Jockeying for position
Bridgestone/Firestone (BFS), Goodyear and Michelin North America Inc. will continue to battle for the top spot in market share in the truck tire segment.
National account programs and offerings of additional tire maintenance services will continue to be used to lure fleets to buy their products. While Bandag Inc. still will maintain the largest share of the retread market in 2005, Goodyear and Michelin will enjoy the largest growth in this area. Cooper Tire & Rubber Co.'s Oliver Rubber Co. subsidiary and Marangoni Tread North America Inc. also will pick away at Bandag's market share.
With a projected shortage of medium truck tires and with the current combination of still-low interest rates and tax breaks for the purchase of new equipment, retreaders are in a prime position to expand their businesses.
Now that BFS has introduced its Greatec wide-base tire to compete with Michelin's X-One, expect growth in wide-base tire sales since fleets have an additional source for them. However, in this era of massive equipment purchases, automated tire inflation systems and record fuel prices, if over-the-road fleets do not make their move to these tires soon, it is doubtful they ever will-and wide-base tires will remain a market niche product.
Tire prices should remain firm throughout the year. Many tire companies already have announced price increases that became effective in the beginning of the year. The cost of petrochemical-based raw materials like synthetic rubber and carbon black used in tires will remain high due to global oil demand, but hopefully may level off toward year-end.
MEPS International believes steel prices should decline through the first half of 2005, which would be welcome relief for steel radial tire manufacturers. This decline is tied directly to decreased demand for steel in China. As a result of these factors, we may see pressure easing on raw material costs as the year progresses.
The Chinese frontier
Tire companies' interest in China will continue to grow as will imports from that country. Why? Well, here are a few facts to consider:
* China is the largest truck and bus tire market in the world-even larger than the U.S. in new tire sales.
* Today in China, the truck tire market is 20 times larger than the car market.
* Last year, Chinese truck and bus operators purchased 30 million new tires (primarily bias).
* Of the 127 million truck and bus tires sold around the world, China consumes nearly 24 percent.
* While that country recently had no intercity roads like U.S. interstates, nearly 25,000 miles of divided highway should be ready between the 2008 Beijing Olympics and the 2010 Shanghai World's Expo.
Is it any wonder tire companies are establishing joint ventures with the Chinese to build tire plants for domestic as well export products? China needs hard currency to purchase products and raw materials from other countries. Therefore, it has to export products overseas to generate this currency. That's why exports are so vital to a country that is growing so fast.
Even though it could use all the tires it makes domestically, it must export to survive in the global economy. Expect Chinese imports to continue to grow in sales in the U.S. in 2005. Also expect them to improve in quality as companies like Michelin, Goodyear, Bridgestone Corp., and Cooper transplant Western technology to China.
The FET factor
The entire tire industry is affected by the Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act and how the National Highway Traffic Safety Administration (NHTSA) interprets it. So far only the passenger and light truck tire segments have felt its effects.
However, the government has been working on addressing commercial truck tires. It is expected that performance requirements (FMVSS119 testing) for truck tires will be tightened. These same requirements most likely will extend to retreads. The final rule to upgrade requirements for new heavy truck tires and a decision on whether to develop a new standard for retreaded tires should be introduced this year. The final rule for a new standard for retreaded tires will be made in 2006.
Work also will continue this year on determining the requirements for tire pressure monitoring systems for commercial trucks. Research and testing will be conducted this spring to help determine performance requirements for these systems. A decision on how NHTSA should proceed with heavy truck tire pressure monitoring systems will be made in late 2005 or early 2006.
A new method of calculating federal excise tax (FET) on tires was included in the American Jobs Creation Act passed in October. Previously, the method for calculating FET on tires was based on the actual weight of the tire. For every 10 pounds of weight above 90 pounds, there was a charge of 50 cents, plus a flat fee of $10.50. Thus a tire weighing 118.63 pounds carried a tax liability of $24.81.
The new FET is based on the load-carrying capacity of the tire. For every 10-pound increment in load-carrying capacity above 3,500 pounds, a tax of 9.45 cents is levied. So, for a tire with a load carrying capacity of 6,175 pounds, a fleet would pay $25.27 in tax. Super single tires, however, are to be taxed at the same rate as bias ply tires, which is 4.725 cents for every 10-pound increment in load carrying capacity.
This gives super single tires a great advantage in the marketplace since taxes are cut in half and, since one tire replaces two, users of super singles will get a real deal in the tax department.
The trucking industry does not know what the actual impact on it will be at this time. However, the tire industry believes that the provision for super singles unfairly favors these tires in the marketplace and the tax cannot be revenue neutral. You may encounter some resistance or at least questions about this change in tax when you present your fleet accounts with their invoices in 2005. You also gained an added selling tool if you are pushing the new wide base tires.
The Tire Industry Association (TIA) will continue to push its efforts to create a National Tire Safety, Research and Education Alliance that will coordinate a national program to support consumer education, industry training and research and development. Commonly referred to as a ``check-off'' program, it has been renamed by the association. TIA will not refer to it as the Tire Initiative for Research, Education and Safety (TIRES) Program, as previously announced.
Association representatives will be meeting with dealer groups this year to explain how this program could work and get input from tire dealers as to how they would like to see the program structured. Legislation required to create the program would then be written, guided by the wishes of the industry.