Is there a future for the motor vehicle tyres sector in Cyprus?

By Stavroula Kousiappa

 

The demand for tyres in Cyprus is completely covered by imports due to the lack of domestic production of tyres. The companies that are involved in the trade of motor vehicle tyres are divided in two categories: the importing companies which trade tyres in large quantities and the smaller firms which sell new and used tyres and may provide repair services as well.

According to the Statistical Service, there are approximately 60 major importing companies of tyres and nearly 300 companies involved in the repair and trade of new and used tyres. In addition, the retail companies are classified under the motor vehicle spare parts and accessories category since they do not provide only tyres but a group of motor vehicle related products. In 2004 there were 1417 companies in this category.

As said by the representatives of the companies involved in the market, there are about 120 tyre trademarks in circulation, which vary in quality and price and satisfy specific standards in order to better suit the Cyprus weather and road conditions. They also added that the useful life of tyres taking into consideration Cyprus’ conditions is estimated between five to six years.

The demand for tyres normally has a reverse attitude to that of the demand for motor vehicles. An increase in the demand for motor vehicles decreases the demand for tyres in the short-term because the motor vehicles are equipped with tyres and it takes up to six years to be replaced. In the long run the effect from an increase in the demand for motor vehicles has almost no effect on tyres demand.

The demand for replacing a vehicle’s tyres is affected by the mechanical condition of the vehicle, the quantity of air in the tyres, the distance that the vehicle covers in kilometers, the road and the weather conditions and the atmosphere temperature.

Price is another determinant for the demand for tyres. The higher the price is the lower the demand will be. Although consumers sometimes do not replace the tyres on time, they cannot avoid it for long for safety reasons. According to our information, the price level reveals the quality level of the supplied product; the higher the price the better the quality.

In Cyprus, the price of a tyre varies from 25 to 300 Cyprus Pounds. Only 35% of the Cypriot consumers prefer buying tyres of high quality, while the remaining 65% who are influenced by the price buy at low prices and less quality.

The imports of tyres are mainly from the European Union; ie the Netherlands and France; and from China and Japan. During the last few years, there has been a trend towards the Chinese products which are cheaper.

In brief, the market of motor vehicle tyres has good potential and it seems that the companies with remarkable market share and good reputation will be better off compared to the small firms.

It is estimated that a number of companies which deal with the repairs and the trade of tyres in small quantities will not survive in the future. The reason is that they will be obliged to harmonize their premises according to the European standard requirements and this means high expenses. Most of the companies cannot afford to make this investment, while those who can believe that the rate of return on such an investment will not yield satisfactory revenues and profits.

 

* Stavroula Kousiappa has an MA Industrial Economics and is Research Executive at Creditinfo Cyprus