WASHINGTON (June 29, 2000)—Rubber manufacturers and tire dealers in the Midwest say they aren´t happy with skyrocketing oil and gasoline prices, but they aren´t in a panic yet.
"We need to determine whether prices are going to stay where they are, or start going down after a while," said a spokesman for retreading equipment and materials supplier Bandag Inc., whose headquarters in Muscatine, Iowa place it right in the middle of one of the hardest-hit states.
Major tire and rubber product manufacturers, reacting to the rising price of crude oil, announced a massive round of price increases this spring, long before gas prices soared to as high as $2.50 per gallon in the Chicago and Milwaukee areas.
Illinois had the highest average gas price in the nation in June—$1.98 per gallon—according to the American Automobile Association and the Associated Press. The month before, the average per-gallon price in the state was $1.66.
Similar heart-stopping leaps in gas prices between May and June were recorded in such states as Michigan (to $1.96 from $1.50), Wisconsin (to $1.91 from $1.58), Indiana (to $1.77 from $1.47), Minnesota (to $1.75 from $1.51), Iowa (to $1.73 from $1.48) and Ohio (to $1.71 from $1.52).
Though reasons ranging from federal requirements for reformulated gasoline to interruption of service from a Midwestern oil pipeline were advanced for the spike in prices, none of them—even combined—seemed to account for such a precipitous climb.
The Clinton administration called on the Federal Trade Commission to investigate the major oil companies for possible price gouging in the Midwest, while the Organization of Petroleum Exporting Countries moved to head off criticism by increasing the flow of crude by 500,000 barrels per day, or 2 percent.
Neither move, however, brought any immediate relief to motorists, truck fleets and businesses who had still had to pay exorbitant prices at the pump.
While Vice President Al Gore, Democratic candidate for president, held the oil companies responsible for the price hike in some of the most important electoral states, his Republican opponent, Gov. George W. Bush of Texas, was quick to blame the anti-pollution regulations backed by Mr. Gore and his boss, President Clinton.
Indiana alleviated the crunch on its residents by declaring a 60-day moratorium on its gasoline tax, saving Hoosiers seven to 10 cents per gallon. Illinois planned a special session of its legislature to discuss a similar move. President Clinton, however, shied away from suspending the federal gas tax, saying such a move would take needed funds away from highway projects.
Meanwhile, rubber manufacturers and tire dealers in the Midwest were left with spiraling oil and gasoline bills. So far, however, most of them are placing their concerns in perspective.Oil prices have affected the overall raw materials costs at Cooper Tire & Rubber Co., although the company prefers not to discuss how much, a Cooper spokesman said.
"There´s an overall negative effect, but not that much, and there are things going on within our company that should offset that in the short run," he said. As for the hike in gas prices, "The real spike in that came on June 1, with the advent of reformulated gasoline. It hasn´t even been a full month on our books, and the effect on us is too early to evaluate.
"Fortunately, diesel fuel has not been affected as much as gas, and most of our trucks run on diesel," he said.
For Bandag—which raised prices on its retreading materials 3.5 percent on April 1—the biggest issue is how its truck fleet customers will be affected, the company spokesman said.
For tire dealers in the Midwest, the question is not only how customers will be affected, but how those customers who haul tires and other goods will affect the dealers.
"The only problem right now seems to be coming from the wholesale side," said Terri Cole, executive director of the Illinois State Tire Dealers & Retreaders Association. "Delivery expenses have doubled." Also, instead of shipping out an order of tires immediately, "our members are waiting until they get a number of orders from the same area before they deliver."
High gas prices are "certainly a two-fold problem," according to John Buettner Sr., executive director of the Indiana Tire Dealers & Retreaders Association.
"It costs more to operate your road service and wholesale delivery, and that certainly has an effect on your bottom line," Mr. Buettner said. "On the other side, customers are limiting their travel, particularly in high-price gasoline areas."
But there is an upside to the situation, Mr. Buettner said. "This presents a real opportunity for dealers to make a more conscious effort to alert their customers to maintain proper air pressure, rotate their tires and do other things to save fuel," he said. "This is a service they can do for their customers, and be seen to be doing."
As for Indiana´s gas tax moratorium, "this is a meaningful first step," Mr. Buettner said. "We´ll see if that puts us on an equal playing field with other states."
Brett Matschke, general manager of Richlonn´s Tire & Service Center in Greendale, Wis., and a past president of the Wisconsin Independent Tire Dealers & Retreaders Association, said he hasn´t seen any effect yet from the higher gasoline prices.
"I can´t say we can correlate any decline in business to the higher prices," Mr. Matschke said. "Our feeling, however, is that if this continues, people will be less likely to drive and to buy tires."
Vendors are starting to add surcharges, he said, but Richlonn´s hasn´t been much affected by this because its business is strictly retail. "We´re primarily a Goodyear store, but we´ve noticed that one of our Cooper vendors is adding a surcharge for shipping," he said.
In general, those interviewed just plan to weather this storm for now, and are optimistic that they can.