‘The Retread Will Become the New Tier 4’: Tariffs Create Cautious Optimism Among Retreaders
Retreaders are eager for the boost the new countervailing and antidumping tariffs on truck and bus tires from China are expected to generate for their industry.
But the companies on the Modern Tire Dealer Top Retreaders list acknowledge the tariffs, which went into effect on Feb. 15, 2019, are no panacea. When it comes to tariffs on tires, they’ve seen it all before.
The countervailing (CV) duties range from 20.98% to 63.34% and the antidumping (AD) duties range from 9% to 22.57%. The new CV and AD tariffs on Chinese truck and bus tires are in addition to a 10% tariff on all Chinese products levied by the Trump administration in September 2018.
Last fall’s 10% tariff prompted Tredroc Tire Services Inc. to build up its stock of medium truck tire retreads, according to CEO Larry Jeffries. “We believe the retread will become the new Tier 4 at least in the next 12- to 24-month period. Anyone who retreads is going to potentially get a lift from this tariff issue because there is a market out there for Tier 4 products.”
Jeffries’ time frame fits previous tariff situations involving passenger car tires from China. “It took them about 12 months to shift production to Thailand, Vietnam and Indonesia. Then they started ramping it back up again.”
Jeffries says Tredroc, which holds the No. 21 spot in the ranking, is cautiously optimistic about the retread market for 2019 due to the initial 10% tariff as well as the AD and CV ruling. “The ‘cautious’ element revolves around how the manufacturers will react with retread rubber pricing,” he says.
“If they hold prices then it would be a very good thing for the retread market, conversely if they raise prices and keep the price spread between a Tier 4 and a retread minimal, retreading would remain status quo.”
Jeffries expects manufacturers to be producing truck tires in non-tariff countries in a year or so. “We feel that the coming 12 months, at least, or 18, that there’s going to be a nice spike in the retread business.”
But the game changes if tire manufacturers raise the rubber price and put retreaders in a position where pricing is not competitive. “When the initial 10% tariff went into effect in September most every manufacture raised prices immediately, and we have already begun to see similar actions with the CV and AD ruling,” says Jeffries.
Tredroc is investing $300,000 to remodel its retread plant in Wyoming, Mich. The company has also increased capacity by adding split shifts and second shifts at some plants to keep up with demand.
A cause for optimism
Eleventh-ranked Les Schwab Tire Centers Inc. is neutral about its retreading business in 2019 as the industry itself is down, according to Todd Coulter, executive vice president. “But tariffs on Chinese TBR products may help offset some of the decline.” He says the company believes it will take several months for the tariffs to increase volumes for the retreading industry.
In Houston, Texas, Bob Beasley also expects the tariffs to improve his retreading business. “If the tariffs hold it will definitely be cause for optimism. Not regarding the tariff issue, we expect the market to be flat except for our goal to gain market share,” says Beasley, who is president of Beasley Tire Service Inc., which operates one retread plant and is tied for No. 62 in the rankings.
Chris Chase, president of Donald B. Rice Tire Co. Inc., which goes to market as Rice Tire, is very optimistic because of the tariffs and the addition of a second retread plant. The company purchased Central Tire Co.’s retread plant, along with a commercial store and retail store, in March 2019. Frederick, Md.-based Rice Tire holds the No. 42 spot.
Noah Hickman also looks forward to more business. “2018 was a good year and 2019 forecasts to be our best since 2012. The shortage of many major manufacturers’ new tires coupled with the increase in markets across almost every sector is increasing demand for retreaded and used tires,” says Hickman, who is president of No. 22-ranked H&H Industries Inc. of Oak Hill, Ohio.
Low-cost imports are still available
The number one dealer in MTD’s rankings, Southern Tire Mart LLC, purchased six retread plants and 46 GCR Tires & Service stores from Bridgestone Americas Inc. in March 2019. John Boynton says Southern Tire Mart’s outlook for its retread business is not related to the CV and AD tariffs.“We are bullish because retreading is such a huge cost savings to fleets when it’s managed and done correctly. Fleets always have to be looking for ways to keep their costs low. The quality of the products being built are constantly getting better, which makes a better platform for retreading.” Boynton joined Southern Tire Mart in October 2018 after leading the commercial operations at Tredroc Tire Services and Bridgestone.
Retreading has always been a core competency for Southern Tire Mart. “We’re always looking at ways we can promote and push more retreading because it is such a genuine service to our customers,” says Boynton.
He does not expect the tariffs to be a game changer. “With some of the market dynamics going on and the raising of the pricing of the Chinese tires, that’s going to create a little bit more of an opportunity. But there are other players out there that are not going to be subject to these restrictions, and they’re pretty competitively priced.”
Gary Van Blaricom likewise expects a short-term increase in retreading due to the tariffs because low-priced tires are still available. “We have to remember tires coming out of Thailand, Vietnam and India are not subject to these tariffs, so the low-cost TBR tires have not gone away completely,” says Van Blaricom, who is president and CEO of Eastern Iowa Tire Inc.
“The biggest single reason for retreading being down is the offshore tires and the pricing that comes with them. So I think there will be an uptick in retreading, but I’m not sure at this point whether it’s going to be a large change,” he says.
Van Blaricom is an owner in the Heartland Tire Group, which operates 16 stores and five retread plants in Iowa, Nebraska and Missouri. Heartland, which holds the No. 48 spot in the rankings, operates under the names Eastern Iowa Tire, Garrett Tires and Treads, Heartland Tires and Treads of Omaha, Heartland Tires and Treads of Kansas City, Davis County Tire and Weldon Tire.
In addition to the availability of low-cost Chinese tires, Van Blaricom says many people are not retreading because they feel it is more economical for them to run new tires and sell the casing. Ten years ago, retreading represented more than half of his business. Retreading is 22% of his business today, while his sales of imported tires have increased.
The tariffs will fundamentally change the supply side of new tires in the U.S., according to Ron Elliott, marketing, communications and inside sales manager for Marangoni Tread North America Inc. “Over the next two years we will see a return to an improved ratio of retreads to new tires sold and put into service in the U.S.”
Marangoni is expanding its Tennessee production facility following a year of increased unit sales and growing demand for the XP Extreme Performance line. The new production line is expected to be operating in the second quarter of 2019.
“The commercial trucking industry has been on a sugar high for the last several years, bingeing on cheap, low quality and non-retreadable commercial truck tires that are being imported into the United States at below fair market value from China,” says Elliott.
He is also the spokesperson for Retread Instead, a coalition of retread industry supporters that seeks to inform and educate on the environmental and economic benefits of retreading instead of buying, selling and running tires imported from China. “With the tariffs in place, we will now see better quality truck tires that will be more repairable and retreadable delivering lower total life cycle cost and reducing the negative impact on the environment.”
Acquisitions are one way retreaders are adjusting to market challenges. The latest acquisition occurred on April 1, 2019, when No. 9-ranked Bauer Built Inc. bought one retread plant and seven commercial stores from Allied Oil & Tire Co. The prior month, Southern Tire Mart purchased six retread shops from Bridgestone and Rice Tire bought Central Tire’s retread plant. In June 2018, Purcell Tire & Rubber Co., the largest OTR tire retreader in the U.S., purchased the Northwest Retreaders Division of NRI Inc., the second largest. Purcell holds the No. 5 spot.
In May 2018, Monro Inc. acquired Free Service Tire Co. The purchase included the tire dealer’s retread plant, along with 12 retail and commercial stores and four wholesale distribution centers. No. 28-ranked Monro now owns three retread plants.
In November 2018, No. 38-ranked Border Tire LLC bought a retread plant and five Tire Centers LLC (TCi) stores in California from Michelin North America Inc. The locations were the last of TCi’s assets. Border Tire had previously acquired two TCi locations in Arizona. Border Tire has commercial stores in Laredo and El Paso, Texas; Las Cruces, N.M.; and Tucson and Phoenix, Ariz. The company also has a retread plant in El Paso. In April 2018, Michelin sold a retread plant and three TCi locations in Colorado to Quality Tire Co.
Also in 2018, No. 10-ranked Service Tire Truck Centers Inc. (STTC) purchased S&S Tire Inc.’s three stores in Maryland and an Oliver retread plant in Pennsylvania. The stores and retread plant were consolidated into STTC’s existing locations and retread plant, according to Walter Dealtrey, CEO and president. In addition, a Truck Tire America Ltd. store in Delaware was acquired and merged into a nearby STTC location.
BestDrive LLC, a Continental tire and ContiLifeCycle commercial tire dealer and retreader, opened a seventh retread plant, its first in the state of Texas, in 2018. The Continental Tire the Americas LLC subsidiary ended 2018 with 31 locations versus 22 at the end of 2017. Expansion included the company’s first stores in Texas, Oklahoma, California and Arkansas. No. 24-ranked BestDrive grew 28% year-over-year in sales, and expects similar or higher growth this year, according to Sonny Simpson, managing director.
TravelCenters of America LLC, which holds the No. 92 spot, opened its first TA Commercial Tire Network Retread Center in July 2018. Located in Bowling Green, Ohio, the plant is part of the Goodyear Authorized Retread Network. TravelCenters opened the retread plant just two years after launching the TA Truck Service Commercial Tire Network. Before opening the retread plant, the company had stated it was contracting with 140 company-owned and independent retreading shops to offer Goodyear and Bandag retreads.“We continue to contract with many outside retread plants,” says Bob Eck, vice president of TA Truck Service Commercial Tire Network. “However, as our business has grown, we’ve needed additional retreading support. We’ve found that having our own retread plant allows us more flexibility in managing the cradle-to-grave process quickly and efficiently, as we move further into the full-service space.”
Approximately 75% of what the company sells in retreads still comes from contracted plants, according to Eck. “The remaining 25% is distributed to TA Truck Service facilities, fleets, local industries and tire dealers all within a 150-mile radius of Bowling Green, Ohio, by our TA Commercial Tire Network Retread Center.”
Eck is optimistic about the retreading business in 2019. “Retreads are a critical component of managing tire expenses for fleets. In addition, I expect the U.S. government’s decision to levy tariffs on new truck and bus tires from China will foster growth in the retread market in the coming year.”
Ready for the demand
Brandon Keilers is owner and president of Houston-based Keilers Holdings Inc., which operates four Cy-Fair Tire commercial stores and a 17,000-square-foot Oliver retread plant. Keilers expects the market to “end up being back where we were” because Chinese production will shift to countries without tariffs. “Instead of low-cost import tires from China disrupting the market, it will be low-cost import tires from Vietnam or Sri Lanka or India.”
While Keilers is prepared for an uptick in demand for retreads, the tariffs create challenges for other parts of his business. “This makes me scramble to find new tires at affordable prices for customers. I’ve had more manufacturers approach me that I’ve never heard of from these (non-tariff) countries now. They’re coming out of the woodwork to try and supply that demand.”
The majors will see an opportunity to increase their prices to match the increase in the price of Chinese import tires, according to Keilers, whose company holds the No. 66 spot in the rankings. “The tariffs will not level the playing field because the difference in cost between a Michelin and a Chinese tire is going to remain the same.”
Keilers notes that while margins are higher on Chinese imports than on retreads, he is ready to meet market demands. “Anywhere I could see an increase in business, I would love to. If the retreading did double overnight, we would make sure we’re up to speed and producing what we need to.”
Keilers’ father, Ronnie, and a business partner started Cy-Fair Tire in 1979 in Houston. The company offered auto repair services, mufflers, tires and fuel in leased space in a former gas station. Eventually, the partners focused on servicing tires for commercial fleets. Brandon bought out his father’s partner in 2000. At first the father and son had no employees, were working out of the leased space, and mounted and balanced tires in a used 40-foot shipping container.
In 2004, the Keilers purchased the property. They opened the retread plant in 2006 and took steps to expand the business by adding service trucks, a foam filling service, and employees.
The company has grown greatly in the last few years. The newest Cy-Fair Tire location opened in Beaumont, Texas, in January 2019. The Brenham, Texas, store opened in January 2018. There are also two stores in Houston. The company provides passenger and commercial tire services, foam filling, mobile forklift tire pressing, mobile commercial alignments and 24-hour road service along with Oliver retreading.
Growing 20% a year
Four years ago, Dennis Beaudette Sr., owner of Industrial Tire of CNY LLC, renovated a 30,000-square-foot building to create space for a new division, Syracuse Retreaders LLC. Today he runs the retread plant along with his sons, Dennis Jr., vice president, and Marty, plant manager.
Syracuse Retreaders’ only customer is Industrial Tire, a full-service commercial store which the elder Beaudette founded in 2002.
The Syracuse area is a freight transportation hub and home to many construction companies. Industrial Tire offers commercial tire sales and services, including roadside assistance for trucks and off-road vehicles, foam filling, wheel reconditioning and preventive fleet maintenance.
Up to 2015, Industrial Tire sourced retread tires from vendors whose plants were miles away. Then in 2015, Syracuse Retreaders opened and became the sole supplier to Industrial Tire. Today, retreading represents about 35% of Industrial Tire’s business.
“There wasn’t a retreader in the Syracuse area at all, so we took that opportunity,” says Dennis Jr. “We knew there was a market for retreading because we were picking up so many casings at a time.”
Despite the availability of low-cost import tires, the retread business grew. “The first year was a struggle, but then we started picking up new business and clients. Now we’re trying to keep up with all the work,” says the younger Beaudette.
Business at Syracuse Retreaders is now growing about 20% year over year. The company, which holds the No. 98 spot on our list, uses the Goodyear precure process and is part of the Goodyear Authorized Retread Network.
Beaudette expects business to continue to grow for reasons beyond the tariffs. “Our sales force is slowly growing, and we’re gaining a great reputation around the Syracuse area.”
Plant tours have proven to be an effective tool for turning retread doubters into retread customers. “Some people have an idea in their head that retreaded tires can blow. Once they see the technology, they change their minds,” says Beaudette. ■
See our Top 100 Retreaders in the U.S. here.