Tire manufacturers for the most part enjoyed sales growth and profitability in North America in 2004, and the industry's biggest players expect the success to continue in 2005 despite the usual challenges.
Officials from Bridgestone/Firestone, Cooper Tire & Rubber Co., Goodyear and Michelin North America Inc. forecast continued improvement while dealing with rising raw material costs, tire monitoring regulations and other issues.
Overall, the business climate was good in 2004, said Jon D. Rich, president of Goodyear's North American Tire (NAT) unit, ``although it was filled with a lot of ups and downs.''
The Akron tire maker's largest division posted sales of $5.84 billion through nine months in 2004, up 15 percent from $5.08 million in 2003.
NAT also produced operating income of $16.2 million through September, a huge turnaround from its $116.2 million loss of 2003.
Mr. Rich said demand for commercial tires was strong for Goodyear throughout the year, reflecting the strength of the transportation industry. Replacement sales were very brisk in the first half of the year, dipped significantly in the third quarter and seemed to rebound at year-end, he added.
Business also was positive for Cooper, according to Patricia J. Brown, the company's vice president of global branding and communications, even though the second half of the year was soft.
Findlay, Ohio-based Cooper reported North American Tire segment profits of $61.8 million through nine months, up from $53.1 million in 2003. The unit's net sales also rose over 2003, up 14 percent to $1.38 billion from $1.21 billion.
Christine Karbowiak, Bridgestone Americas Holding Inc. vice president of public affairs, said BFS' consumer tire business experienced a strong first half in 2004 but a weaker second half. Truck and bus tire sales were up throughout the year, she said.
Bridgestone Americas Holding recorded operating income of $235 million through nine months on sales of $6.8 billion, as passenger, light truck and medium truck tire sales in North America were strong in both the replacement and original equipment markets.
In addition, sales and earnings benefited from strong performances in other segments. The strong business trends offset the adverse effect of rising raw materials costs.
Michelin also had a strong year in the original equipment segment of the truck tire market, said Marc Laferriere, vice president of marketing for Michelin Americas Truck Tires.
On the passenger and light truck tire side, ``a long-awaited improvement in tire shipments was seen through mid-year, but then slowed substantially as surging oil/gas prices depressed retail tire sales,'' said Pascal Couasnon, vice president of marketing for Michelin Americas Small Tires.
And in 2005...
Cooper expects business to be brisk in 2005, ``with similar increases in the Rubber Manufacturers Association forecast range of 2-3 percent,'' Ms. Brown said.
Mr. Rich is equally optimistic for Goodyear, noting that although the company is still in a turnaround phase, ``we had a terrific 2004 and see good signs that we can keep the momentum going.''
Ms. Karbowiak pointed out ``analysts will be watching to see if issues such as oil prices, interest rates and inflation will have an effect on the truck/bus momentum, but current assessments are that there should be continued strength throughout the year.''
On the consumer side, she said, ``analysts are suggesting that the original equipment segment will be slow in the first quarter, with a moderate recovery over the summer.
They also suggest that sales in the replacement market will recover in the first half and show a strong second half.''
Both Messrs. Laferriere and Couasnon see improvement continuing for Greenville, S.C.-based Michelin through 2005. Mr. Laferriere anticipates that all aspects of the truck tire business will experience growth; Mr. Couasnon figures that as oil and gas prices-which have dropped about 25 percent from their high-moderate their climb, ``consumer confidence and economic improvement should accelerate.''
Mr. Couasnon also predicted the dollar will remain weaker and raw material prices will further increase.
What's up, what's down
Improvement in the commercial truck tire market will continue and the replacement tire business ``will be extremely competitive,'' Goodyear's Mr. Rich said. ``As has been the trend of the last several years, we see ultra-high performance and light truck/SUV segments continuing to outpace the industry.''
Mr. Laferriere maintained the market acceptance of Michelin's New Generation Wide Base tire will continue to grow at a much faster pace than the rest of the industry, and that the ``demands on the fleets for improved fuel economy and improved efficiency will favor this type of innovative solution.''
Ultra-high performance, high-performance, SUV and light truck tire units will grow because of the OE sales of vehicles needing these tires, according to Ms. Brown. ``Tires and wheels are a fashion statement today, and we expect to take advantage of this consumer trend,'' she said.
Nashville, Tenn.-based BFS anticipates continued growth in consumer, SUV, run-flat, high-performance and touring tire segments, Ms. Karbowiak said.
``As new vehicles continue to be designed and produced with larger rim sizes and with a greater proportion of performance and touring sizes, we anticipate that the OE and replacement markets will grow in these segments for the next few years,'' she said.
Agriculture and over-the-road tires could have healthy sales because of farm commodity prices and construction activity remaining strong into 2005, she said.
Mr. Rich cautioned it would be wise to keep an eye on farm commodity prices because grain prices have dropped in the last six months. ``There could be an impact in all elements, including tires,'' he said.
Mr. Couasnon sees performance tires again showing above average growth, ``driven by increasing OE fitments and by aftermarket customization/plus sizing.'' The growth of P-metric light truck tires also should continue, principally because of the recent high levels of new LT vehicle sales, he said.
On the other hand, sales of S-rated broadline tires, especially in 15-inch and smaller sizes, likely will fall, Mr. Couasnon said, pointing out that the OE market has moved away from such tires.
Ms. Brown also figures that broadline tires might slide because of OE and market shrinkage, and that sales of winter tires may be flat.
Shipments, imports up
Both Michelin and Cooper expect to increase their share of North American tire shipments for the replacement market in 2005.
In the original equipment truck tire market, Michelin experienced significant growth in 2004 and is expecting a rise in 2005-a positive given the market, Mr. Laferriere said. ``In the replacement tire market, the recent influx of OE vehicles and tires should restrain the replacement tire growth below the expected (gross domestic product).''
Mr. Couasnon figures that economic improvement through 2005 will gain steam and drive tire shipments upward, with the second half of 2005 showing gains over the like period in 2004.
``As for the passenger car and light truck business, we stay positive and want to continue to improve our business through brand and product segment mix with strong results for the Michelin and BFGoodrich tire brands,'' he said.
In terms of supply, Michelin and Cooper expect imports to grow compared with domestic production expectations. ``Capacity increases in the U.S. will moderate,'' Ms. Brown predicted. ``Imports will continue to be strong.''
Domestic output should be at capacity in 2005, which means additional demand created by strong market growth will be filled by imports, Mr. Laferriere said.
Michelin, which makes the vast majority of its tires for the North American market in North America, expects imports in the near term to continue to grow faster than domestic production in price-sensitive segments, assuming that rising logistics and energy costs do not offset the cost advantage, Mr. Couasnon said.
BFS' domestic production is running at or near capacity for its key goods, Ms. Karbowiak said. ``We continue to invest in high growth product sectors and for increased productivity as well as quality and safety enhancements,'' she said.
The company relies on global sourcing, meaning that supply constraints in one part of the global marketplace can be addressed with product from another, she said.
Upward spiral continues
The raw material pricing picture is not likely to improve in 2005, the tire company officials agreed.
Mr. Rich admitted his forecasts concerning pricing of materials have been low for the last three years, ``but in the spirit of sportsmanship, I'll give it one more shot,'' he said. He doesn't see a reversal of the current trend.
``I hope I'm surprised,'' he said.
BFS is experiencing continuing pressure because of unstable raw material costs and supply shortages and the firm expects that to continue this year.
``While the recent reduction in crude oil prices is welcome, many tire raw materials, including natural rubber and steel, are not related to oil prices and continue to be in short supply, subject to severe fluctuations depending on increased demand from one sector or another,'' Ms. Karbowiak said.
``We may not have seen the peak in some of these raw material prices, and predicting where the prices may go is a difficult exercise.''
As raw material costs climb, availability will become a larger issue concerning all manufacturers, Ms. Brown said.
That could prompt increases in tire prices. In fact, she said, Cooper expects a minimum of two or three hikes in 2005. Goodyear, BFS and Michelin didn't comment on tire pricing expectations.
Ms. Karbowiak did say BFS will monitor closely the impact of raw material and other production costs and will take action if it's warranted. The company announced late last year that it would increase tire prices in January to recover a portion of the raw material costs it had been absorbing.
Tire manufacturers also are facing regulations dealing with tire pressure monitoring systems, Mr. Rich said, noting Goodyear strongly supports the RMA's position.
Ms. Brown cited the Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act and other government regulations, along with size proliferation, as issues that will impact the industry. Michelin's Mr. Couasnon said distribution, currency fluctuations, global demand and the pace of growth in China, especially in the OE market, and its consequences on the inflow of product in the North American market will be interesting.
In addition to the TREAD Act, supply shortages and raw material costs, Ms. Karbowiak said other issues that must be dealt with are the need to reduce costs and the development of an alternative compound that will improve tire performance.
``Balancing global supply and demand and monitoring the exploding economic development of China are also topics of importance,'' Ms. Karbowiak said.
The bottom line
The major tire makers generally have an eye on North American profitability for 2005 based on the strong platforms set in 2004. When asked if Cooper expects to make money in the coming year, Ms. Brown was succinct, saying: ``Of course.''
Group Michelin posted a first-half operating margin of 8.9 percent for 2004, with full-year figures not yet available. While the company doesn't report profitability by geographic zone, its North American tire segment was profitable in 2004, the firm said.
Michelin North America remains very positive for 2005, Messrs. Couasnon and Laferriere said. The balance between targeted growth and the company's effort to control costs will continue to reinforce its position in the North American market.
In the coming year, Michelin will ``continue to innovate'' through the introduction of new products and services and improvements of programs to strengthen its dealers' business, the company's executives said.
The tire maker's contract with the United Steelworkers of America-covering about 3,400 workers at three BFGoodrich tire plants-reached in 2004 also should help reduce costs, improve efficiencies and drive competitiveness at Michelin's North American facilities, they said.
Bridgestone Americas expects to be profitable in 2004, with all segments showing improvements from 2003. BFS North American Tire L.L.C. has made great progress, especially in light of the ``unprecedented'' increases in raw material costs, but likely will fall just short of breakeven for the year, Ms. Karbowiak said.
BFS' budget for 2005 still is in the development stage, so the company reserved comment on projections.
As for Goodyear, Mr. Rich said the company's goal for 2005 is profitability. ``We've made great strides in 2004 and have regained confidence both internally and externally,'' he said.
``But we still have a lot of work to do.''
Brad Dawson of Crain News Service contributed to this report.