Armed with a Blackberry, cell phone and who knows what else, tire industry analyst Saul Ludwig made his annual pilgrammage to the Specialty Equipment Market Association (SEMA) Show in Las Vegas last week (Nov. 3-6).
He and associate Eric Swanson had the opportunity to talk with senior executives representing all the supply links in the tire distribution chain, including 10 major manufacturers, four major wholesale distributors, four large retail chains "and many individual dealers associated with smaller chains or owners of individual stores," says Ludwig.
Here are their "key takeaways" from the show.
1. Price increases. "As raw material prices are moving up, we suspect the major tire manufacturers will soon be raising prices. These increases could be announced within the next 30 days to be in place by January 1.
"Most of the dealers we spoke with suspect the increases will be about 5%, but some thought they could be as high as 10%. Several smaller manufacturers -- Falken, Pirelli, JK Tyre, and Ceat -- have raised prices to offset rising raw material costs, although no major manufacturer has yet announced an increase. With supply short, inventories low, raw materials on the rise and demand improving, now appears to be an ideal time for manufacturers to increase prices."
2. Strong October. "Almost across the board, every dealer and most manufacturers we spoke with noted that consumer replacement tire business was very strong in October. Dealers' comp store unit sales were up 5-15% in October, and several manufacturers were unable to keep up with demand.
"Supply is tight and fill rates are declining. Some manufacturers are even losing sales in recent months, as they were unable to fill orders. As business is improving, production has been increased and utilization rates are moving higher and should reach full capacity during early 2010. Truck volume is still down, however."
3. Low on inventory. "(Consumer) inventory levels remain very low across the board; as such, both dealers and manufacturers are ramping up inventory in anticipation of stronger unit sales in the end of 2009 and 2010. Although increasing, several manufacturers noted inventories will not return to the high levels seen in both 2007 and early 2008."
4. Chinese tariffs. "Most dealers and distributors bought as much Chinese product as possible before the tariffs went into effect. After remaining flat to slightly down from March through June, Chinese passenger tire imports were up 23% and 33% in July and August, respectively, as Chinese manufacturers wanted to import as much product as possible before being hit with the tariffs.
"Prices on Chinese imported tires have risen in the range of 15-20%, which will mostly offset the tariff. As a result of the tariff, the spread between an entry-level tire and next level up has been compressed, making entry level Chinese products a more difficult sell for dealers."
5. Mold movement. "In addition to raising prices, Chinese manufacturers are now shipping product and moving equipment and molds to other countries. One manufacturer noted it is moving its equipment and molds to Taiwan and Thailand from its Chinese plants.
"We suspect Cooper Tire & Rubber Co. is shipping some tires from its Kenda joint venture to Europe and Mexico to offset the U.S.-imposed tariff. Although manufacturers are working hard to offset the tariff, most suspect there is not enough capacity and production in other countries such as Indonesia, Taiwan and Thailand to fully compensate for the duties imposed by the United States."
Ludwig also notes that most of the dealer comments about Goodyear Tire & Rubber Co. and Cooper Tire & Rubber Co. were positive.
