AKRON-The North American tire market is changing its look in 1994. Later this year, demand for replacement tires will start to increase, while the rush on original equipment tires is expected to dip, according to Harry Millis, a securities analyst with Fundamental Research Inc.
This change is attributed to the growing average age of cars in the United States. Replacement growth increases will carry into 1995 and 1996 and repeat in 1998, Mr. Millis said.
In 1992 and 1993, companies serving the North American OE tire market reaped the benefits of an invigorated automobile market.
However, the demand for new cars is leveling off, triggering the rise in demand for replacement tires, he said.
``In 1995 I'm looking for a greater improvement in the replacement market, and OE will slow significantly,'' Mr. Millis said.
The replacement market, which has struggled lately, will rise 2 percent to 203.7 million units, the analyst said. This figure will climb another 2.9 percent to 209.6 million units in 1995.
Demand for passenger replacement tires in 1994 will reach 167 million units, 1.2 percent ahead of 1993's figure, Mr. Millis said. In 1995, the number will rise 2.4 percent to 171 million.
At the OE level, demand will continue to grow, but not at the double-digit pace the segment has had in recent years, according to Mr. Millis.
Overall OE demand will rise nearly 8.9 percent to 66.3 million units in 1994, but many analysts believe the growth is inflated and doesn't accurately portray the market.
``Most of the growth for OE in 1994 came in the first quarter,'' Mr. Millis said.
Anticipating labor problems in late 1994, many tire makers increased production in the first quarter. At the same time, tire dealers loaded up on merchandise to avoid supply problems later, the analyst said.
Dealers also bought more tires than usual early in 1994 to take advantage of lower prices. An announced price hike went into effect in March and April. ``About two-thirds of these increases stuck,'' Mr. Millis said.
All these moves created the illusion that the demand for OE tires was better than it actually was.
Original equipment demand for passenger tires will reach 56.8 million units in 1994, 8.6 percent ahead of 1993's figure, he said. But in 1995, the number will rise only 5.6 percent to 60 million units.
The Rubber Manufacturers Association is more optimistic about 1994. The group's Tire Market Analysis Committee predicts OE passenger tires will increase more than 10 percent, breaking the old record of 57.8 million units.
Meanwhile, OE light truck tires will climb 10.9 percent to 5.1 million units by year's end, and medium/heavy truck tires will grow 10 percent to 4.4 million, according to the RMA.
In the individual segments, analysts are forecasting moderate growth in total U.S. passenger tire demand, with about 223.8 million auto and 46.2 million truck and bus tires for 1994.
Light truck tires are expected to grow 6.9 percent to 29.3 million by year's end. This number will grow 5.5 percent to 30.9 million tires in 1995.
Medium/heavy truck tires are predicted to climb 6.3 percent this year to 16.9 million units. In 1995, this figure will rise 5.9 percent to 17.9 million units.
Limited growth is forecast for the overall North American tire market in 1994, which is expected to rise just 3.6 percent to a combined total of 270 million tires of all types, the analysts said.
The total number of tires is expected to grow an additional 3.6 percent in 1995 to 279.8 million units.
Despite the modest overall growth, some analysts are perceiving 1994 as a positive year for the industry.
``Pricing is getting better,'' said Scott Soffen, a securities analyst with Lehman Brothers Inc. ``Prices were hiked in March and April, which is positive. There should be another (price increase) in the fall.''
In 1995, Mr. Soffen sees improved profitability for tire makers. Prices probably will rise in the fall because of decreases in capacity brought about by the strikes.
On the negative side, raw material costs have been increasing steadily since 1993, Mr. Soffen said. ``This puts downward pressure on a company's profit margin.''
But even the rising raw material prices that recently have plagued the industry should stabilize sometime in 1995, he said.
Like Mr. Soffen, Mr. Millis believes the existing labor problems between some tire makers and the United Rubber Workers will help the non-striking companies increase their market share.
``(The strikes) could affect (tire) shipment numbers but not demand,'' he said. ``If someone really needs a tire, they'll find one. It may not be exactly what they're looking for, or the right price..., but they're going to find it somewhere.''
In terms of market share, Goodyear once again is the leading tire maker in North America. In 1994, the company will capture 40 percent of the OE market, 31 percent of replacement sales and 33 percent overall.
Michelin/Uniroyal Goodrich Tire Co. finished second in market share, grabbing 30 percent of OE, 21 percent replacement and 22.5 percent overall.
Bridgestone/Firestone Inc. occupies the third spot, receiving 18 percent of OE, 13 percent of replacement and 14 percent of the overall market.