There's good news and bad news for tire dealers: Sales of replacement car and truck tires are expected to increase slightly in 2007. However, those tires likely will carry higher price tags as manufacturers continue attempts to recoup their escalating raw material costs.
Overall, the U.S. economy and consumer confidence is expected to be on par with last year. ``2006 was a dichotomous year,'' said Michael Walden, an economics professor with North Carolina State University. ``It started with rapid growth and ended with a whimper.'' He said the sluggish economy was mainly the result of the housing market slump and the struggling U.S. automotive market competing with foreign producers. He expects this year to be less volatile with modest growth.
Likewise other analysts expect a less-than-stellar performance for the general economy this year with a modest growth rate of only around 2 percent. Some don't expect a recession, some do.
Tucker Hart Adams of U.S. Bancorp reported a dimmer preview of the U.S. economy, predicting it will slide into recession in the second half of the year, with a 2.4-percent drop in automobile and truck sales.
For its part, the Bush Administration predicts the economy will grow by about 2.9 percent, reflecting a slower-than-expected housing sector with anticipated strong growth in other parts of the economy. The unemployment rate is expected to hold steady at 4.6 percent in 2007.
In 2006 consumer prices rose an estimated 2.3 percent on stabilized energy prices, which eased some inflation pressures on the economy. Consumer prices are expected to notch up 2.6 percent in both 2007 and in 2008, the White House said.
Despite concerns about the wars in Iraq and Afghanistan and unrest in the Middle East, high oil prices and a shift in the political landscape after the November elections, the economy is expected to cruise along.
``The U.S. economy has shown tremendous resilience,'' said Dennis Virag, president of Automotive Consulting Group, Ann Arbor, Mich.
As for the tire industry, the replacement tire market may fare better than the original equipment market as new vehicle sales are expected to lag.
``I think there is a pent-up demand for replacement tires even in this less than robust economic environment,'' said Rod Lache, an analyst with Deutsche Bank Securities Inc. He expected a dip in automotive sales-to 16 million passenger/light truck vehicles from an expected 16.5 million last year-will drag down OE tire sales. As in past years, sales of the popular high-performance tires will continue to prosper ``in excess of the overall market,'' Mr. Lache said.
``There will be continued pressure on the low-end tire market from imports,'' Mr. Virag added. But he predicted a slight increase in light vehicle sales to about 17.5 million units, although ``Japanese transplants will continue to do well against the domestics.''
The Tire Market Analysis Committee of the Rubber Manufacturers Association (RMA) said no growth is expected in 2007 for original equipment (OE) passenger tires. But it predicts a 4-percent increase for OE light truck tires due to an anticipated demand for small commercial trucks over the year. Conversely, replacement car tire shipments are expected to rebound by more than 2 percent in 2007 after an expected 3.2-percent drop in 2006, according to the RMA.
Heavy truck sales are expected to fall in 2007 making conditions ripe for an increase in replacement truck tire sales, according to Mr. Virag.
There was a nearly 9-percent jump in OE commercial truck tire shipments last year, attributed to a surge in truck sales to meet replacement demand and to get ahead of changes in 2007 Environmental Protection Agency emission regulations, according to the RMA.
Truck sales this year are expected to plummet approximately 20 percent due in part to the pulled-ahead sales. Consequently, after a 2-percent backslide in replacement commercial truck tires shipments in 2006, the segment is expected to rebound by nearly the same number of units in 2007.
As for fuel prices, after a year of fluctuations, some economists expect gasoline prices to level off. ``I'm projecting oil will remain above $55 a barrel. I don't expect a significant decline. It will hover around $60 a barrel,'' Mr. Virag said, noting that the higher gas prices are affecting the types of vehicles people are now buying.
Skyrocketing fuel and raw material prices prompted multiple tire price hikes this past year and analysts expect tire manufacturers to continue to offset their costs.
``The price increases did not fully absorb the increases in raw material prices. I foresee the addition of more (tire price) increases,'' Mr. Virag said.
Some analysts also expect a surge in natural rubber prices this year as demand increases in economically emerging countries, particularly China.
In spite of economic and global concerns, Mr. Virag expects continued positive consumer confidence and spending, noting, ``This is a nation of want, not a nation of need.''
With the growth in the national fleet of vehicles, tire dealers should ``focus on customer service and customer satisfaction,'' Mr. Virag advised.
``With the number of vehicles on the road, there is increasing need for automotive service.''