For better or for worse, dealer fortunes in the new year may largely follow the path set in 2005.
Though some economic indicators nationally are moving up or remaining at least steady, regional differences might be another story. So in 2006, one economist said, the markets that have been doing well will continue to do so while those with harder times may see more of the same.
The Bush administration expects gross domestic product (GDP) growth to hit 3.4 percent in 2006, essentially on par with anticipated growth of 3.5 percent in 2005. Growth in payroll employment in 2006 is predicted to rise to 176,000 jobs per month, up from the 2005 forecast of 160,000 jobs per month. The 2005 figure was revised down from an earlier estimate of 178,000 jobs per month because of hurricanes Katrina and Rita. Unemployment is at 5 percent.
George Dagnino, chairman of Akron-based Peter Dag Strategic Money Management and former chief economist for Goodyear, said next year's economy will vary within the country. ``I think it mostly depends in which part of the country you live,'' he said.
Two dealers contacted by Tire Business showcase this scenario.
In the hot south Florida market, Dan Hennelly, chairman and CEO of Hennelly Tire & Auto Inc.-which does business as Tire Choice & Total Car Care-is sailing along. The Fort Lauderdale-based dealership just opened its eighth store, in Tampa, Fla., with plans for six to seven more stores in 2006.
``Our business plan is to go into the new growth markets in Florida, which are expanding very fast,'' Mr. Hennelly said.
Homes in his target areas can cost $700,000 and up, he said, and his stores are situated near huge shopping complexes. In these markets, high gas prices and other economic blips don't register the same as in other regions.
``If the economy changes, the higher-end income markets normally don't get as affected as everyone else,'' he explained.
Still, those high-end markets come with their own problems. Mr. Hennelly said construction costs in the area have risen 40 to 50 percent and rising interest rates could make building new stores more difficult.
In addition, smaller cities in Florida that have exploded with growth have infrastructure that's still lagging way behind. In the past, Mr. Hennelly said he could secure building permits in as little as six or eight months. The latest Tampa store's permit took three years.
Now, Mr. Hennelly said he's secured his sites into 2007, and he's looking at possibilities for 2008 and 2009.
``The company's tripling in size, and I need to start projecting where the growth is going to be here,'' he said.
For the economy overall, Mr. Hennelly is more uncertain, labeling himself as ``conservatively optimistic.''
In Toledo, Ohio, Capital Tire Inc. is bracing for continued tough times. In November, Ohio's unemployment rate was 5.7 percent, according to the government, compared with Florida's 3.6 percent. Capital Tire CEO Tom Geiger Sr. said his market, which reaches into southeastern Michigan, is very depressed.
``That's not promising, but on the other hand you take what you're dealt,'' he said.
Still, Mr. Geiger said he's optimistic about his own business. Capital Tire operates 12 locations and is primarily a wholesaler but has a retail operation as well.
Joe Flynn III, president of Flynn's Tire Co. in Mercer, Pa., said he's hoping for a good 2006. ``I'm always a positive thinker,'' he said.
His local economy isn't booming, but it's doing farily well, he said. So Flynn's Tire did well in 2005, but macro factors like higher fuel prices and their resulting uncertainty caused some hesitation for his customers.
``People might be a little cautious, they might be seeing what fuel prices do,'' he said.
Mr. Dagnino said he's concerned about the economy as a whole because the average consumer is getting increasingly pinched. ``I know people are saying everything's great, but I think consumers are tapped out,'' he said.
With interest rates so low since 2001, he explained, consumers were encouraged to borrow more.
``People borrowed, borrowed, borrowed, but now they have to pay,'' he said.
While various polls in December showed consumer confidence moving up, Mr. Dagnino said the growth in consumer credit has been slowing, which he interprets as consumers feeling squeezed by financial pressures.
In 2006, Mr. Dagnino expects the economy to grow slower than predicted, probably below 3 percent.
For the tire industry, slower growth could mean a respite from the large price increases in commodities, though they'll still be at high levels.
``I think commodities from this point on are not going to be the problem that the tire companies had in 2005 and 2004,'' he said.
Commodity prices should start leveling off or coming down in the first quarter, though the benefits of those changes probably won't be felt in the tire industry until the end of the year.
Though he describes himself as ``bearish'' on 2006, Mr. Dagnino said he's not quite ready to use the R word.
``The possibility of a recession cannot be excluded,'' he said. ``It's a small probability but it's there.''