AKRON—The first half of 2001 will test the resolve of many of North America's commercial tire dealers.
With aftermarket shipments in early 2001 running as much as 20 percent below the pace of a year ago, new tire prices dipping into a realm normally occupied by retreads, and a previously robust economy gasping for breath, dealers are being advised to hunker down, watch costs and wait for a mid-year resurgence in demand.
Among the warning signs:
Michelin North America Inc. is throttling back production temporarily at truck tire plants in Spartanburg, S.C., and Waterville, Nova Scotia, to allow it to adjust inventories in the face of weak market conditions. The most significant cutback will be a two-week shut-down at the Spartanburg plant, where 1,450 employees produce more than 40,000 tires a week.
Bandag Inc. warned shareholders recently it expects first quarter 2001 results will be lower than expected—down perhaps as much as 70 percent on a per-share basis—reflecting a continued softening of key markets that began in the fourth quarter of last year.
In North America, especially, falling demand for new medium- and heavy-duty trucks coupled with rising imports has created a glut of tires in the aftermarket, Bandag said, adversely impacting demand for retreads.
Imports of truck tires eased off in the fourth quarter last year, leaving 2000 imports shy of 1999 by about 5.1 percent.
Among issues of concern to commercial dealers surveyed by Tire Business are new tire pricing, high fuel costs and the state of the economy.
The prices of new tires have fallen steadily the past six to nine months, dealers said, as tires earmarked for original equipment accounts have been redirected to the aftermarket.
"We thought pricing had bottomed out a year ago," said Ron Bennett, president and CEO of Service Tire Truck Centers, "but now we're below bottom."
Larry DeHaven, the new majority owner and president of White Tire Distributors Inc. in Roanoke, Va., said he doesn't remember a time when commercial sales margins have been as thin as today—and he began his tire industry career at age 11 and has been in the commercial end of the business nearly three decades.
"People sometimes ask how the commercial tire business has changed in the last 25-30 years," Mr. DeHaven said.
"I tell them that when I was in the wholesale business in 1972, we'd take a passenger tire and mark it up $10 and that was commercial. In 2000, we took a $300 truck tire and marked it up $10 and that's commercial. There's a lot of difference."
Several companies announced price increases for January, but it's not clear yet to what extent these increases have taken hold.
Overall sales of medium and heavy trucks in the U.S. last year fell 11.5 percent, with demand for Class 8 trucks—the single largest category—off 19.6 percent. The slump has continued into 2001—sales of Class 8 tractors in February were 42.2 percent below February 2000.
As a consequence of the slump in truck sales, OE shipments of medium truck tires dropped 18.5 percent last year, including a 49.7-percent plunge in December, according to Rubber Manufacturers Association data.
For 2001, the RMA forecasts declines of 2 and 22 percent for the U.S. replacement and OE truck tire markets, before both rebound in 2002.
Goodyear, the No. 1 supplier in North America, sees the first six months of 2001 as "soft," before an upturn in the second half, according to Dave Beasley, general marketing manager for commercial business.
Meanwhile, the tire maker is broadening the concept of its "G3" branding program to the commercial tire field.
Hoping to provide its dealers with a full range of tires to fit the premier, mid-range and economical price categories, Goodyear is now offering its dealers the Goodyear, Kelly-Springfield, Dunlop and Steelmark brands, Mr. Beasley said.
Starting April 1, dealers will be able to count their Kelly orders toward their overall Goodyear purchasing volume, and orders for Dunlop will be treated that way later this year as well, he said.
Goodyear claims to have picked up market share in the past half year, as its shipments outpaced the market trend.
In terms of supply and demand, Goodyear is monitoring its inventory situation and is prepared to take corrective action—that is, production adjustments—should they continue to climb, spokesmen said.
A common complaint of independents surveyed for this feature was that the tire companies' equity chains were at least partly to blame for the pricing situation, with at least one accusation that the equity chains were offering tires at prices below an independent's purchase price.
Almost as common, though, was the observation that rising energy costs related to operating a business—especially the retreading side—were eating up profits, and the market pricing atmosphere makes it next to impossible to recoup these costs.
With Treadco disappearing from the ranks of independent dealerships—following its merger with Goodyear's commercial tire activities to create Wingfoot Commercial Tire Systems L.L.C.—Les Schwab Tire Centers advances to the No. 1 spot among commercial tire dealers in North America.
For its part, Les Schwab increased sales of truck tires, retreads and commercial services last year 8.7 percent, to $184 million. Treadco's 10-month sales—its performance up to the point of creation of Wingfoot Commercial Tire Nov. 1—were approximately $160 million.
With 232 company-owned outlets and 83 member dealer sites handling commercial tires, Les Schwab blankets the Pacific Northwest with coverage. And the company continues to expand, planning 20 new tire centers this year in its newest coverage areas, northern California and Utah.
The expanded network should contribute to the company's projected 10-percent growth in commercial sales this year, to $202 million.
In the past year, Les Schwab began adding wheel refurbishing to its commercial tire service program, and it expanded its fleet of service trucks by more than a quarter to 1,036.
Snider Tire Co.'s acquisition of Cate-McLaurin Co. Inc. of Columbia, S.C., was the largest consolidation of the past 12 months. The addition of Cate-McLaurin's business was a large chunk of Snider's 24.2-percent growth, to $82 million, and will contribute heavily to Snider's projected growth to $100 million this year.
Greensboro, N.C.-based Snider's growth landed it at No. 8 on this year's ranking, up one spot from a year ago.
Cross-Midwest Tire—the growth leader a year ago with a 31-percent surge over 1998—advanced another 12.5-percent the past year to $90 million, moving up two places on this year's rankings to sixth. The Kansas City, Kan.-based dealership anticipates double-digit growth again this year to more than $100 million.
McCarthy Tire Service Co. Inc. of Wilkes-Barre, Pa., put together back-to-back years of 30-percent growth, pushing the dealership to 11th on this year's rankings, with 2000 commercial sales of $63.4 million. (See separate article in this section for more details.)
Service Tire Truck Centers solidified its ranking as 10th largest with 12.5-percent sales growth, including the consolidation of Klausmeyer Tire Inc. in Baltimore, which expanded Bethlehem, Pa.-based STTC's presence in Maryland by three new stores. STTC also consolidated two older retread plants in Maryland into a "mega" Bandag plant plant in Milleville, N.J.
Twenty-four of North America's 35 largest commercial dealerships recorded growth in 2000—including 11 with double-digit growth.
All but one of the 35 ranked this year are also retreaders, with Bandag being the system of choice for 24 of them. Five of these leading dealers are now Michelin Retread Technologies Inc. franchisees, while four are Goodyear Authorized Retreaders.
There are three newcomers to this year's rankings: Attersely Tire Service Ltd. of Oshawa, Ontario; Royal Tire Inc. of St. Cloud, Minn.; and Beverly Group Ltd. of Flamborough, Ontario.
Collectively, the top 35 accounted for nearly $2 billion in sales last year, putting the average dealership sales at $56 million, with 24 service locations and 133 service trucks.
When the controlled distribution companies are considered, Goodyear Commercial Tire & Service Centers/Brad Ragan/Goodyear Canada topped the charts with an estimated $500 million in sales of tires, retreads and services. Combining Treadco and the Goodyear U.S. operations will create an enterprise with more than $675 million in sales.
Bandag's Tire Distribution Systems Inc. unit reported sales last year of $402.1 million, a slight increase over 1999. Michelin's Tire Centers L.L.C. subsidiary—which added distribution in Wyoming and Alaska and opened a retread plant in Dallas—reported $370 million in commercial-related sales.
Bridgestone/Firestone Inc.'s controlled truck tire distribution and retreading activities—operating under the GCR Truck Tire Centers umbrella in the U.S. and various names in Canada—account for an estimated $300 million in annual sales in the U.S. and Canada. The company also operates controlled distribution in the OTR and farm/forestry areas as well.
Collectively then, the three major new tire makers and Bandag operate nearly 600 outlets and 180 retread plants, generating more than $1.8 billion in sales.
This, however, represents less than 10 percent of the overall market, according to Michelin.