Higher costs, caused primarily by sharp increases in raw material and transportation expenses, have led nearly all tire makers to raise prices repeatedly during 2006.
And there may not be much respite in sight.
Mostly, the price hikes are sticking, according to tire manufacturers, while tire dealers report consumers generally aren't rebelling over the higher prices. And as the cost of business continues to rise, the tire makers expect to initiate further price increases every few months.
Michelin North America (MNA) Inc. has been the most active firm in increasing prices, announcing at least five during the year. That included one worldwide hike by 6 to 8 percent for original equipment passenger and light truck tires; one of 4 to 6 percent for motorcycle, scooter and bicycle tires; and several across-the-board for all tire lines and brand names, including a total increase in agricultural tires of up to 13.5 percent for the year so far.
More typical is the example of Toyo Tire (U.S.A.) Corp. The company pushed through three price increases for the first 10 months of this year for passenger, truck and off-road (OTR) tires-a total as high as 14 percentage points for OTR lines. Similarly, Kumho Tire U.S.A. Inc. boosted prices twice, by 7 and 5 percent on selected lines, and Bridgestone/Firestone (BFS) also had two, of 5 and 4 percent for most products.
BFS's parent, Bridgestone Corp. of Japan, already has declared a price hike for next year-from 5.5 percent for auto, LT and motorcycle tires to 10 percent on construction vehicle tires, going into effect Feb. 1.
Large increases in the prices of raw materials are the main engine behind hikes in 2006, the tire makers said, although energy, transportation and general operating costs also play a role.
``Natural rubber is trading at or near its peak and setting new records every day,'' said Clif Armstrong, director of original equipment sales for Continental Tire North America Inc.'s Commercial Group. The company boosted prices March 1 by as much as 6 percent on all commercial and OTR tires and followed that on July 1 with a 5-percent increase on LT and auto tires.
Natural rubber (NR) prices may fall a little from day to day but they keep recovering and remain very high in any case, Mr. Armstrong said.
Prices for NR hit a 12-year high this summer, rising 40 percent in a 60-day period, said a spokesman for Goodyear. The firm had three price hikes this year: 4 percent across all lines April 1, 5 percent on medium truck tires Aug. 1 and another 5 percent on consumer tires Sept. 1.
Petroleum prices, however, have just as big an impact on tire manufacturers as rubber, if not more, the Goodyear spokesman said.
``If you look at it from a tire manufacturer's perspective, an oil price increase is a triple whammy,'' he said. ``Oil is a major ingredient in the production of tires. It affects the cost to make tires, it affects the cost to heat or cool the plant where we make tires and, of course, the trucking cost to ship tires.''
The simultaneous and global price increases in NR, crude oil, synthetic rubber and natural gas are unprecedented in the tire industry's history, according to a spokeswoman for BFS.
``We've tried to overcome these raw material price increases with improved productivity and operational efficiencies,'' she said. ``But those measures have not been enough to overcome raw material prices of this magnitude.''
Specifics may vary from country to country, but the problem of rising costs is worldwide, said Eric La Corre, chief financial officer for MNA. ``Natural gas is the largest source of energy for our North American plants. In Europe, it's electricity. But both have gone up significantly.''
The cost of shipping by sea has risen at least as much as trucking, Mr. La Corre said, and for reasons in addition to fuel costs.
``Sea freight costs have risen largely because of a shortage of available capacity,'' he said. ``Two years ago, a tremendous growth in the demand for shipping started, particularly in Southeast Asia. Those countries have significant needs, they import a significant number of products and as a consequence there are not enough ships. The shortage of supply means higher prices.''
In the first half of 2006 alone, Michelin's external costs-including raw materials, transportation and energy-were $518 million, according to Mr. La Corre. This compares with $570 million for all of 2005 and $317 million for the full year 2004.
Michelin's projected 2006 earnings are about $1.8 billion, so the company's external costs over the past 2½ years have nearly equaled its annual income, he said. With expected full-year external costs of $1 billion, they soon will exceed a year's income for the tire maker.
In the face of rising costs, it is Michelin's policy to pass the costs on to customers, and the price increases it has made this year have stuck, Mr. La Corre said. Those increases have made up for most of the spikes in the company's internal costs.
He also said that, to his knowledge, other companies' price increases have been sticking as well.
``Our competitors, being faced with the same issues, go along the same path,'' he said. ``Hardly a day goes by without a tire maker somewhere in the world announcing a price increase.''
Nevertheless, higher priced tires alone are not enough to offset higher external costs, Mr. La Corre said. Because of this, Michelin is working hard at applying best manufacturing practices internally and also at cutting costs.
Cost-cutting dictated the closures earlier this year of Michelin plants in Kitchener, Ontario, and in Spain, according to Mr. La Corre. ``They specialized in mass-market passenger tires-a market that has significantly declined over the past few years,'' he said.
Conversely, the same effort dictated investing more than $25 million at the Michelin plant in Greenville, S.C., which has developed into one of the company's most efficient factories worldwide, he said.
Conti's Mr. Armstrong said his company's price increases also have stuck so far, but the tire maker also has had to work diligently on production and manufacturing efficiencies.
``We're trying to get as much productivity out of every employee as possible,'' he said. ``There's no way we could pass along such huge price increases in full to our customers.''
The dealers' view
Several dealers interviewed by Tire Business said generally the price increases haven't affected them all that much.
Thompson Tire Co. Inc., a five-store chain based in Christiansburg, Va., has passed some but not all of the increases from its suppliers on to customers, according to Fran Boyd, vice president of Thompson Tire and president of the Virginia Automotive Association.
``This is a reality that's affecting a lot of people-not just us, and not just our competitors,'' she said. ``It's not just the tire industry that's being affected by higher costs.''
Thompson Tire hasn't seen any need to switch to more value-priced products, and neither have its customers, who are taking the price increases in stride, Ms. Boyd added.
``When customers come in, they know what they want, and we are still selling them our Tier One products,'' she said. ``I'm sure there are people putting off tire purchases, but there are also people putting off house and vehicle purchases.''
The problems Thompson Tire, a Goodyear Gemini and Truckwise dealership, is facing are not those of pricing but of supply, thanks to the Goodyear strike, according to Ms. Boyd.
``Tire prices are the least of our worries right now,'' she said. ``We just want tires. We're trying to protect our customers and deal with the strike issues.''
Higher prices also aren't a major issue to the tire retail operations of Monro Muffler Brake Inc., according to Joseph Tomarchio Jr., Monro's Baltimore-based executive vice president of store operations.
``We're not the lowest-priced, but we give quality service and convenience with our locations and hours,'' Mr. Tomarchio said. ``We should be paid accordingly for those services.
``Trust issues and convenience factors are the main issues for tire dealers,'' he added.
``Most people deal with tire dealers within 2½ miles of their homes, and we offer a lot of locations. An extra 5 percent on a quality purchase isn't going to make much difference.''
Tire prices are much less of an issue for dealers than gas prices, according to Mr. Tomarchio.
``I read an article last July that said the amount of vehicle miles driven had gone down for the first time in decades,'' he said.
``Disposable income has been eaten up by gas price increases, but with prices coming down, we're going to see those miles driven increase again.
``Americans are very resilient, and they will adjust,'' he added.
A spokeswoman for Cooper Tire & Rubber Co. said the company never makes public statements about its pricing policies.
``We have had several price increases this year,'' she said. ``While they have helped, they have not fully offset the higher material costs.''
* * *
Which tire maker has raised tire prices in the last year? The more appropriate question is, which one hasn't? Here's a list of companies that have hiked prices-citing increased raw materials and related costs:
* Bridgestone Corp.
* Continental Tire N.A. Inc.
* Cooper Tire & Rubber Co.
* Falken Tire Corp.
* Federal Corp.
* Hankook Tire America Corp.
* Kumho Tire USA Inc.
* Michelin North America Inc.
* Nexen Tire America Inc.
* Pirelli Tire North America Inc.
* Toyo Tire (U.S.A.) Corp.
* Yokohama Tire Corp.
* * *
2006 tire price hikes-an escalating tale
* Bridgestone/Firestone- (two increases for 2006, one for 2007) Up to 5-10%*
* Continental Tire North America Inc.-(two increases) 5-6%; several brands of commercial, off-road, light truck (LT) and passenger
* Falken Tire Corp.-(two increases) 3-7%; several specialty lines
* Federal Corp.-(two increases) 5-8%; across the board
* Goodyear-(two increases) 4-5%; consumer, commercial, off-road, some medium truck
* Hankook Tire America Corp.-(two increases) 5%; passenger, high-performance (HP), LT, medium truck
* Kumho Tire USA Inc.-(two increases) 5-7%; passenger, LT, commercial truck
* Michelin North America Inc.-(five increases) 2.5-8%; agricultural (U.S., Canada), earthmover (North America), commercial truck, some private and associate brands, passenger, LT, some heavy truck, motorcycle, scooter, bicycle
* Nexen Tire Corp.-(three increases) 5-6%; passenger, LT, HP
* Pirelli Tire North America Inc.-(one increase) 3%; passenger, LT (U.S., Canada)
* Toyo Tire (U.S.A.) Corp.-(three increases) 5-8%; passenger, LT, commercial truck, bus, OTR, medium truck
* Yokohama Tire Corp.-(three increases) 3-8%; commercial, LT, medium truck and bus, passenger, earthmover, mining, private brands, associate brands
*Percentages give range of each increase reported in 2006 and are not a total for the year.