Are this year's multiple rounds of tire price increases by tire manufacturers sticking?
The consensus among those in the tire industry is, in a word, yes.
Unlike in the past, when tire makers' price hikes met with mixed results-some held in the retail market, some were ignored-this year, tire manufacturers have the backing of national news reports on soaring fuel and energy costs and continued skyrocketing raw material costs to support their moves.
Tire dealers seem to empathize with tire makers' need to offset rising production costs. Meanwhile, consumers are so shocked by escalating prices hovering at nearly $3 per gallon at the gas pump that they apparently aren't surprised by-or are simply not aware of-the higher prices they're paying in the tire stores they visit. Many may be postponing vehicle repairs and squeezing the last few miles out of their tires before finally biting the bullet and making a purchase.
Most of the major tire manufacturers announced tire price increases this summer ranging from 4 to 8 percent on various lines due to rising costs for raw materials, energy and transportation. The consensus is those market conditions probably won't change for the better anytime soon.
Many dealers said they are passing along the higher prices to consumers because they have to maintain their profit margins.
``We've seen initially that some small tire dealerships have to pass it on, and the larger dealerships try to get an advantage of lower prices (in their market). But eventually they have to pass it on,'' said Roy Littlefield, Tire Industry Association executive vice president.
``The dealer is a businessman and he has to pass it on. He can hold off for a price advantage, but it will hit the bottom line,'' Mr. Littlefield added.
John Marshall, owner of Grismer Tire Co. in Dayton, Ohio, said his 24-outlet dealership had to pass along the recent tire price hikes. ``Our margins on tires are very slim,'' he said. ``We do not have much room to absorb the increases. We're in a competitive market. We haven't been having excess profitability in tires to absorb (price) increases.''
As far as consumer reaction, dealers contacted by Tire Business said they haven't really received any negative reaction on the slightly higher price tags.
``People are accepting more of the price increase this year than in the past,'' noted Dick Erickson of Sun Tire Inc. in Jacksonville, Fla. ``It's across the board. Everywhere they go prices are going up.''
Mr. Marshall noted that all the tire lines have price increases. ``I think the customers don't know there was an increase because they haven't bought tires for two years,'' he said.
Steve Craven of Craven Tire & Auto in Fairview, Va., also said he believes customers don't realize there has been a hike in tire prices. ``It's not something they buy everyday. It's not like seeing gas prices posted,'' he said.
Mr. Littlefield added: ``I'm not sure if the consumer is focused on tire prices. They certainly are focused on fuel prices.''
The small price increase on major brands hasn't caused a noticeable consumer switch to cheaper brands, according to some dealers.
``I don't see people cutting back on quality products for the sake of price,'' Mr. Craven said.
Tire manufacturers said they are simply trying to offset their own increased raw material expenses. The price increase ``is not to improve profitability but to make up for the oil prices,'' said Steve Weinger, senior vice president of sales and marketing for Toyo Tire (U.S.A.) Corp. ``Everybody realizes (the price increase) is a necessity,'' he added. ``Tires are still a good value.''
Most major tire companies announced price increases in early summer, including: Goodyear; Continental Tire North America Inc.; Kumho Tire USA Inc.; Hankook Tire America Corp.; Yokohama Tire Corp.; Michelin North America Inc.; and Toyo. Bridgestone/Firestone raised its prices 5 to 7 percent on passenger and commercial tires at the beginning of the year.
Cooper Tire & Rubber Co. will hike prices 5 percent on all tires in December. Pirelli Tire North America Inc., after raising its prices in June, has announced another increase of 4.5 percent on Dec. 1 on passenger and light truck tires in North America.
In addition to price hikes, some manufacturers said they are taking other approaches to offset increased costs, including improving plant productivity and efficiency.
Some manufacturers declined to predict the future direction of raw material prices. Others have a grim outlook. ``We see a continued rise in raw material costs due to the volatility and bullish market for oil and energy, combined with the upswing in global demand for natural rubber,'' a Cooper Tire spokesperson said.
Riccardi Cichi, Pirelli Tire's vice president of sales and marketing, said that, in addition to the hurricane damage in the Gulf of Mexico, a raw material shortage has been created by China's demand for increased amounts of raw materials for its growing manufacturing industry.
The tire makers said they are taking a ``wait and see'' approach for further tire price increases. Mr. Cichi said the tire industry will have reached its limit on price increases when end users stop buying major brand tires and turn to cheaper-priced imported tires.