Tire wholesalers generally are optimistic that soft tire sales in 2006 and a mild winter thus far will make 2007 a good business year.
Matt Edmonds, vice president of marketing for South Bend, Ind.-based Tire Rack, said tire unit sales were down in the first half of 2006 but picked up a bit in the second half, giving Tire Rack an ``all right year.'' He attributed the slow first half to high gas and energy prices pinching consumers' discretionary income. However, he said consumers can put off tire purchases for only so long.
``We anticipate seeing a rebound as we move into 2007,'' he said. ``It's been extended out even longer than most people anticipated. We had hoped to see a rebound in the fourth quarter, but with the unbelievably pleasant weather that we've had all across the country...tires haven't been challenged on the road due to conditions.''
``I think there's a demand out there,'' said Ben Kravitz, president of Brockton, Mass.-based Summit Tires of Mass Inc. ``It's a pent-up demand that's going to hit us pretty soon. At least that's what I hope.''
Mr. Kravitz said he doesn't expect winter tire sales to pick up if snow hits in January because customers will think they can get by for another two months, but he believes that should bring customers needing all-season tires to dealerships come spring and summer. He noted that old tires coming off customers' cars this year have been more worn than in the past, which is another reason for his optimism.
Huntersville, N.C.-based American Tire Distributor Holdings Inc. (ATD) also has seen business improve during the second half of 2006 after a slow start and expects that momentum to carry over into 2007, said Ron Sinclair, vice president of marketing. The high-performance and ultra-high performance sectors continue to show growth, and Mr. Sinclair said ATD has built up its HP and UHP inventories since broadline tire sales declined in 2006.
``We're really focused on that growth in HP and think we're well positioned to capitalize on that and really think the independent tire dealer has an opportunity to own that segment of the business,'' he said, adding that HP tire sales are doing well in every region of the U.S. thanks to original equipment fitments.
All of these distributors offered different opinions on a potentially prolonged union strike against Goodyear. (Goodyear and the United Steelworkers reached a tentative three-year contract agreement Dec. 22.)
Mr. Sinclair said ATD hasn't experienced any supply disruptions to date and declined to predict if any tire shortages will occur. Mr. Edmonds said he's not concerned about the strike continuing indefinitely and that Tire Rack hasn't been impacted by it.
``We're concerned from the standpoint of Goodyear and just the overall industry, but I think as we look at the strike, they're doing everything they can to resolve it in a manner that is beneficial to everyone,'' Mr. Edmonds said.
However, Mr. Kravitz said he thinks Summit Tires is starting to see some effects of the strike even though the company is not a Goodyear wholesaler. He said he's noticed back orders and dwindling SKUs from the other manufacturers.
``All of a sudden, we're starting to see back orders now,'' he said. ``It has to be some sort of a ripple effect. I can't say, `Geez, business has gone up 10 percent because of the Goodyear (strike),' but I can definitely see that there are spot shortages.... Companies that were really good suppliers are starting to falter a little bit.''
Independent Goodyear dealers who previously wouldn't do business with Summit Tires now are interested in buying tires from the distributor, Mr. Kravitz said, adding that it's not a substantial purchase, ``but a few tires here and a few tires there.''
The three distributors all cited different industry trends and/or concerns that they are closely watching. Tire Rack is concerned about 2/32-inch tread depth used as the standard that defines a tire as worn out and plans to do testing in the first quarter ``to show the fallacy of the 2/32 law,'' Mr. Edmonds said. The Internet and mail order marketer plans to publish the results of its evaluations soon after.
``Once a tire reaches 2/32 of tread depth, it is way beyond its useful life,'' he said, adding that he believes a 4/32-inch tread depth should be the limit.
Tire Rack's Web site now features a tire testing video by Continental A.G. and Auto Express magazine that shows braking differences between vehicles equipped with tires with tread depths of 2/32 and 4/32. Mr. Edmonds said Tire Rack wants to collect its own data to present to the industry.
Mr. Sinclair said the SKU proliferation has pushed ATD to invest in warehousing systems, logistics and forecasting systems-and he doesn't see an end to that proliferation any time soon.
Mr. Kravitz said he believes the arrival of tire pressure monitoring systems (TPMS) in 2007 will cause a ``shakeout'' among independent repair shops and garages that sell six to eight tires a week as a side business.
``We consider them good customers, but a lot of these guys are gonna go away. They just don't want the hassle. I think that's going to be a trend we'll see in 2007.''
He also thinks that tire manufacturers will increase tire prices again in 2007, but he said that this time the manufacturers are adjusting production as well. His concern about pricing is that Asian imports will end up pushing down the prices on broadline and even UHP tires.
``They come up with a new size, and it originally comes out at $200 a tire but now some of this stuff is 60 to 70 percent cheaper than it was a year, 18 months ago,'' he explained. ``I'm concerned only to the point of price protection because the way a lot of this stuff is bought, you pay for it when it leaves the dock. You may not get it (until) 60 days later, and it may take you a couple of months to sell it. By that time the price has dropped 10 points, 15 points in some of this stuff.''