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AKRON (April 16, 2002)—Demand for retreaded commercial tires is expected to rebound this year following two years of falling sales as the North American trucking industry consolidated and contracted.
Although the industry as a whole tightened last year—U.S. tread rubber shipments were down 5.1 percent from 2000—most of the major players held the line or expanded their production over 2000, according to an analysis of data from this year's ranking of North American retreaders.
Of the 50 largest truck tire retreaders listed this year, 22 reported increased production vs. 11 that showed production drops and five that reported no change. Overall, the top 50 operate 320 plants, and last year consumed 250 million pounds of tread rubber to produce more than 10 million truck retreads.
The shift in retread system supply that colored the past few years slowed to a trickle last year, with no major shifts reported during 2001. The pending litigation between Bandag Inc. and Michelin Retread Technologies Inc. (MRTI) is thought to have played a role in this trend.
Bandag Inc. remains the most prevalent supplier to the top 50, with 168 franchised plants at 29 dealerships; its own Tire Distribution Systems subsidiary accounts for 39 of the plants. Throughout North America, Bandag had 356 franchised locations at year-end 2001. Bandag claims its network of franchisees produced about 28 percent of all truck retreads in North America last year.
Goodyear is No. 2 among retreading system suppliers, with 87 Next-Tred locations at seven top 50 retreaders; Goodyear's Wingfoot Commercial Tire Systems subsidiary operates 61 of these plants, and Goodyear Canada operates seven more.
MRTI has six franchisees among the top 50, operating 24 plants, with Michelin's Tire Centers L.L.C. unit operating 13 of those retreading plants.
Six of the top 50 retreaders use the Hawkinson mold cure system at their plants; six companies report Cooper Tire & Rubber Co.'s Oliver Rubber Co. subsidiary as their supplier at 30 plants; and four companies employ the Marangoni Ringtread System.
Overall, the number of retread plants in the U.S. dropped 3.7 percent to 1,082 in 2001, according to International Tire & Rubber Association (ITRA) data. Of those, 343 plants are owned by 62 companies (an average of 5.5 plants per company), while the remaining 739 are owned by 366 companies, an average of two plants per company; 7 percent of the companies control 32 percent of the retread plants.
Production of medium truck tire retreads fell about 5.5 percent last year, to 15.6 million units, according to ITRA data. However, demand for truck retreads is expected to recover to 17.1 million this year, based on renewed demand at the end of 2001.
Light truck tire retreading also declined in 2001 as the low cost and availability of new LT tires forced many retreaders to concentrate on medium truck sizes. The number of light truck retreads slipped 5.4 percent to 5.3 million units, and output is projected to slip a like percentage this year to 5 million units.
Passenger tire retreading continued its steady decline with the closing of several small plants and reduced production from some larger plants, the ITRA data show. U.S. production fell 15.4 percent last year to 550,000 units and likely will tumble almost 15 percent this year to 470,000 units.
OTR retreading—which includes aircraft tires as well as earthmover and other heavy-duty tires—slipped 33.8 percent last year from 2000, to about 450,000 units. Production is expected to rebound this year by nearly 5 percent to 473,000 units.
Retreaders of truck tires were in agreement that prices trended down last year, led by discounted prices on new tires.
The average price of a 295/75R22.5 drive tire, for example, was $100 when the customer supplied the casing, and $167 without a supplied casing, according to data from 30 retreaders across North America, who responded to a Tire Business survey.
The range of prices was wide. For a retread with a customer-supplied casing, prices ranged from $70 to $125, and for a retread without casing, prices went from $110 to $200, survey respondents said.
Bandag's sales of tread rubber fell 3 percent in North America last year, but its traditional business (tread rubber and related supplies and equipment) sales improved by 2 percent, to $390.3 million, as price hikes and an increase in equipment sales offset the lower tread volume, the company said.
National account business continues to grow for Bandag, representing 28 percent of tread rubber sales last year—up from 26 percent in 2000 and 24 percent in 1999, the company said. However, trucking industry consolidations and increased competition among retread systems suppliers have sent end-selling prices down.
As a result, Bandag now subsidizes its franchisees' national accounts business. These fleet subsidies reached $19 million last year, up 14.8 percent over 2000, which in turn was 27.4 percent higher than in 1999, according to Bandag's 10-K filing with the Securities and Exchange Commission.
As for 2002, Bandag views market conditions “cautiously,” with no expectation of a recovery before the second half.
“While there still exists a high degree of uncertainty in the economic outlook for 2002, by December, it appeared from several indicators that the recent oversupply of new replacement tires was beginning to work its way through the distribution channel,” said Martin G. Carver, Bandag CEO and chairman, in a prepared statement.
“New tire producers, which had cut production capacity throughout 2001, announced new tire price increases, indicating reduced supply,” Mr. Carver said. “In addition, we began to see some of the lowest casing prices in several years, which indicated a coming influx of tire casings readily available for retreading, along with initial signs of improvement in the retread vs. new tire sales mix at the dealer level during the fourth quarter.”
Cooper Tire & Rubber Co.'s re-treading products business experienced a 23-percent drop in sales last year, with more than half of the drop related to the loss of Treadco Inc. as a customer in 1999/2000. Disregarding the Treadco exit, sales of tread rubber and related materials to other customers fell about 13 percent last year, “due to the extreme weakness” in commercial trucking, the tire maker said.
To help shore up this business—principally the Oliver Rubber Co. activities acquired in 2000—Cooper bought Hercules Tire & Rubber Co.'s retread supply business, which is expected to generate about $15 million to $17 million in additional annual sales, Cooper said in its 2001 annual report.
The OTR retreading industry has seen capacity contract in the past year. Bridgestone/Firestone, for example, closed its Conyers, Ga., plant, and Goodyear is closing three U.S. plants and consolidating capacity at two centers.
Northwest Retreaders Inc. suspended production at the Hudson-Odom plant in Los Angeles, and consolidated production at its headquarters plant in Portland, Ore.
The company also reached an agreement with Fountain Tire to take over the Canadian company's OTR retreading after Fountain determined its operation in Kamloops, British Columbia, was not proving cost effective and decided to cease production there. NRI owner Willis Gill said the cost of obtaining and maintaining molds for radial OTR retreads kept rising, and consolidating production to one location will allow the company to make better use of resources. NRI likely will sell the Los Angeles plant.
The creation of Wingfoot Commercial Tire Systems spawned new entries in the commercial truck and OTR retreading categories for Goodyear Canada, whose output previously had been included in an overall North American number. Goodyear Canada operated seven truck tire and two OTR retreading plants last year; since then it has sold one truck tire retread plant, in Moncton, New Brunswick, to Coast Tire & Auto Service.
The same thought-process applies to Bridgestone/Firestone. Last year it consolidated its GCR Truck Tire Centers, Webco farm tire centers and Morgan Tire under the GCR banner. This left the BFS Canada operations—which do business as Crown Tire, Pardy's Tire and CTR Tire Service Ltd.—with seven Bandag plants and one OTR retread plant, to be accounted for separately.
Business activity at independent retreaders was mixed. Among the changes were:
* Ray Carr Tires Inc. combined its two retread plants in Harrisonburg, Va., last September to increase efficiency and make use of space leftover from its former passenger and light truck tire retreading business. “Certainly, there's been obvious cost savings, and we've been able to reconfigure it a little bit and make it a little more efficient,” said Derrill DeRamus, vice president of operations.
Both plants were about 40,000 square feet, so Ray Carr Tires moved its Hawkinson and Associated Rubber Co. equipment into the plant containing the Marangoni RTS retread equipment, Mr. DeRamus said. The former plant is up for sale or lease, but meanwhile Ray Carr Tires is using it for storage. The consolidated plant's capacity is 431 units per day, but Mr. DeRamus said the dealership could increase that by an additional 100 units.
* Cross-Midwest Tire Inc. of Kansas City, Kan., is buying Interstate Tire Co.'s retread plant in Atlantic, Iowa, which will give Cross-Midwest five Bandag retread plants in Kansas, Missouri and Iowa.
* 151 Tire Systems Inc. converted its Federalsburg, Md., plant to Bandag, phasing out its Oliver process after many years with that supplier. 151 Tire also closed its Plymouth, Ind., plant in December 2001, after its largest customer, Yellow Freight, shifted its tire supply over to Goodyear, according to Mark McGuire, president. 151 Tire was owned by Yellow Freight up until a few years ago.
151 Tire made the switch to Bandag, Mr. McGuire said, because most of its customers were moving more heavily into national accounts, and Bandag was able to offer a better program. 151 Tire converted warehousing space adjacent to its retread plant in Federalsburg for the Bandag shop, and now is dismantling the Oliver plant and will convert that space to warehousing, rim reconditioning and other service functions, Mr. McGuire said.
The new plant is laid out with a capacity for more than 200 units a day, although it's running at 100 to 130 units a day during the start-up phase, he said. 151 Tire paid part of the “substantial” investment in the new plant by selling equipment and other assets from the closed plants.
* Isaac Tire Co. of Fort Wayne, Ind., closed a plant in Fremont, Ohio, and is in negotiations to merge with another company in the area.
* Commercial Tire Inc. of Boise, Idaho, plans to expand its Twin Falls, Idaho, Bandag plant this year, but gave no specific details.
* Snider Tire Inc. of Greensboro, N.C., phased out retread production last fall at its Cambridge, Ohio, location and consolidated that capacity at its newer Bandag plant in Bluffton, Ind., in order to make better use of assets. The company—the ninth largest commercial retreader in North America—also added retread capacity at a commercial tire center in Wilson, N.C., early in 2001.
* Jack's Tire & Oil Inc. in Logan, Utah, had been leasing a retread plant in West Valley, Utah, with Dick Simon Trucking Inc. its dedicated user. The trucking company ultimately was sold to a third party, which effectively ended Jack's stake in that operation, according to Dick Tolotti, Jack's Tire vice president.
The company—an early-on franchisee of the Michelin Retread Technologies Inc. system—subsequently boxed up the shuttered plant's retreading equipment and shipped it back to Michelin.
“When the business was sold we lost the deal,” said Mr. Tolotti, whose company was leasing the space in West Valley. Despite that and the loss of “some of their business,” he said. Jack's Tire “still had our best retread year ever” in 2001.
Retreading last year accounted for 28 percent of Jack's $39.6 million in sales, up from 24 percent the prior year, according to information from the dealership. Overall, company sales grew by about $600,000.
“Our retreading has been strong to start (2002),” Mr. Tolotti said. “We're encouraged.”
Jack's now operates three retread shops in Salt Lake City and Logan, and Boise, Idaho.
The company has one retail store, one commercial-only location, seven commercial/retail outlets and employs 212. Forty-five employees are involved in retreading, including the six absorbed into the Salt Lake City location when the West Valley facility closed.
Mr. Tolotti said Jack's has no plans for expansion in the wake of the West Valley closing.
Jack's three retread shops produce 15 light truck and 425 medium truck retreads per day. The company consumed 2.8 million pounds of tread rubber in 2001.