AKRON-North America's tire makers are entering the new year on better financial footing than 12 months ago, a TIRE BUSINESS survey reveals. The annual survey, undertaken each December to determine how tire makers fared during the previous 12 months and how they view their prospects for the year to come, found that eight out of 12 participating companies earned a profit in 1994.
That's a decided improvement over last year's survey findings in which fewer than half the participating companies (six out of 13) wound up 1993 in the black.
Moreover, all but two of the tire companies in this year's survey group expected to be profitable in 1995. And nearly half of the survey's participants planned to increase their outlays for capital improvements this year, while also maintaining or modestly increasing their current spending for such items as research & development and advertising.
Specialty Tires of America, according to Donald Mateer, chairman of the company's Indiana, Pa.-based parent corporation, Polymer Enterprises Inc, will double its capital spending this year in order to begin construction of a new, $25 million bias tire plant, capable of turning out 200,000 units annually during its first year of operation in 1996.
Likewise, industry-newcomer Titan Tire Corp. (created out of the 1993 purchase of the former Dico Tire Inc. plant in Clinton, Tenn., and last year's acquisition of Pirelli Armstrong Tire Corp.'s former Des Moines, Iowa, plant), will boost its R*&*D spending 50 percent in projects directed toward lengthening the service life of the company's agricultural and construction tires.
Despite the improvements realized in 1994, however, profitability remains the No. 1 concern of tire makers and dealers alike, surveys of both groups show.
When asked what his company will be doing differently in 1995, Titan Tire President and CEO Maurice Taylor Jr. was brief and to the point: ``Make more money,'' he replied.
Bridgestone/Firestone Inc.'s Executive Vice President Sunil Kumar also looks for an improvement in profitability this year-both for his own company and the tire industry as a whole.
``Costs will decrease. Expenses will remain down. Sales will increase and operating margins will improve,'' Mr. Kumar predicted.
Kelly-Springfield Tire Co. President Lee N. Fiedler voiced a similar prediction: ``If correct decisions are made, 1995 will become a good year for tire dealers and manufacturers,'' he said.
He cautioned, however, that the industry as a whole-from the retailer to the wholesaler to the manufacturer-must recognize that ``we offer the consumer an outstanding product, and we all deserve a fair price.''
In an attempt to address the profitability and competitiveness of their dealers this year, Michelin North America and Goodyear plan to debut new marketing programs tailored to the needs of small and medium-sized retail outlets.
Improving the profitability of tire makers would appear no less difficult, judging from the comments of Russell Chick, Yokohama Tire Corp.'s manager of marketing communications and marketing research.
``Since prices are not keeping pace with rising costs, tire makers must struggle to improve manufacturing efficiencies,'' he said. ``This results in increased capital spending which (in turn) reduces profitability.''
Cooper Tire & Rubber Co.'s new president, John Fahl, offered a similar warning regarding the still-precarious U.S. economy.
``We expect that business conditions and opportunity in the U.S. will continue to expand into 1995,'' Mr. Fahl said. But ``there will have to be a very careful balancing of the inflationary pressures caused by low unemployment and the search for capital with the anti-inflationary device of the federal reserve in raising interest rates. A precipitous action in either direction could cause areally bad economic reaction.''
Industrywide, most U.S.-based tire makers, with the exception of those most severely impacted by the United Rubber Workers work stoppages, wound up 1994 on a relatively high note. It was, most respondents agreed, a year of robust consumer tire demand coupled with tough price competition.
In short, said Earl Knoper, senior vice president of Toyo Tire (U.S.A.) Corp., 1994 was ``...quite good for sales, quite bad for profits.''
Even the longest strike in the URW's history (which began July 12 and at its height involved eight tire plants and two non-tire plants) operated by Bridgestone/Firestone, Pirelli Armstrong, Yokohama and Dunlop Tire Corp.) wasn't enough to halt the momentum of 1994, which brought record shipments of passenger and light truck tires and improvement in most other market segments as well.
``Demand was unexpectedly strong throughout '94,'' noted Robin Mitchell, Dunlop's senior vice president of marketing and sales. ``Though the United Rubber Workers strike did disrupt supply to some extent,'' he said, ``business remained extremely competitive, pricing at historically low levels.''
For Pirelli Armstrong, 1994 was a ``tale of two seasons,'' in the words of Vice President of Sales and Marketing Alan Bennett. The company enjoyed a ``sensational first half'' in which high-performance tire sales grew 66 percent-only to see these gains diluted by a lack of available product during the ``post-strike era'' which followed, he said.
According to Sam Gibara, Goodyear's new executive vice president for North American tires, the impact of the strikes was felt mostly in farm tires, where-rather than restricting industrywide output-the work stoppages mostly served to increase the market shares and profitability of Goodyear and other non-affected manufacturers.
One of the year's most significant developments, observed Yokohama's Mr. Chick, was the rise in consumer confidence (which in November soared to a four-year high), improving sales for much of the retail sector-dealers included.
``In general terms, the market situation in 1995 should be similar to that of 1994, but growth will not be as robust,'' said Goodyear's Mr. Gibara.
Bridgestone/Firestone's Mr. Kumar predicted the year will bring ``some decrease in truck tire OE demand, stable replacement sales, further increases in raw material costs (coupled with) modest price increases.''
Virtually all tire company CEOs and marketing executives answering this year's survey questionnaire said their companies face rising material costs and therefore will be forced to hike tire prices accordingly in the near future.
``The sudden and sharp increase in some raw material prices, which are expected to remain high in 1995, will compel manufacturers to raise prices,'' Goodyear's Mr. Gibara said.
Kelly-Springfield's Mr. Fiedler noted that his company is able to recover many kinds of increased costs... ``but not costs related to raw material increases.''
Titan Tire's Mr. Taylor added that tire manufacturing materials such as rubber, carbon black and chemicals ``show no sign of going anywhere but up in price-(perhaps) 10 to 15 percent.''
And Dunlop's Mr. Mitchell observed that in light of his company's raw material cost increase projections, ``it is difficult to see how (a price) increase or increases will be avoided.''
As a group, the survey participants generally were hopeful the new Republican majority in Congress will result in ``a more enlightened approach'' by the federal government toward U.S. business.
Of particular concern to them were such issues as product liability reform, environmental regulations, the Occupational Safety and Health Administration, fair trade practices in the global marketplace and Tire Quality Grading, described as ``useless'' by some tire companies who would like to see it eliminated.
``A more positive government attitude toward business and industry is necessary in order for our economy to grow,'' Mr. Fiedler said. ``We believe government once again will return to being a partner with industry, achieving the mutual good for our country and associates.''