Truck tire market remains sluggish, but... Manufacturers, marketers see light at the end of the tunnel
Despite signs pointing toward the start of an economic recovery, the domestic medium/heavy truck tire market still faces some formidable challenges. Commercial Tire Dealer recently asked several truck tire industry executives to provide their take on where the market stands at mid-year and where it's headed.
Participants (in alphabetical order) included Steve Buck, Tire Division general manager and vice president, Hercules Tire & Rubber Co.; Randy Clark, vice president, Michelin Americas Truck Tires; John Cooney, director of commercial sales, Yokohama Tire Corp.; Kurt Danielson, director, commercial tire marketing, Bridgestone/Firestone North American Tire LLC; Larry Enders, president, Cooper Tire & Rubber Co. Commercial Products Division (recently retired); Ron Fussell, regional director, Hankook Tire America Corp.; Ron Gilbert, director of sales, commercial products, Toyo Tire (U.S.A.) Corp.; Dave Hudrlik, vice president of sales, Kumho Tire U.S.A. Inc.; Tom Roydhouse, vice president, Continental Tire North America Inc.; and Walt Weller, director of commercial tire marketing, Goodyear Tire & Rubber Co.
CTD: Describe the health of the medium/heavy truck tire market.
Buck: The current health of the market is, at best, sluggish. A good number of dealers' opinions is that if they can match last year's units and gross profit figures, they would be very happy.
Clark: Like the economy, the medium/heavy truck tire market is waiting for recovery in the marketplace. Original equipment sales in the coming months will be lower than the same period in 2002 because many fleets and operators timed their purchases in advance of new Environmental Protection Agency regulations that went into effect in October 2002. The OE trailer market is an exception to the current trend; this segment is moving strongly upward after having been down for some years.
Danielson: The health of the truck tire market goes hand-in-hand with the health of the transportation industry. With a depressed economy, increases in fuel costs and double-digit increases in insurance, the industry has been impacted.
Enders: Lower vehicle utilization and new vehicle purchases have affected the market. Over-capacity is beginning to abate somewhat, but pricing in new tires has been soft.
Fussell: The replacement market has been soft during the first quarter. High fuel costs have affected tire sales.
Gilbert: There again seems to be a glut of truck tires. This is a supply and demand industry, and unfortunately, this glut dramatically affects a dealer's profit.
Hudrlik: The OE market has shown good growth so far this year, indicating a continuing rebound. The replacement market, although up in January, declined in both February and March, with the market ending up year-to-date down by about 1%.
Roydhouse: There's a lot of uncertainty, due to the war, economic conditions, rising costs of raw materials, etc. All businesses are looking hard at inventory, cash flow and receivables to get through this tough period. There is pent-up demand that will carry us into the future once we get rolling again.
Weller: The general malaise of the economy contributes to a reluctance to buy replacement tires or, at best, postpone the decision as long as possible.
The real surprise has been the strength of the OE market during the first quarter. Because of the engine emissions pre-buy in late 2002, the first quarter was expected to be flat to negative. But Class 8 tractor and trailer sales have been stronger than anticipated.
CTD: What is the most significant issue facing the medium/heavy truck tire market today?
Buck: The future of retreading. With the high cost of a start-up retread shop vs. the influx of inexpensive radial truck tires, and the uncertainty of what the TREAD (Transportation Recall Enhancement, Accountability and Documentation) Act will do, this could be the catalyst to cause more retreaders to go out of business.
Clark: The health of truck fleets is a concern. The combination of high insurance rates and volatile diesel pricing has created an environment that is stressing many fleets to the point of bankruptcy.
Cooney: The same issues that face every business each day: controlling costs and improving productivity. Social and raw material costs also continue to rise, and energy costs are on a roller coaster.
Danielson: The economy and the effects it has on our industry as a whole. The tire industry is one with the transportation industry, and the transportation industry is a leading indicator as to how the economy is doing.
Enders: The TREAD Act is probably the most significant issue we face. Depending on how the National Highway Traffic Safety Administration proceeds, the impact on the industry could be huge. Conversely, the impact of the TREAD Act could be positive if systems that improve tire maintenance and inflation on trucks are mandated.
Fussell: The price of oil, an ingredient in tires, is a large factor.
Gilbert: One of the most pressing issues is people and training. Does the dealer have a sufficiently trained staff to offer a fleet complete, professional service? Or is he just selling price and hoping he gets the deal?
Hudrlik: The growing share of low-priced manufacturers impacting the market.
Roydhouse: There are several key issues that are having a major impact on the industry: rising fuel costs, insurance cost increases, skyrocketing medical expenses, and fleet/end-user consolidation. All of these factors are changing the business landscape.
Weller: The impact of the TREAD Act on truck tire manufacturers, importers, independent dealers and retreaders. What that impact is remains to be seen, but it could be significant.
CTD: What will the medium/heavy truck tire market be like during the second half of the year?
Buck: The second half of the year will be better once the economy can stage a comeback. Hopefully, we can play catch-up from the first half of the year and maintain 2002 units and gross profits.
Clark: It is always difficult to predict the truck tire market more than six months in advance. The industry is awaiting an upturn, but that depends on a variety of factors, most notably an economic recovery, which is uncertain at this point.
Cooney: As the economy stabilizes and consumer confidence returns, I see moderate growth in demand through year-end.
Danielson: While the industry projects flat sales, we are a little more optimistic.
Enders: With the economy finally showing signs of life and the war in Iraq behind us, domestic truck tire sales should be reasonably strong by the third and fourth quarters. Inventories are relatively low throughout the manufacturing sector, and many fleets have cannibalized capital equipment in order to reduce costs; any upturn in the movement of goods should show positive effects quickly.
Fussell: We are anticipating higher sales in the second half.
Hudrlik: If the economy remains in its current trend, we can expect the truck tire replacement market to remain flat to down for the rest of the year.
Roydhouse: We believe the second half of 2003 will be an improvement over the first half. Freight will still need to be moved, and truck tires will still need to be replaced.
Weller: We expect the second half replacement market to rebound significantly, assuming diesel prices return to earth. The OE market should continue its strong growth as well in the second half.