When it comes to forecasting the ups and downs of the U.S. economy, analyst Ed King's contention is, ``Who cares?''
He believes that whether the economy is growing or in a slump, there is always a place to make money.
Mr. King, director of small business services at Wayne State University in Detroit, noted that during the Depression two industries that made money were movie theaters and grocery stores. In today's economy the tire industry can fare well whether the economy is growing or not. If consumers are spending, they buy new vehicles with new tires; if consumers are frugal, they keep their old cars and buy replacement tires and automotive services.
Mr. King and other analysts predict the tire industry, like the U.S. economy, will grow at a modest rate in 2006, as it did this year. The Rubber Manufacturers Association (RMA) expects the tire industry to enjoy continued steady growth in tire shipments after an expected record-setting year in 2005. The tire industry group projects total tire shipments to increase about 2 percent in 2006, mirroring the anticipated increase in the U.S. economy.
However, the RMA anticipates a slight drop in original equipment (OE) passenger/LT tire shipments due to a decrease in vehicle sales.
Jonathan Steinmetz, an analyst with Morgan Stanley, agreed. ``We continue to believe that higher interest rates and weaker used car prices, partially offset by strong consumer confidence, will constrain light vehicle sales for the next year,'' he told Tire Business, ``despite the year-end incentive push to increase sales.''
The auto makers have painted themselves into a corner with enticing incentives to boost new car sales and essentially ``buying market share'' while not seeing profits, according to Mr. King.
Dennis Virag, president of Automotive Consulting Group Inc. in Ann Arbor, Mich., concurred. ``The Big Three have got themselves in a pickle. It will be difficult to wean consumers off incentives.'' He said there is always a segment of the population that wants new vehicles, but consumers have been conditioned to expect pricing incentives from auto manufacturers.
However, the RMA predicts replacement passenger tire shipments to continue to thrive in 2006 due to an increasing number of vehicles on the road and more vehicle miles traveled.
``Any type of repair business will do better in 2006 than in 2005,'' Mr. King predicted.
Mr. Virag expects the miles driven by consumers will continue to increase despite the threat of high gas prices. When gasoline prices passed $2.50 a gallon last fall, it had a significant impact on consumers, but Mr. Virag said that as long as prices stay in the range of $2.20 per gallon, it's an increase people can absorb.
He predicts both the retail and commercial segments of the tire industry will do well in 2006. ``People will continue to drive. They certainly will not eliminate driving with (gas) prices back in the $2.20 range.''
The automotive market may see a shift to smaller, more energy-efficient vehicles and, he said, the demand for new sport-utility vehicles (SUVs)-and their larger tires-will be impacted negatively. The RMA attributed a 2.5-percent drop in OE light truck tire shipments to the trend toward smaller-sized cross-over utility vehicles that use passenger tires. It anticipates a continued slide in sales as those CUVs gain in popularity.
Energy costs probably had the biggest impact on the tire industry as tire manufacturers hiked prices across the board during 2005. Retailers have been passing the increases on to consumers and the increases appear to be sticking in the market. ``The increased tire prices are a direct relation to increased energy prices. They have to stick,'' Mr. Virag said. ``If the tire manufacturers want to continue producing tires and expect a profit, the increases are here to stay.''
As for the commercial trucking industry, ``trucks will keep rolling as long as the economy is rolling,'' Mr. Virag said. The RMA expects continued increases in both the OE and replacement medium truck tire markets with growth in industrial production and freight movement.
Fuel prices are an important variable in the commercial business, Mr. King added, but if a trucking company can control costs, it can do well despite higher gas prices.
Analysts advised small business owners that as long as the economy is growing, it is a good time to spend money on capital improvements and hire the necessary employees.
``Do it now while the times are good,'' Mr. Virag advised.
He acknowledged that energy costs, even for heating facilities, will have a hard impact on small businesses, ``so they need to get lean in other areas of their operations.''
Despite the upbeat outlook for the economy, competitive pressures still loom for many small tire dealerships-particularly from Wal-Mart Stores Inc. and other mass merchandisers that compete with low prices.
``You've got to differentiate yourself. If you don't, then you are going to have to compete only on price,'' Mr. King said. A lot of business owners worry about losing sales if they don't compete on price, but he disagrees.
``There's a market out there for $10 watches and a market out there for $100 watches,'' he said.
The high-performance market is a perfect example. Despite the ups and downs of general consumer confidence and spending, the pricey HP market has continued to have a loyal customer base.
``That's a niche that's immune to increases in energy costs,'' Mr. Virag said, describing HP as a small but highly profitable niche market. ``People will give up a lot of things before they give up their high-performance tires. They'd give up their Starbucks before giving up their high-performance tires. And that's saying a lot.''
The RMA reported that HP replacement tire shipments increased 5 percent in 2005 while ultra-HP tires jumped 14 percent. The association expects moderate growth in this market for the coming year.
Mr. King advised tire dealers to pick a specialty and advertise it: ``We're the only people that has this or offers this.''
He gave the example of operating a bicycle shop.
``If I'm selling Huffy bikes and a Wal-Mart opens up across the street and sells Huffy bikes, I'm getting rid of the Huffy bikes and carrying a better brand.''
He said the retailer can then educate the customer on the advantages of the better brand and why it legitimately costs more.
``Make people realize you offer a level of expertise,'' he said, adding, ``service is unbelievably horrible across the U.S.''
Mr. King said one way dealers can choose a specialty service or niche is to talk to their customers and find out why they come to the dealership, what they like about it, what they don't like and what they dislike about other dealers, tire stores and competitors.
``If people don't like going to a car dealership because they are only open 9-5, maybe I can be open longer,'' suggested Mr. King. ``Listen to people's bitching and complaints. And thank God there is no shortage of bitching and complaints.''