AKRON-Rising raw material prices had a huge impact on the North American tire industry in 1995, affecting tire pricing and, ultimately, manufacturer profitability, a TIRE BUSINESS survey reveals. Despite mixed demand, six of nine tire makers responding to TIRE BUSINESS' annual year-end survey reported they earned a profit last year. (A 10th company refused to answer the question due to the on-going federal investigation into tire industry price-fixing.)
But those earnings were tempered by skyrocketing raw material costs that eroded profit margins and kept all but three firms from improving on their 1994 performance.
``Raw material price increases have had a dramatic effect on the profitability of most tire makers, Yokohama included,'' said Dan Hunter, vice president of marketing for Yokohama Tire Corp.
``Although the tire industry announced price increases throughout the year, few were realized at their announced levels. This is particularly unfortunate, since the raw materials prices did, in fact, hold.''
Added Don Salyers, vice president of sales and marketing at Kelly-Springfield Tire Co.: ``We were unable to recover the full cost of rising raw materials, and this affected profits.''
Meanwhile, the market for tires was mixed in 1995, respondents said. The general consensus was that demand for medium and light truck tires was strong, while sales of passenger tires-both replacement and original equipment-slowed from 1994.
Woody Arnold, Dunlop Tire Corp.'s vice president of marketing, called the 1995 tire market ``unpredictable, with soft demand, raw material inflation and unsettled pricing.''
Other respondents added phrases such as ``very aggressive,'' and ``extremely competitive, with consumers delaying the purchasing of needed tires.''
To offset rising raw material costs, tire makers raised tire prices in 1995 a total of 5 to 14.5 percent, depending on tire type. But as has often occurred in the ultra-competitive North American tire market, the increases failed to stick completely.
Only one company said the price hikes were fully accepted by the market: Titan Wheel International Inc., which makes primarily farm, construction and industrial tires.
Most of the remainder said the hikes eroded, with Giovanni Ferrario, president of Pirelli Armstrong Tire Corp., suggesting they settled at 2 percent and Mr. Hunter of Yokohama indicating 3 percent.
Another area that affected pricing and profitability in 1995 was industrywide production capacity.
In past years, the industry has had more capacity than was needed to meet demand. Too many tires chasing too few buyers made it difficult to raise prices.
In 1995 this trend continued, but with a twist, depending on with whom you were talking.
Three survey respondents indicated they thought the industry had no excess capacity.
``The U.S. tire industry itself does not have sufficient capacity to meet market demand in certain product areas,'' said Eugene Culler, Goodyear's executive vice president for North American tires.
Yokohama's Mr. Hunter agreed, noting plant overcapacity was currently not a major concern.
Yet five respondents viewed the capacity question differently: Bernd Frangenberg, president of Continental General Tire, estimated the industry had 7.5 percent excess capacity in 1995; Kelly's Mr. Salyers put it at 5 percent, before imports; Titan's Mr. Root placed it in the 10-percent range; and Pirelli Armstrong's Mr. Ferrario estimated 10 to 20 percent.
Michelin's Mr. Hannezo summed it up this way: ``There is no overcapacity in truck and light truck (tires) to date. In passenger, due to slow market demand in both OE and replacement in the last nine months, coming from undercapacity in 1994, we are now reaching a balanced capacity.''
Still, with a number of planned plant expansions, the capacity situation could change long term, Mr. Hunter noted.
Michelin, for example, announced late in November it will spend as much as $900 million over the next five years to expand three plants in South Carolina and build another one in the state.
With new production capacity on the horizon in North America, four respondents said another round of plant closures is possible.
One is Continental General's Mr. Frangenberg, who thinks several older plants-owned by companies planning expansions at newer facilities-are vulnerable.
But John Lampe, president of Bridgestone/Firestone Tire Sales Co., sees no plant closings in the foreseeable future. ``While several tire makers have announced new plants or expansions, much of this new domestic production will offset tires that are currently being imported,'' he said.