Tires had a hard time aging gracefully in 2005.
In June, Ford Motor Co. sparked an impassioned debate that would continue the rest of the year when it decided to recommend that tires on its 2006 model year vehicles and beyond be replaced after six years of normal service. The auto maker put the recommendation in its owners' manuals and on its Web site, despite claims from the tire industry that the effects of tire aging are still largely unknown-or at least unproven. DaimlerChrysler A.G. decided to follow suit with a similar recommendation.
And in November, Bridgestone/ Firestone dropped its own surprise by recommending a 10-year service life for tires, following an earlier directive by parent Bridgestone Corp. based on an advisory from the Japan Automobile Tyre Manufacturers Association. The tire maker, however, said there still are no scientific data to justify the guideline, and it supports industry efforts to get the National Highway Traffic Safety Administration (NHTSA) to generate tire safety data and counter the notion that tires have a definite expiration date.
Just as the tire aging discussion volleyed back and forth over the year, many other issues facing the tire industry in 2005 remained largely unresolved, especially on the legislative front (see ``Legislative Review'' story below).
Price hikes-and the raw material prices that fuel them-continued to escalate seemingly unabated. Most tire makers instituted at least one-if not several-price increases throughout the year. Tire companies generally said they believe the escalating costs will continue into 2006.
Tied hand in hand with the rising price situation was the tenuous supply situation after Hurricanes Katrina and Rita. Major raw material suppliers shut down their plants in the Gulf Coast in anticipation of Hurricane Rita, and many continued to be down afterwards with power outages rampant.
Major tire makers' tire plants then faced production slowdowns or at least the need to shift lineups to make the most high-demand products with available supplies in the immediate aftermath of the hurricanes. Cooper Tire & Rubber Co. had slowed its tire production by about 30,000 units a day, and Goodyear drew back its production initially by 30 percent.
But one major issue was put to rest this year. Bridgestone/Firestone announced in October that it had reached a settlement with Ford to end all remaining issues from the Firestone tire recalls in 2000 and 2001. As part of the settlement, BFS agreed to pay $240 million, but neither company has any plans to do business with the other in North America.
Neither company admitted any responsibility in the settlement. BFS had spent about $440 million up until the settlement handling recall-related costs, and parent Bridgestone Corp. took $858 million in charges against earnings in 2001 to cover costs.
Mergers and acquisitions also made a strong showing in 2005. Among the major deals were:
* Private equity firm One Equity Partners L.L.C. made an offer of roughly $350 million-or $18 per share-for Titan International Inc. in October. The companies continue to discuss the offer.
* Titan itself this year has worked to buy two major holdings: Goodyear's North American farm tire business and Continental Tire North America Inc.'s Bryan, Ohio, off-the-road plant. Talks with the United Steelworkers (USW) delayed completion of the Goodyear sale, which was initially announced in February. In November Titan said it reached a tentative agreement with the union, and a vote would be held later.
Titan also joined talks to buy Conti's Bryan plant in September. Dortmund, Germany-based Rosler Group had signed a letter of intent in January to buy the plant, but talks with the union stalled that deal. No negotiations between the parties and the USW over Bryan have occurred through year-end.
* AmPac Tire Distributors Inc. bought St. Louis-based Latham Tire Co. (d.b.a. Autotire Car Care Centers) to expand its Tire Pros retail marketing program in the Midwest. Terms of the deal were not disclosed.
* Nokian Tyres P.L.C. bought University Wholesalers Inc. of Colchester, Vt., to strengthen its wholesale distribution capacity and logistics in the North American winter tire market. University Wholesalers, which operates two warehouses, has distributed Nokian products for 20 years. Financial details were not disclosed.
* Boston-based Galaxy Tire & Wheel Inc. and Toronto-based Dynamic Tire Corp. completed their merger on Sept. 30, forming GPX International Tire Corp., which is expected to post sales of more than $300 million in 2005.
* Sumitomo Corp. of America (SCOA) offered $1.1 billion for wholesaler, retailer and private brand marketer TBC Corp. in September. TBC's shareholders recently approved the deal, which is expected to close by year-end. SCOA also owns Treadways Corp., though the two companies will continue to be run independently, SCOA said.
* American Tire Distributors Inc. bought Wholesale Tire Distributors Inc. in Logan, Utah, adding key distribution in the Rocky Mountain states as well as a regional swath to its American Car Care Centers Inc. distribution network. Terms of the deal were not disclosed, but it broadened ATD's reach to about 2,700 customers in nine Rocky Mountain and Intermontane states plus new ACCC coverage in Utah, Idaho and Wyoming as well as parts of Nevada and Colorado.
ATD itself earlier in the year was bought by global investment group Investcorp Bank BSC in a deal valued at about $500 million. ATD officials said at the time the buyout wouldn't alter ATD's strategic direction.
* The managers of Laval, Quebec-based President Tire Canada bought the subsidiary in August from parent A. Picard & Sons Inc., forming a new company with both franchise and company-owned retail arms. Denis Monette, who had headed President Tire since 1997, is the president and CEO as well as main shareholder of the holding company Group President.
* In May, Hercules Tire & Rubber Co. finalized its sale to private equity firm FdG Associates L.L.C. for an undisclosed amount. Officials asserted that ``Hercules Tire & Rubber is still Hercules but with a different group of shareholders and board-the same company doing business in similar ways.''
* Finally, Cooper announced in January it had bought an 11-percent share in South Korean tire maker Kumho Tire Co. Ltd. as part of its global positioning strategy. Findlay, Ohio-based Cooper also recently bought a majority control of Shandong Chengshan Tire Co. Ltd.'s tire operations in Rongchen City, China, and will use the venture to launch the Cooper brand into the Chinese marketplace. Cooper is paying $70 million to gain 51-percent control of Shandong Chengshan's tire activities, which will operate from now on as Cooper Chengshan (Shandong) Passenger Tire Co. Ltd. and Cooper Chengshan (Shandong) Truck Tire Co. Ltd.
Goodyear, whose turnaround efforts were major news in the industry the last few years, also persisted in 2005 with continued improvements albeit with a couple setbacks. Goodyear's profitability continued in the first three quarters of the year, with the Akron-based tire maker reporting a profit of $279 million on sales of $14.8 billion for the nine months. That compared with a loss of $10 million on sales of $13.5 billion for the same period in 2004.
On the other hand, Goodyear received a ``Wells Notice'' in August from the Securities and Exchange Commission (SEC), which has been investigating the tire maker's earnings restatement in 2003. The notice indicated that SEC staff intended to recommend civil or administrative enforcement against the company, though outcomes could range from fines to a settlement to nothing. Neither side has announced any further information since the Wells Notice.
In July, Goodyear's Stars and Stripes blimp crashed in Coral Springs, Fla., during a storm. The tire maker said it would launch an as-yet unnamed blimp next spring to replace the damaged blimp.
On a better note, Goodyear secured the first original equipment fitment for its Assurance premium car tire featuring ComforTred technology. The tire will be fitted on 2006 Chrysler 300C, Dodge Magnum R/T and Dodge Charger R/T vehicles.
In September, Goodyear launched the Fortera with TripleTred technology to complement its recent Fortera and Wrangler light truck tires with SilentArmor technology. Goodyear in January unveiled its DuraSeal technology that repairs punctures automatically in commercial tires.
Though Goodyear's financial hand improved through the year, other tire makers faced increased difficulty. Cooper had to deal with a strike at its Texarkana, Ark., plant in the spring, which hurt its fill rates and earnings. In the third quarter, the tire maker posted a loss of $840,000 and also reported a loss in market share in North America though it gained share in light truck and high performance tires.
``We might have lost our focus a little bit on broadline as the market's been moving toward higher performance products, towards light truck, and even forgetting ourselves that the broadline is still an important part of it,'' Chairman, CEO and President Thomas Dattilo told analysts during a conference call.
Continental A.G. said in late summer that it did not expect to reach its previous goal of hitting break-even in North America this year. Sales for the company overall were $12.3 billion for nine months of the year, compared to $11.1 billion for the same period in 2004. Sales for the nine-month period in 2005 in Continental's Passenger and Light Truck Division hit $3.87 billion.
``The deviation from our target figures is not large,'' Allan Hippe, president of Continental Tire North America Inc. and finance director for Continental A.G., said in late summer. ``But many factors would have to turn out positively in order for us to just break even. At the same time, this shows we are not in the middle of a catastrophic scenario, but rather that things are just progressing more slowly than expected.''
Also this year, Conti announced it was cutting back car and light truck tire production at its Charlotte, N.C., plant by about 30 percent to 17,000 to 18,000 units a day. The firm cited high inventories and high manufacturing costs. Conti recently gave the United Steelworkers (USW) union an ultimatum of either accepting a 35-percent cut in their wage and benefit package or face a 30-percent cut in production. The USW's contract for Charlotte expires April 30.
The tire maker said it needs to reduce its costs by $32 million. Conti CEO Alan Hippe admitted the cuts were a ``substantial step,'' but said wages would still be competitive in the Charlotte market. The alternative to the ultimatum calls for moving production from Charlotte to lower-cost plants and possibly closing the Charlotte facility.
Though Group Michelin reported sales increases for the third quarter and nine months, perhaps the one part of 2005 the tire maker would like to leave in the past was the U.S. Grand Prix fiasco in July at Indianapolis. Michelin advised all 14 of the drivers racing on its tires to withdraw because the tire maker was unsure about the tires' safety on the Indianapolis Motor Speedway's banked turn.
Fans were outraged by the lack of competition as only teams shod with Bridgestone tires ran the race. Michelin and the Formula 1 organizers disagreed on what should or could have been done, but in the end Michelin opted to compensate race fans who attended the event plus buy 20,000 tickets to the 2006 U.S. Grand Prix event, which is set for July 2 in Indianapolis.
Finally this year, two groups-the Independent Tire Dealers Group (ITDG) L.L.C. and the Tire Industry Association (TIA)-took steps to help their members cope with soaring insurance costs.
TIA introduced its ``TIA-Care'' program, which it said will provide high quality, affordable health care for members plus a plan for workers' compensation. The program is a partially self-funded plan for association members with more than 15 employees, TIA said.
Also, ITDG in the spring officially formed its captive insurance company and started rolling out its programs to members. The program initially will handle workers' compensation claims and eventually add general liability, garage keeper and possibly medical insurance, ITDG said.