AKRON (Feb. 25, 2000) — In the past year, crude oil prices on the world market have tripled, causing both gasoline and diesel fuel prices to jump dramatically.
But the nation´s tire dealers haven´t noticed much change in their businesses—yet.
Prices at the pump began rising following the Organization of Petroleum Exporting Countries´ decision last March to cut daily production of crude oil by 2 million barrels.
So far, tire manufacturers are holding the line on prices, but they are keeping an eye on oil prices and their impact on the cost of raw materials that go into a tire.
Several major tire maker suppliers raised the price of an important synthetic rubber—styrene-butadiene rubber— in September and plan to do so again in March.
The Rubber Manufacturers Association said U.S. tire manufacturers used about 3 million metric tons of rubber in 1998 and about 60 percent of that was synthetic. Oil is the principal component of synthetic rubber, carbon black and most of the synthetic fibers used in tire belts.
But, even though oil-derived materials account for just over half the content (by weight) of a typical passenger tire, tire manufacturers haven´t raised prices very much so far.
In fact, while oil prices steadily increased in 1999, wholesale tire prices actually declined, according to the Producer Price Index from the U.S. Labor Department. However, some experts say that probably will change in 2000.
"We are looking for raw material prices, and oil being the largest component, to increase this year," said Edgar Faler, a rubber industry analyst with Olde Discount Corp. in Detroit. However, the competitive nature of the tire marketplace will temper price increases by manufacturers, he said.
In January, Goodyear increased prices of radial commercial and light truck tires and Bridgestone/Firestone Inc. raised some light truck tire prices. BFS had increased some commercial truck
tire prices in November.
Michelin North America Inc. also raised prices on some recreational vehicle tires and lowered others.
These increases were 3 percent or less, nowhere near the rate of increase in the price of crude oil.
Crude oil prices, depending on the grade, were in the $9-$10 per barrel range a year ago, according to the Wall Street Journal, and had risen to the $24-$27 range the week of Feb. 21.
The trucking industry appears to be suffering most from rising fuel prices right now. The nationwide average retail price of diesel fuel is up 51.4 percent from a year ago, according to the U.S. Department of Energy. Some commercial tire dealers are fearful they´ll lose some longtime customers.
"I know of a number of our customers, both individuals and guys with anywhere from 10 to 50 tractors, that have decided to park their rigs, because they can´t run anymore, because they´re losing their shirts," said John McCarthy, president of McCarthy Tire Service Co. Inc. in Wilkes-Barre, Pa."
"You could have some people (truckers) who can´t pay their bills," said Terry Westhafer, president of Central Tire Corp. in Vienna, Va. "Marginal trucking companies are going to get whacked (by high fuel prices)," he added, saying trucking companies with older, less fuel-efficient rigs will suffer the most.
On Feb. 21, about 200 independent truck drivers converged on Washington, D.C., and paraded their rigs by the White House and the U.S. Capitol to protest fuel prices and seek government action. Truckers also staged protests in in New England, where diesel fuel prices went as high as $2.12 per gallon the week of Feb. 7, as fuel stocks that would otherwise have been used for diesel went instead to address shortages of home heating oil. Prices in the rest of the country averaged much less.
Mr. McCarthy said he told his congressman in late January that Congress should temporarily suspend the 24.4 cent per gallon federal tax on diesel fuel to help truckers.
In order to recoup some of the increased costs, many transport companies are adding fuel surcharges to their rates. This is affecting all businesses that ship and/or receive goods via truck, including tire dealers.
Mr. McCarthy said freight haulers bringing tires and diesel fuel, which McCarthy Tire sells at three of its 16 locations, are adding fuel surcharges of 5 to 12 percent to their bills.
However, many truck operators are working under long-term contracts and can´t raise their rates. Rising fuel costs are squeezing or eliminating their profit margins.
Tire dealers also are incurring added fuel costs for their service and delivery trucks. For example, McCarthy Tire has 165 vehicles.
"A lot of these guys have service trucks running all over the placeand fuel costs have really taken a toll on them," said Marvin Bozarth, executive director of the International Tire and Rubber Association."
Mr. Bozarth also is concerned that high oil prices will lead to raw material price increases for retreaders. "My real fear is that if this thing hangs on long, carbon black and all those things are going to start to go up as well," he said.
So far, Michelin Retread Technologies Inc. appears to be the only retread supplier to have raised prices. On January 15, MRTI raised prices on retread materials 6.5 percent. A company spokeswoman said materials represent about half of the cost of a retreaded tire, so the price of Michelin-retreaded tires has risen 2.5 to 3 percent.
Industry leader Bandag Inc. and Goodyear both said their retread material prices have remained constant for several years. Goodyear´s price is unchanged since 1995.
"We have not changed our retread prices," a Bandag spokesman said, "but it´s obviously a situation we´re monitoring."
"We will go up in price the hour after Bandag goes up in price," said David Cormier, director of commercial sales for Hercules Tire and Rubber Co. Fuel price increases are causing a lot of independent truckers to park their rigs, he said, and that could cause a 10-percent drop in retread sales this year.
What about the consumer market? Many experts say that even with the increased prices at the pump, gas still is not that expensive.
"Even at today´s price, compared with 20 years ago, the real price of gasoline is not that high," said Robert McGuire, professor of economics at the University of Akron.
With relatively cheap fuel prices, Mr. McGuire said it´s no surprise that sport-utility vehicles and high-performance "muscle" cars have been so popular in the 1990s.
Auto manufacturers report little change in sales for less fuel-efficient SUVs and light trucks since the beginning of the year.