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Tire prices are high and more increases are on the way

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Tire prices are high and more increases are on the way

The bad news is that raw material costs continue to increase. In December 2011, butadiene was $1.03/lb., in April 2012 it was $1.45/lb. Other representative raw material comparisons (per pound) are: styrene, 56 cents then to 66 cents now; carbon black, 50 cents then to 60 cents now; and natural rubber, $1.55 then to $1.72 now. Yes, tire prices are high, and even as consumers are balking, tire manufacturers cannot absorb those cost increases, so higher tire prices are on the way. And also don’t overlook higher transportation costs as diesel prices have surged. The other thing driving tire costs higher is the steady creep in the average size of the tire as OE auto companies have gravitated to large high performance tires with each new model that comes along, and the consumer doesn’t understand the implications for future tire costs as they drive off in their new car. And finally there may be some good news. Strong new car sales are positive for replacement demand. It is encouraging to see gasoline prices recede a bit this month and with the economy improving (albeit slowly), I’d expect miles driven to turn positive soon.

Monthly survey

A number of independent tire dealers were surveyed concerning current business trends. Except for tire prices and costs, the results of the March 2012 survey are compared with those of March 2011.

Growing U.S. economy gives hope for the future

According to our dealer survey, roughly 55% of passenger tire dealers believe business will stay about the same over the next six months while 40% believe it will improve. The remaining 5% believe it will worsen. As for truck tire dealers surveyed, 59% see business improving while another 35% see business staying about the same. The remaining 6% believe business will worsen. Optimism stems from improving U.S. economic conditions, however, high gas prices remain the top concern.

High gas prices likely hindering volumes

According to dealer reports, on average, retail sales of new replacement passenger tires were down 2% when compared with March 2011. High gas prices continue to be dealers’ biggest concern as gas prices have steadily increased from $3.37 a gallon at the beginning of 2012 to about $4 a gallon at the end of March. Truck tire sales were flat in March, despite higher diesel prices. Retreaded tire sales increased 5% in March after falling 9% last month.

Premium tire costs are flat... for now

In comparing March 2012 with February 2012, average cost and selling price for a size 215/60R16 major brand tire was flat. The average cost for a 215/60R16 private brand tire was down 2% while the selling price was down 1%. Dealers report that consumers are looking into buying used tires.

Pricing seen as a normal to aggressive

In March 2012, 60% of passenger tire dealers saw pricing as normal while another 25% saw it as aggressive. The remaining 15% saw it as firm. On the other hand, 47% of truck tire dealers saw pricing as normal while 35% saw it as very firm and 18% saw it as aggressive.

Passenger tire inventories are lowering , but still high

Fifty-five percent of passenger tire dealers believed inventories were in line with current business levels, while 25% believed inventories were too high. The remaining 20% felt inventories were too low. Roughly 59% of truck tire dealers said inventories were in line with current business levels, while 29% felt inventories were too high. The remaining 12% felt inventories were too low.

Service business continues to be strong

Dealers who provide automotive service reported that 35% of revenues, on average, were generated by service during March. Dealers said service business grew by 5%.     ■

Analyst Saul Ludwig is a managing director with Northcoast Research Holdings LLC based in Cleveland, Ohio. He concentrates on the tire and chemical industries. He has been writing for Modern Tire Dealer since April 1975.

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