maximize the performance of the tire. Also, if you don’t maintain the air pressure, you lose the rolling resistance benefits.

So the products that I showed you earlier, the Michelin and the Goodyear, if you ran those tires at 8 psi less than what is recommended, you lose all the benefit that those tires could give you on rolling resistance.

So we know it’s very hard for consumers to maintain their air pressure on a regular basis, so we believe this technology will probably change inner liner technology from this point forward.

Now I think, I’m sure a lot of you in this room have heard the phrase, race on Sundays, sell on Mondays, which is a marketing term that our industry has used for decades. And it’s to try to help explain to the consumer that racing is fun and exciting, but it can also be used as a developmental tool, and we can gain some understanding of how that tire performs on the track and hopefully carry some of that technology into a consumer product for everyone else.

This technology, the orange oil technology, was actually first used, tested and mastered on the race track before we brought it out into a consumer tire. It helps explain the grip that we can gain from having the orange oil in the compound and that we’re using it in race tires.

In fact, this March Yokohama debuted a race tire that is using this orange oil technology in the Patron Cup GT Challenge, which is the only race series where every single vehicle on the track is using an environmental-friendly product. In fact, it’s with Porsche 911s for those of you that maybe aren’t familiar with the GT Challenge.

Now if some of you have followed our industry a little bit, you might know that there’s some pending legislation that’s going to impact our industry, and some of that legislation is related to rolling resistance. And this is at the federal level and at the state level.

So at the federal level, what the federal government is looking at doing is, they want to create new labeling laws that require a certain amount of testing from the manufacturers and those test results to be put on labels to educate the consumer. One of those test criterias will be rolling resistance, which the government had never mandated rolling resistance testing. It is possible that that legislation could go into law as soon as next year. They’re still evaluating it, but it’s still possible.

The state of California, though, actually has a different legislation that they’ve put forth, and they’re the only state that the federal government has allowed to put legislation in—which there’s always a lot of unique things about California, this is just one more, that they’ve been allowed to this. And the reason why is, that they’ve actually put this legislation in before the federal government put theirs in, so the federal government has to allow them to carry forward with their legislation if they want to.

The state of California’s legislation is a little bit different. What they want to do is just test for rolling resistance. That’s all they want to test for. They want to take the population of all the tires that get sold in the state of California, all of ‘em be tested for rolling resistance. Then they want to take the top 15 percent and establish a baseline, meaning that they’re going to approve the 15 percent and above tires. The 85 percent they’re not gonna approve.

We can still sell ‘em, but the consumer will know they’re not approved by the state of California.

So what we’ve been able to do, we got our hands on the preliminary testing that the state of California is using and we took that testing and we combined it with the testing of the Super E-spec  and the Super E-spec goes all the way to the top of the class. Number one tire. So much so that it actually could throw off the curve a little bit.

Now state of California’s trying to look at maybe putting this into laws as soon as 2011. So we’re watching it very closely. We’ve been involved with them. But I think all of us in this room realize the state is going through a lot of issues right now and there’s a lot of things they’ve got to deal with and this requirement will add cost to the state, and I think most of us here pay taxes in this particular state—except maybe for the guy from England, there—but everyone else, we’re concerned about the state government, what they’re trying to do.

So there is a possibility this legislation might be delayed, but it is possible to move forward in 2011.

The thing for us, though, that we’re ok with, is that we’ve got a product that’s at the head of the class, with some really new and exciting technologies. We think that others will begin to follow a little bit with what we’ve already started here.

Now we talked a little bit at the beginning of the presentation about the average consumer, and whether they place importance into the tires that they choose. And it is tough for the consumer, we realize that. I know that all of you are consumers of tires as well. You have a tremendous amount of choices. There’s over 3500 different types and sizes of tires. There’s over a dozen different manufacturers out there. So it is very difficult for the consumer to choose.

We know that some consumers might be influenced by the name on the blimp. Some might be influenced by that funny rubber round guy that they see in ads. But we’re hopeful that more and more, through education, will understand the importance of their tire and look at making their choice based on what their true expectations are from their vehicle and their tire, and hopefully getting a tire that can exceed it.

Now we’re hopeful that that will happen, because if that happens, we think we’re a company that can take advantage of that, so we hope to grow based on that.

But, you know, at this point I think Yokohama can say we’re very proud of our tire industry. The fact that the consumer doesn’t pay a lot of attention to tires shows that the tires are working out there. So overall we’re very proud of our industry.

I’m personally proud of Yokohama and what we’ve been able to contribute to this industry and the changes that we’ve been able to make in the industry. And we’re of course very proud of this tire here, because we think the Super E-spec could actually change the industry from this point forward.

So it didn’t want to take up a lot of your time, so I appreciate the opportunity. I definitely want to stick around and answer any questions at all…

QUESTIONS?

Marty Haynes: It sounds really great, but are there any downsides and, if so, why not apply it across the line to all the Yokohama tires?

King: That’s exactly what we want to do. When we first develop technology, not just in our industry but really any industry, one, it’s very difficult, usually, to mass-produce, and usually it’s very costly to mass-produce. And that’s where we are today. It’s a difficult mass-production process, and in the tire industry you’ve got to have a mass-production process. And it’s a little costly. So we believe over time we’ll be able to master that then be able to start to bring that into other tires.

Bob Saber: You use “nano” in your description; are there nano tubes, nano technologies involved in making this tire?

King: Yes, absolutely. We have developed nano technology for some time. What we do with nanos, we’re able to separate the molecules as fine as we can. That’s what allows us to actually mix the orange oil molecules with the natural rubber molecules. In fact, in our industry it’s actually very difficult to actually use all natural rubber. Natural rubber is very good for rolling resistance, but it’s not as good for grip. So people will use a combination of natural rubber and synthetic rubber, and we do as well in other products. But if you’re able to master the movement of the molecules at the nano level, you produce a much more consistent tread compound, and more consistent through the life of the tire.

Saber: You have carbon in your tires, too. Are those carbon nano derivatives?

King: We use nano when it comes to dealing with carbon molecules, but in the tread compound it’s just natural rubber and orange oil.

Alysha Webb: What’s the cost difference between one of these tires and a regular Yokohama tire, and how does this affect the lifespan of the tire?

King: Cost differences can vary, but if I was a consumer looking at this particular size product and said, ok, I want to look at another Yokohama in that exact same size, there could be anywhere from 10 to 20 percent higher cost with this.

When it comes to the other part of your question, was related to longevity of the tire, and that’s another tradeoff that has to be looked at when it comes to rolling resistance as well, and to grip. There’s all types of tradeoffs with that. With this particular tire we think we’ve produced a tread compound that’s going to give very good mileage to the consumer. It’s not going to be the absolute best of Yokohama’s mileage, but it’s going to be right there in the ball park and this particular tire should give 40-to-50,000 miles.

Webb: So why buy this tire? What’s the competitive advantage?

King: Well, the competitive advantage, let’s say, let’s narrow this down to a real consumer. Let’s say I’m a hybrid owner. There’s reasons I bought that hybrid. One, I want to save fuel. I want to do my part for the environment. Let’s say those are the big deciding factors. This particular tire fits them. One, it’s going to save them money on gas. But you’re going to use less gas, so you want to do your part in using less fuel, that’s one way to do it. And you don’t have to give up anything. You don’t have to give up the grip of the tire.

If you also want to buy the tire to say, well, I am someone that is concerned about the environment, so when I make my choices out there I’d like to make a choice that I think is a better environmental choice. This tire uses the less petroleum of any tire in the industry.

Barry Watkins: We build concept cars, and I was wondering about your marketing plan of what is available now, and do you have sizes for such as Ferraris, Corvettes, performance tires? I could see an advantage there. And what is your marketing plan and rampin’ this up?

King: When it comes to the sizing, right now it’s a limited size lineup and it’s designed really around the hybrid market and things like the Toyota Prius market, so it’s not expanded out yet into other sizes. That will be a future plan for us, to move this into more sizes. At this point the technology, outside of our race tires, is not in any other product yet.

So we expect to be able to learn a lot from this technology and move it into products that are more performance-driven, especially when we look at things like the innerliner and the ability to maintain air pressure is extremely important with a ultra-high-performance product.

Dean Case: General industry question: what’s happening, you know, if all sales are down, new car sales are down 30, 40 percent, obviously OE fitments are down by a similar number. What’s happening in the replacement market? Is there anyone who’s actually benefiting, those tire companies who had more in replacement than OE fitment?    

King: Yeah. I guess two parts to that question. The first one is the industry part. Yes, the OE marketplace is down dramatically. I think we all see the vehicle sales down. That means OE tire sales are dramatically down as well. The replacement tire market is also down, but not as much. And the reason why it’s not down as much, if a person out there decides, I am not going to buy that new vehicle, I’m gonna hold onto my existing vehicle, well, they have to replace the tires on that existing vehicle at some point. So there’s actually less new tires entering into the marketplace because there’s less OE entering it. So although the replacement market it down, it’s not down as dramatically as the OE marketplace.

Now when it comes to who’s benefiting from this, actually Yokohama’s benefiting from this. We try to balance our relationship between OE and replacement, so that we maintain the right supply for both customers. That’s helped us a little bit. But what’s also helped us is that we’re a product-driven company and people look at the value of our product and so we’re actually growing and increasing share.

Case: What is your split between OE and replacement?

King: Here in the U.S. it’s really mostly replacement. We have some OE coming in as imports. We have a strong OE presence with the Chrysler minivan, which really is the only product that has kept them really in the game, and thus we have a strong OE position with that. But a lot of our other OE is in other parts of the world. So we don’t have as much OE here in the U.S. We’re going to plan on growing that, but we’re going to grow that slowly, based on some of the things we’re seeing today. But once you make a commitment to an OE manufacturer, you have to supply that, which means you might have to divert your plant production to that OE instead of the replacement market. So we want to be very careful with that.

Bill Smulo: Does the thinner tireliner relate to a cooler running temperature of the tire?

King: It doesn’t in the technology itself, but the only way it would is that it helps maintain air pressure, and if you’re maintaining air pressure the tire’s going to run cooler. ‘Cause as you might know, when that air pressure goes down, that tire can really heat up quite a bit. So it would help that, but the technology itself, the innerliner, doesn’t have much to do with the temperature of the tire.

Rex Parker: How many oranges per tire?

King: [Laughing] We were talking about some of the questions that might come up, and that was actually one of them that we thought would come up. And you know what? We talked about it and we said, God, that’s almost like asking Coke what their recipe is, right? So that’s actually proprietary. We don’t have, in fact I don’t have, that information. But we don’t usually share that kind of information. And remember, it’s with the peel. It’s not the whole orange.

Parker: Where do the peels come from, and also, where is the natural rubber going to come from?

King: First, the peel, the peel’s coming from juicing plants in Japan right now. So again, it’s the oil extract from the peel and not the actual juice.

Natural rubber comes from a couple of different areas, plants in the Philippines, plants in Thailand are very big, some plants in Viet Nam. They’re very much known for natural rubber because of the temperatures that exist in those areas of the world.

Skip Streets: You mentioned a couple times in your presentation the importance of getting through to the consumer and getting them to embrace this. What’s the plan and how aggressively will you go about that? Is it purely PR, will it be marketing; how do you make sure you get that success you’re looking for in breaking through to the customer?

King: I guess the first step would be though people like you. Not only do some of you write about this industry, but I think you’re leaders in the industry. So I’m assuming that your neighbors might ask you, hey, you know a lot about tires, you know a lot about vehicles, what would you do in a situation? That’s a Yokohama person. We love those people. We love people that like to talk about tires, and I’m hopin’ that’s you guys as well.

But we do want to look at PR campaigns. We’re doing that right now. We think, because of the technology, this can transcend normal industry press information. We’ve had some coverage in USA Today. There’s definitely more traditional consumer media that we think will look at this and say, That’s a very interesting technology. The average consumer maybe can understand a little bit about it. So we’re very hopeful about that. We have a lot of campaigns going.

We also have some advertising campaigns. Right now our first run of advertising campaigns is going to be focused on the industry, automotive industry, which includes things like Car and Driver and Road & Track and those magazines.

Carl Sheffer: Dan, couple questions. One, where are those tires manufactured? And secondly, do you have manufacturing facilities in the U.S. and if so, where are they located?

King: First, this tire right now is manufactured in Japan. That’s where we really focused in on the technology, that’s where we have the juicing plants, so the flow of production was much better there for us. But we do have manufacturing here in the U.S. We have a factory in Salem, VA. We also have a truck tire factory in Illinois. The factory in factory in Salem, VA, actually produces the majority of the tires we sell here in the U.S. are manufactured right here in the U.S. A lot of people don’t understand that. Even though we’re owned by a Japanese global company, most of our production is here in the U.S. and we manage that facility. We get to say what that facility builds and the quality of output in that facility.

Watkins: One other question here and I’ve gotta ask you a question, comment on it. What is the weight difference of these tires compared to one the same size, side by side?

King: Anywhere from a pound to upwards of three pounds difference in weight.

Watkins: Ok, I’ve done an immense amount of research on…

King: [Responding to audience murmur] Lighter, lighter.

Watkins: …an immense amount of research on vehicle mileage and 40 to 45 percent of the mileage is used just to accelerate it around town. The largest item that rotates on a car is the tire. The second is probably the flywheel. That would have a huge advantage for fuel mileage in the weight. I don’t know if you’ve looked or studied that, but it would be tremendous at three or four pounds difference.

King: Yeah, yeah, it is dramatic. But one of the things we have to remember when it comes to the weight of the tire is, the weight of the tire in and of itself isn’t just your ultimate goal, because there’s the other balances. You could have a tire weigh less by taking more things out of the tire, and that can happen. By taking more things out of the tire, making the tire a little bit lighter, it might not perform to the level it should.

So what we’re trying to do is not take anything out. We’re creating new technologies to make it lighter.

Charlie Vogelheim: Along those lines I have a question just from an industry standpoint. Talk about run-flat tires: how they’re doing, how people are treating awareness of them, and even those people that live in the northern tier states that switch out to winter tires, the studded tires, and how do you do that with the run-flat?

King: The run-flat market is a very interesting market. There was a time in the industry when everyone felt, oh, this is the direction that people are going. It makes sense from the OE manufacturer. They can produce a vehicle without the big spare. Some are now being produced, like some of the BMWs, with no spare whatsoever. So there’s an advantage at the OE level. However, at the consumer level we’ve seen some disadvantages.

One of the disadvantages is, oftentimes to produce that run-flat you’re going to sacrifice a little bit of the ride comfort, because the sidewall has to be stiffer in order to run when it’s flat. So there is some sacrifice to the consumer.

The other sacrifice is that they’re very expensive. So when that consumer for the first time, they bought a BMW, maybe they’re not quite sure even what a run-flat is. They get explained when they take the vehicle home. Still probably not sure. They actually have a blow out in that tire. Now having that blowout doesn’t mean that tire’s saved. It just means you can run on it for a while. Once you run on it, the tire gets thrown away. It does not get repaired. So you throw that tire away and buy a new one. When you buy that new one, there’s a pretty big sticker shock for the average consumer.

So we’re very concerned about that. So we believe that the run-flat market might slow down and stay in a certain part of the market and maybe some of the higher-end vehicles and some of the sports cars will maintain that, because the importance of not having a spare tire to save weight and save on the manufacturing side. So it definitely has slowed down quite a bit.

When it comes to, I think the other part of you question, when it comes to winter tires, and that’s another major issue, because if that vehicle didn’t come with a spare, you take those tires off, put winter tires on, you run into the same situation.

Don Fuller: I wasn’t going to bother you folks with anything else from me, but the run-flat question brought up something. I do a fair amount of work as an expert witness for the defense in lemon law, so I do a lot of vehicle inspections where people are complaining about one thing or the other with their car, and mainly what I deal with are plaintiffs who are lying. [Laughter.] That’s the truth!

King: I can’t respond to that, being a manufacturer.

Fuller: Just a sec, there’s a point here. And I have seen a fair number of vehicles where the plaintiff says it’s got this directional problem, it pulls to the left or it pulls to the right, whatever, and I’ll go look at the vehicle and there’s nothing wrong with that vehicle. And then we’ll start looking at it closer and I’ll find out that, my goodness sakes, it’s on run-flat tires and they’re about worn out.

King: Hm-hm.

Fuller: And more than once I’ve come across situations where the defense side of the issue is convinced that the real issue is that this consumer bought something with run-flat tires. Now he’s faced with the big bill on replacing those run-flat tires. And maybe that’s what he has to do because the vehicle has specific rims.

King: Hm-hm.

Fuller: And so then, rather than do that, he files a lawsuit against the car company with some imagined deal. I mean trust me, I see this, ok?

King: We’ve seen it too.

Fuller: So have you seen that kind of thing?

King: Yes, we have. Uhm, luckily we haven’t seen it with any of our products. But we have seen it in the industry. And I think a big part of it goes back to what I said, is that the consumer is not fully aware of how really expensive run-flat tires are and they do get a little shocked when they see that price. And they almost kind of feel like maybe they were duped a little bit, that it wasn’t explained properly to ‘em. And that’s one of the unfortunate parts of our industry.

In the tire industry, a lot of times you’re reliant on the vehicle industry as well to help you educate that consumer. And if they’re not doing that good a job to educate that consumer when they bought that vehicle, then unfortunately they kind of point their fingers back at the tire company.

But we have seen that. We haven’t had to deal with that, luckily. We’re not OE on any run-flats. That’s one of the reasons why.

Vogelheim: Can you talk a little bit about changes in the market? You already mentioned the larger diameter tires, or even any of the sizes that are low profile, as you’re seeing replacement growth or not, is that trend still in place, or is it starting to diminish, or grow?

King: Ah, there’s two parts to that. The trend that’s continuing is, we are seeing more larger diameters when it comes to more traditional vehicles. You have vehicles that maybe ten years ago came OE with a 15-inch tire that are today coming OE with a 17-inch-tire. Even some of the Honda Accords, for instance, or Nissans are coming now with 17 inch as OE. So that growth is continuing. When you’re seeing 17-inch, 18-inch diameter tires that I think a lot of you here probably have some of those sizes on your vehicle. It’s what the vehicle was designed to have. It’s the performance marketplace that we really are very, very strong in, that Yokohama helped create.

But when it comes to the very large diameter, when you’re looking at 24-inch on SUVs, you’re seeing less of that now. And it started with the price of gasoline crunch that we had, you know, a year ago, a year and a half ago. It’s continued though this economic downturn. So we’re seeing less people stepping up and saying, I want 24-inch on my SUV. Instead, they might say, I’ll just take 20-inch on my SUV, because I’m not gonna go all the way down, because the mindset now is that vehicle looks better to them with that larger diameter. But we’re seein’ a lot less 24-inch.

Thirty-inch, 32-inch, were big discussion points in our industry. However, 32-inch tire only fits on a Hummer. Well, we all know that the life of Hummer might be over, so that market might be over as well.

Vogelheim: Other questions? I could go on. The low profile, when does it just become ridiculous, or from an engineering standpoint unattainable from a safety or a performance standpoint?

King: On the profile side, we’re basically there. If we get to a point where we bring down the sidewall, right now, with the current technology, it stiffens the ride too much. And that’s one of the things that has changed a lot in the performance marketplace. A lot of you that maybe went through the Eighties and the Nineties and had performance vehicles, maybe even took ‘em out on the weekend to race, the most important thing was really dry performance. Some wet performance, but definitely dry performance.

Now, when it comes to vehicles that are equipped with 17-inch and 18-inch, you need a ride comfort tire as well.

So what’s really pushed the envelope and the technology in our industry is the consumer, and you guys are that. You want to have a nice-riding tire even if you have a large-series BMW or Mercedes ore, you know, any kind of vehicle like that, especially sedan vehicle. You like the crisp handling of that vehicle, so it has to perform, but a lot of your driving is down the freeway and you don’t want that thing bouncing every time you hit a little rock or pothole. So it’s really expanded to be you need a good ride comfort. So the lower you get, the harder it is to maintain that.

Paul Dexler: As somebody who owns and uses on a daily basis three elderly vehicles, [chuckling audible] what‘s going to be the status of, well, a ’91 and a ’92 and a ’93? One’s on 14-inch wheels, one’s on 15 and one’s on 16. How long am I going to be able to get tires, really nice tires, that fit those cars?

King: That’s actually an interesting question to us. You know, we kinda forget about that, that the consumer that has those tires, are they worried about that? There is actually plenty of supply of that, but it is getting less. So unfortunately, what it will mean over time—it’s not quite there—what it will mean is that you have less choices to choose from.

Like as an example, 13-inch tires. There’s some vehicles still out there with 13-inch tires. In our plant in Virginia we’re not producing 13-inch tires any more. So now there’s still a demand for it. It’s probably not our customer, necessarily, but they’re still in demand. So people are still producing those.

Dexler: I have a 14-inch car and it has ABS on it. I want to continue to have a supply…

King: Well good, ‘cause I was gonna recommend, there’s new legislation about “cash for clunkers…” [Laughter] But since you have ABS, you keep those!

Bill Baker: Are you an advocate of nitrogen for filling the tires, or is that just a real profit center for some places?

King: [Laughing.] Well, again, there’s two parts of that question. Whether it’s a profit center I’ll get to in a minute. But there is test results that show it is a little bit better in maintaining the air pressure. So with nitrogen it will escape a little bit less than traditional air. So although we’re not a huge advocate of it, ‘cause we haven’t done our own testing, we do tend to talk to people that are out there looking at it and we will say yes, that’s probably a good thing to have.

Now some areas you have to pay a certain amount for it. That’s a different story. Is it worth that additional cost? That could be debatable a little bit, but the retailers out there have to try to recoup their original investment. We actually have some programs in place to help ‘em do that so they don’t have to charge the consumer as much. We have some programs out there where they can use to actually buy nitrogen equipment and help them offset some of that cost.

Ed Jenks: Is this [orange-oil tire on display] currently on the market now to retailers?

King: Yes, it was launched July first. So it’s brand new.

Jenks: And is it like readily available all over?

King: Yeah. So right now all of our dealers have access to this. We’re already begin shipping the product as we speak.

Dean Siracusa: I’m surprised nobody here has asked this; it’s a stupid question, but…burnouts?

King: Huh?

Siracusa: Burnouts!

King: Does it smell like oranges? [Laughter.]

Siracusa: Yeah!

King: Check that off the list too, that was another question! I was surprised it took this long.

Laura Arbios: He meant peelouts!

King: I was going to bring it up in the presentation and I decided, no, let’s see if someone asks about it.

You can see that it’s not orange. And also it doesn’t smell like oranges. It wouldn’t naturally smell like oranges anyway, and we don’t want to put that kind of gimmick into it.

So when you do peel out, it’s going to be like normal.

Vogelheim: The final question I just had is the end of the life. I mean, tires, one of the big issues with it is what do you do with ‘em? Recycling and the way they stack up. How does this affect that, and in a broader sense, is Yokohama doing anything for the worldwide tire recycling issue?

King: Yeah, we are definitely looking at materials that are recyclable in all products. And I didn’t really get into it a lot, but that is one of our global missions. Our global president is a huge proponent of the environment, has spoke often about it. It’s one of the drivers of why we have an orange oil technology, is to look at environmental technologies.

So we’re looking at ways to make tires more recyclable, ways that you can pull the steel out. That’s actually one of the biggest dilemmas when it comes to recycling tires. If it was just rubber, it would be very easy, but there’s embedded steel and rayon and how to pull those out and we’re looking at technologies right now to do that.

Thank you.