While 1997 was a wild roller coaster of a year in the commercial truck tire industry, 1998 was more of a walk in the park. Business was good due to the strong economy and favorable conditions in the trucking industry. Most of the changes that did occur happened as a result of the motions set in place in 1997. Nothing really unexpected or shocking rocked the truck tire world.
To understand why the truck tire industry was so good, let's look at the year's positive events.
First, the less-than-truckload carriers avoided a Teamster strike.
Diesel fuel stayed at record low levels all year, with an average price-per-gallon in the $1.04-$1.05 range.
The economy remained very strong and freight was abundant, which fueled new-truck sales. In fact, the great demand for new tires by truck and trailer builders resulted in a shortage of replacement tires that affected tire dealers.
The long awaited Transportation Equity Act for the 21st Century (TEA21) was passed, which authorized slightly more than $29 billion for road and bridge work each year through 2003. As a result, the construction segment of the industry is booming and roadwork is going on all over the country.
In other, less-than-great news, antilock braking systems were required on all new trailers, dollies, straight trucks and buses, effective March 1, 1998. (New tractors already had ABS required.) This adds $600 to $700 more to the cost of a typical tandem-axle trailer.
While it should reduce flat spotting on trailer tires and perhaps some accidents, it will certainly increase truckers' operating costs. The government has not required a retrofit of old equipment with ABS, though.
Consolidation in the truck industry continued throughout the year with one or two acquisitions a week being announced. The larger acquisitions were: US Express, which bought Victory Express; Schneider bought Builders Transport; Interstate Van Lines bought Global Van Lines; and Prime bought AmeriTruck Refrigerated Transport.
In the truck tire industry, consolidations continued among commercial tire dealers, too. The most notable were Bandag Inc.'s Tire Distribution Systems (TDS) unit's purchase of Kitchen & Haynie Royal Tire and Fletcher's Cobre Tire in Atlanta, Deas Tire in Gulfport, Miss., and Athens Bandag in Athens, Ga., which raises TDS locations to 104 and retread shops to 49.
Treadco Inc. also was busy in the acquisition area and purchased Commercial Tire Service in Augusta, Ga., and Cobre Tire in El Paso, Texas, which expanded its operations to 56 locations and 29 retread facilities.
The most notable problem for tire dealers was the shortage of new truck tires that was brought on by record high demand from original equipment truck manufacturers.
New-tire makers responded by initiating plant expansions that are designed to increase production. Bridgestone/Firestone Inc., Michelin North America and Continental General Tire announced plans to raise truck tire production about 20 to 25 percent.
As a result of the tire shortage, new-tire makers gave tire prices a little bump between June and September. Increases ranged between 2.5 percent and 3 percent, which for the most part were absorbed because of the strong market for replacement tires.
Second-tier tire makers got a real shot of black ink due to these price hikes and the large number of truck tires they could sell to fill orders the Big Three tire makers could not.
All the new-tire companies, as well as the tread rubber companies, recognized the trucking industry's desire to get out of the tire business. Many introduced new programs to address this need, ranging from improved 24-hour emergency road service networks to software programs designed to track tires from the cradle to the grave.
The retread area did have some excitement this year. Tire Centers Inc., Bandag's largest independent customer, switched retread suppliers, deciding to go with Michelin's retread program.
Obtaining such a large and high- profile dealership was a big coup for Michelin, which now has 13 plants in place and expects to have 20 by mid-1999.
Many in this industry, however, thought Michelin's infiltration of the U.S. retread market would be much quicker and that more plants would be in place by now, especially since it wants to be the second-largest retread supplier by 2000.
Tech International bought Truflex/Pang and now is the largest tire repair manufacturer in the world. Bridgestone took over operation of its Oncor plant in St. Louis from Treadco. It will be interesting to see what Bridgestone will do with its retread program—and when.
Marangoni entered the U.S. retread market with its Ringtread precure system and now has four shops established.
The first threat to the retread industry in 1998 was the possibility that Congress would eliminate the Federal Excise Tax on truck tires, which would have narrowed the cost between a new tire and retread. Due to good lobbying efforts on the part of the International Tire and Rubber Association and good, old-fashioned politics at work in Washington, this attack was thwarted.
However, a new and perhaps more serious threat reared its head in September. Citizens for Reliable and Safe Highways (CRASH) and Advocates for Highway and Auto Safety, known for their media savvy, launched a campaign against truck tire retreads, citing them as a threat to highway safety and calling for strict regulations on them.
Since September, four articles or letters to the editor have appeared in newspapers in Detroit, Washington, and Riverside, Calif., as well as USA Today, that have been linked to these groups. The Tire Retread Information Bureau has been responding to these articles as have some industry suppliers, but I'm afraid we're in for a long and difficult battle.
Looking to 1999, it appears the economy will begin a gradual slowdown. It will remain strong, but sales of original equipment truck tires are forecast to begin tapering off in the third quarter, with a net decrease of about 10 percent for the year.
This is good news for replacement truck tire sales, as it should free up about 670,000 tires. With the addition of 20-25 percent more truck tire capacity, there should be plenty of tires to meet replacement tire needs during the second half of the year.
Expect to see more consolidations in both the trucking and truck tire industries. The big are just going to get bigger. This could include new-tire companies and tread rubber manufacturers as well as commercial tire dealers.
Retread suppliers will continue to fight over dealers for their franchises. The battle is going to get tougher, the competition fiercer and the profit margins smaller.
Dealers will need to find ways of reducing their costs, such as looking for products and services that add value and profit to the bottom line.
The trend is to outsource maintenance in the trucking industry. The new-tire and retread-supply companies already recognize this. It's time dealers did, too.