AKRON (Dec. 29, 2000)—When it comes to prognosticating 2001: the crystal ball´s gone murky and the tarot cards are sticking together.
Uncertainty in the form of slackening new car sales, high raw material costs, pending price increases, a new administration in Washington D.C., and public scrutiny of tire makers and dealers in the wake of the Firestone ATX and Wilderness recall leaves stock analysts and economists scratching their heads as to which way the market will turn in 2001.
Perhaps the most difficult prediction will be the aftermarket share shakeout in light of a 50-percent drop in Firestone-brand passenger and light truck tires predicted by none other than Bridgestone Corp. itself.
Bridgestone/Firestone Inc. (BFS) hopes to salvage some of it through increased sales of Bridgestone, Dayton and other associate brand tires, but there´s no disagreement that the wolves are circling Firestone´s share.
"One of the most crucial questions is whether consumers will continue to look for flag brands, especially in light of an expected economic slowdown," said Wendy Beale Needham, analyst with Credit Suisse First Boston.
"Quality shopping vs. price shopping? The tire companies hope consumers will continue to shop for flag brands, but as the furor over Firestone dies down, who knows?" said David Bradley of JP Morgan Securities Inc.´s equity research.
A consensus of opinion among analysts contacted by Tire Business¯ is that Goodyear gained the most from the Firestone recall, but only marginally better than Michelin North America. The consensus is that BFS replaced less than half the recalled tires with its own branded products.
With cost of basic commodities tire companies use in tire manufacturing—synthetic and natural rubber, carbon black, etc.—up more than 7 percent through November, tire companies need price increases to help their earnings situations, Mr. Bradley said. Through the same time frame, wholesale tire prices were down 0.2 percent, he added.
There are some indications that raw materials prices may have peaked, according to Steve Girsky, managing director of Morgan Stanley Dean Witter´s equity research, although it´s too early to say whether this means they may start coming down.
Automotive market researchers agree new car and light truck sales will be down 5 to 7 percent next year—to between 16 million and 16.5 million units—and Mr. Bradley said he expects production by the Big 3 domestic car makers to be down 9 to 10 percent as they work to adjust inventories.
The domestic car industry´s inventory of unsold vehicles stood at 77 days at the end of November—its highest level in nearly three years—according to an analysis of the market by Automotive News, a sister publication of Tire Business.
Most of the tire companies have announced price increases—starting in December and taking full effect in January. But most analysts are skeptical that the market will honor the full scope of the increases, leaving tire companies´ earnings squeezed even more.
Compounding this price/cost dilemma could be a shift of 5 million or more OE units that likely will end up in the aftermarket, as domestic car/light truck production falls by a million units or more next year, Mr. Bradley noted.
The slowdown in demand this past year for new medium and heavy duty trucks shifted several million truck/bus tires into the aftermarket, playing havoc with aftermarket prices and even affecting retread production.
Tire imports from Asia and Europe continue to climb at a double-digit clip, according to Morgan Stanley Dean Witter (MSDW) research.
Overall imports through nine months of 2000 were up 16.9 percent over 1999, and import value was up 20.4 percent, MSDW said, indicating importers were getting higher prices for their wares.
The Rubber Manufacturers Association expects replacement passenger tire shipments to dip 2 percent in 2001—the result of the Firestone recall "borrowing" shipments from future years—but should return to 2000 levels in 2002.
As for macroeconomic factors such as interest rates, trade balances, currency rates, etc., most analysts are considering best- and worst-case scenarios, especially in light of the change in the White House and the circumstances surrounding the election.
Best-case scenarios portray lower growth than in past year, with the flipside portending economic contraction.