LOUISVILLE, Ky. (Dec. 28, 2001)—The tumultuous year that 2001 was brought hardship to all industries, and the retreading industry was no exception.
The events surrounding Sept. 11 continue to cast uncertain shadows over the U.S. economy, making it more difficult than in past years to forecast the tire industry's fortunes in 2002, according to Marvin Bozarth, executive director of the International Tire & Rubber Association.
Mr. Bozarth, writing in the December issue of the Tire Retreading/Repair Journal, reported that retread units declined across the board in all categories in 2001 as retreaders experienced a depressed market for the first half of the year. A gradual increase in retreading occurred from July to August, paving the way for an upsurge in retread output from October through December.
In his annual synopsis of the previous year's activity, Mr. Bozarth noted that continuous news coverage on tire industry investigations by the National Highway Traffic Safety Administration due to the Firestone recall as well as passage of the Transportation Recall Enhancement Accountability and Documentation (TREAD) Act by Congress signal a trend toward more government involvement with the tire industry.
“It is only a matter of time before all tires used on public highways will come under closer scrutiny of NHTSA,” Mr. Bozarth wrote. “The manufacture, sale and service of every type of tire will be covered under new rules in the future.”
Besides the tire industry's new-found notoriety, retreaders faced other challenges, according to Mr. Bozarth, who said he has not seen any of the tire price hikes announced earlier in the year stick. Tread rubber prices also rose by 3 percent during the first half of the year, but many retreaders failed to pass along those cost increases to their larger customers, he reported.
Other production cost increases also impacted retreaders in 2001, as natural gas, electric and gasoline prices skyrocketed early in the year. Some of those costs should decline substantially in the first half of 2002, Mr. Bozarth predicted. He believes most retreaders were able to keep their labor increases under 3.5 percent, but many still had to deal with 3- to 4-percent price hikes for raw materials.
In addition to these challenges, growth in the retread industry in 2001 remained flat, largely due to consolidation. The number of retread plants in the U.S. dropped to 1,082 in 2001, from 1,123, according to Mr. Bozarth. Of those, 62 companies own 343 plants while the remaining 739 are owned by 366 companies, an average of two plants per company. Seven percent of the companies control 32 percent of retread plants.
Few franchise changes among independent tire dealers occurred in the past year. Michelin North America Inc.'s rapid growth in retreading slowed to “a virtual standstill” with 39 operating plants in the U.S., Mr. Bozarth reported.
Passenger tire retreading continued its decline with the closing of several small plants and reduced production from some larger plants. Mr. Bozarth said he expects this segment's production to fall to 550,000 units in 2001 from 650,000 units in 2000. For 2002, he predicted that passenger tire retreading would tumble to 470,000 units.
Light truck tire retreading also decreased in 2001 as the low cost and availability of new light truck tires forced many retreaders to concentrate on medium truck sizes. Light truck units slipped to 5.3 million units from 2000's 5.6 million units, and projections indicate further declines to 5 million units in 2002, he said.
Production of medium truck tire retread units and off-the-road units also declined. Medium truck tire retread units fell 5.5 percent from 2000 to 15.6 million. However, Mr. Bozarth said he expected the medium truck tire retread market to recover to 17.1 million units in 2002 based on renewed demand at the end of 2001.
OTR retreading units slid 5.1 percent to 451,000 units in 2001 with recovery expected in 2002 to 473,000 units, according to Mr. Bozarth, noting that some OTR retreaders report that radial tires account for as much as 60 percent of their retread output.
Perhaps the segment of the retread/repair market that fared the best was section repairing, which Mr. Bozarth attributed to the training programs offered by repair material manufacturers that have helped increase technicians' expertise. He said some OTR retreaders who saw a 5-percent decline in retreading output experienced an 8-percent jump in repairing.
Mr. Bozarth cited other positive signs for the new year, including more available workers because of layoffs, improving inspection technology, retreaders rejecting repairs on tires with excessive injuries and a mild winter.
“(Mild weather) should help maintain the growth in retreading seen during the last few months,” Mr. Bozarth wrote. “If the mild weather continues, it should also help keep the price of fuel and heating oils at very affordable levels.”
Viewed from another perspective, retread business in 2001 “stunk” for most dealers but 2002 should be “significantly better,” according to Harvey Brodsky, managing director of the Tire Retread Information Bureau.
Mr. Brodsky told Tire Business most retreaders he has talked to have seen “a definite uptick” in retread sales since Sept. 11, with many saying they had the “best October ever” in sales. An upswing in business, he said, should continue in 2002, particularly because the U.S. government has lifted all regulations that have affected the retreading industry negatively, opening a new door of opportunity for retreaders to service government vehicles.
In the private sector, Mr. Brodsky said fleets are cutting tire costs after a tough year, which bodes well for retreaders.
Although Mr. Bozarth believes that NHTSA will scrutinize retreads more closely in the future, Mr. Brodsky said he doesn't believe that will happen soon because the government is more focused on issues concerning Sept. 11. If Congress should pressure NHTSA to develop more regulations for the retread industry under the TREAD Act, the end result will be a better product, Mr. Brodsky said.