Hold on tight
Truck tire manufacturers and marketers agree: thanks to skyrocketing diesel prices, declining tonnage and a difficult overall economy, 2008 will go down as one of the most challenging years in truck tire market history.
Shipment projections certainly point in that direction. When the Rubber Manufacturers Association (RMA) published its 2008 shipment projections three months ago, it was predicted that replacement medium/wide-base/heavy on-highway commercial truck tire shipments will decline by 300,000 units from prior-year levels, reflecting “a weaker and more uncertain economy and less movement of goods.”
The RMA predicted that the original equipment medium/wide-base/heavy on-highway commercial truck tire category will see a slight increase of just over 1% to 4.7 million units. “In 2007, this sector experienced a nearly 32% decrease in shipments as changes in Environmental Protection Agency regulations inspired a pull-forward effect on truck sales in 2006,” said RMA officials. Fallout from the “great pre-buy of 2006” is still being felt.
Commercial Tire Dealer recently asked executives from several truck tire manufacturers and marketers to provide analyses of what’s brought the truck tire market to its current point and what the rest of 2008 will bring. Here are their thoughts, organized alphabetically by company name.
China Manufacturers Alliance LLC (CMA): “This is shaping up to be a tough year in both replacement and OE sales,” says CMA Vice President Aaron Murphy. “There has been a dip in freight that is being hauled, which translates into fewer miles being run, fewer tires being used and less revenue to replace tires.
“In the OE channel, the rebound from the 2007 engine emissions change has not happened yet and it seems like the forecast is very fluid. With the economy stalled, OE tire sales are down and can lead to fewer tires being sold in this channel. As always, a slowdown in OE sales allows for more products to be placed in the replacement channel, which can lead to excessive inventory and price compression. A factor in the replacement market is the weakening of the dollar versus other global currencies. This creates extreme pricing and cost pressures on the manufacturer.”
Continental Tire North America Inc. (CTNA): “Demand from fleets, especially small to mid-size fleets, is soft due to overall economic conditions and lack of consistent freight,” says Clif Armstrong, director, commercial marketing, the Americas, for CTNA. “The price of fuel is severely impacting fleets and is altering their buying habits, including tires. The owner-operators I talk with are struggling with managing fuel costs given the price of freight.
“As for the remainder of 2008, we see diesel fuel prices moderating, starting in early fall. However, we do not see positive trending in the total economy until late 2008, thus negatively impacting fleets the rest of the year.
“Our outlook for 2009 does trend more positively as the industry gets a bump due to the 2010 Environmental Protection Agency engine pre-buy... (which) takes the 2007 mandate a step further for emissions reductions. The final EPA mandate takes effect on Jan. 1, 2010. Therefore, we expect 2009 to be driven by a pre-buy to beat the deadline. While we do not think the pre-buy will match 2006, it will drive truck purchases beyond normal cycle need levels.”
Cooper Tire & Rubber Co.: “I expect the remainder of 2008 to be very competitive,” says Bill Hoban, national truck tire sales manager for Cooper’s North American Tire division. “The trucking industry faces headwinds both economically and internally that will affect its bottom line. If predictions are correct and consumer spending decreases, all indications are that freight tonnage will decline, which will negatively impact commercial business.”
Hankook Tire America Corp.: “Three factors are shaping how the market affects truck tires: economy, freight and diesel,” says Brian Sheehey, director, commercial tires, for Hankook. “The economy has not been stable... both in the public and private sectors. In the public sector, tight state budgets threaten the continuance of public road and bridge projects, which in turn delays the establishment of future large-scale infrastructure projects.
“Freight tonnage is significantly down as a result of slowed consumer spending. Competition for freight has made profitability even more difficult to maintain. The speed at which diesel rates are climbing has surpassed the ability of trucking companies to recover these expenses through surcharges.
“The slowdown in OE truck and trailer (sales) has increased the availability of tires in many applications. There is fierce competition in the replacement market for trailer and construction tires. And tire manufacturing still faces double-digit increases in raw materials and in other significant manufacturing expenditures.
“If I had a crystal ball, I would feel more comfortable predicting winning lottery numbers than guessing what the truck tire market will be like the rest of the year.”
Hercules Tire & Rubber Co.: “The domestic truck market has been volatile at best,” says Joshua Simpson, Hercules’ vice president of marketing. “The slowdown in OE truck sales and OE tire sales is causing a negative impact in the replacement market. We remain optimistic the second half of 2008 will stabilize as the demand for truck tires in the aftermarket balances out.”
Treadways Corp.: “Our commercial tire dealers report that the fall-off in construction has affected their business with local fleets,” says Richard Purol, vice president of sales and marketing for Treadways. “Some parts of the country also have been hurt by the slump in heavy manufacturing.
“Industry data shows the replacement market has been fairly stable, while OE has been in a free fall. These extremely difficult conditions in the OE segment force manufacturers to pursue replacement business, making the pricing and distribution environment less stable. It doesn’t look like the market will turn until the business cycle moves toward recovery.”
Yokohama Tire Corp.: “It’s going to continue to be a lean year,” says John Cooney, director of commercial sales for Yokohama. “But there is a light at the end of the tunnel. I believe you’ll see truck tonnage begin to improve during the summer months and start making a slow crawl back. Just about everything that touches our lives is delivered by truck. We’ll see the trucking industry, as an indicator, lead the country out of its doldrums.”
If the market regains momentum during the second half of 2008, as several tire manufacturers predict, it could lead to a healthy rebound in 2009, at least at the OE level. In fact, the RMA projects a “significant rebound” of more than 20% next year at OE “as truck sales resume normal levels and economic activity improves.”