DETROIT(May 11, 2001)–North American tire makers say price increases for passenger and light truck aftermarket tires stuck during the first quarter, primarily for premium brands, despite a 7- to 8-percent decline in overall replacement shipments from year-ago levels.
Price hikes for commercial tires, however, did not take. “On truck tires there's been heavy discounting all along,” said David Bradley, an analyst with J.P. Morgan Chase in New York.
Exactly how much of the passenger tire price increases–which averaged between 3 and 8 percent, depending on brand and product–stuck is one question. Which brands are discounting is the other.
“I don't think anybody is getting 5 to 7 percent,” said Stephen Girsky of Morgan Stanley Dean Witter & Co. “They all tried to raise prices, but given the weakened shipments I'm not very optimistic. I think if they're getting 1 or 2 percent, they should be real happy with that.”
Mr. Bradley agrees with Mr. Girsky, estimating the North American replacement tire market for cars and light trucks had an average net increase of 1-1.5 percent, even though premium brands got 3-5 percent. The difference is explained through promotions which negated much of the increases, he said. Non-premium brands saw increases of 0-3 percent.
“A month ago it looked like 2 percent, on average, for all tires, but as time goes on, we see further discounting and the hidden discounts that were there all along,” Mr. Bradley said.
Saul Ludwig of McDonald Investments Inc., however, believes tire makers averaged 3 percent price hikes across the board in the replacement market. “Within that average, the increase in major brands was slightly more than that, with the lesser brands slightly less than that,” he said.
Several tire makers alluded to dealing in the market in both the consumer and commercial sectors.
“There were some special deals out there that we became very well aware of,” said Thomas Dattilo, Cooper Tire & Rubber Co. chairman, CEO and president. “There are some imports, but there are also domestic deals as well.”
Michelin North America Inc. said pricing in the commercial truck segment collapsed, while Continental Tire North America Inc. made reference to “fierce price gouging” in the market. None of the competitors would name names.
“The back-door deals are prevalent. They always have been, and they always will be,” Mr. Bradley said. “I think there is discounting going on, but you haven't yet seen hard evidence with premium brands.”
Mr. Ludwig agreed. “There are always specials. But you have to extrapolate that to how many specials you had last year.”
Michelin and Goodyear brands were the big market share winners, analysts said, both gaining an estimated 2 share points during the first three months of the year.
Much of that has to do with what these two tire makers regard as consumers' “flight to quality” in the aftermath of the Bridgestone/Firestone Inc. recall, most industry participants agree.
Goodyear brand sales were up 4 percent over year-ago levels, and the company gained market share in both consumer and commercial products in North America, said Samir G. Gibara, Goodyear chairman and CEO, while discussing the firm's financial results recently.
“The flight to quality has really been an incremental effect,” said a spokeswoman for Michelin Americas Small Tires. “We've seen a trend for about the last 10 years where more and more consumers are saying they want flag brands.”
Michelin brand sales increased 11.6 percent over the first quarter of 2000, she said, declining to give sales comparisons for the tire maker's other brands but saying the company has seen steady market share growth for all its brands for about three years.
“Michelin growth has been very healthy in a down market, so certainly, there has been a negative impact on other brands,” she said.
The lower-value brands are discounting to keep their capacity up, said Rod Lache of Deutsche Bank Alex. Brown. “If they didn't gain market share from one another across the lower brands, they'd really be hurting,” he said, as the premium brands' shares of the market rise on their losses.
The value brands' strategy is to gain market share, “And that, I think, had led to more aggressive pricing,” Mr. Lache said.
The Deutsche Bank analyst believes the South Korean brands, in particular, and brands such as Kelly, General and Firestone are cutting their prices.
“If (value brands) cut prices to get volume, they didn't get it,” Mr. Ludwig said.
He noted that Cooper's profits grew $14 million in the first quarter because of the hikes, which would translate to a 3.1-percent price increase.
“They're not selling major brand product. I would argue that this is hard evidence that prices did go up,” he said.
Goodyear on its first-quarter earnings call congratulated the industry as a whole for not cutting prices.
“It's been the industry's history when faced with such a decline, and we've never faced one of that magnitude, to start trying to buy market share and reduce prices,” said Mr. Gibara. “Well, it has not happened this time. This time we've seen an industry that is much more disciplined.”
Ms. Begin writes for Rubber & Plastics News, a sister publication of Tire Business.