Time to rethink
So what does this mean to you as a member of the commercial truck tire industry? Well, I'd get ready to embrace change if I were you!
I think 2008 is going to bring some real challenges and make us all rethink what we are currently doing. Your fleet customers by and large will not be as financially strong as they have been in the past three years. Many will have trouble paying you quickly for retreads and new replacement truck tires even though there will be plenty available.
Although new truck sales will increase a bit in 2008, the original equipment (OE) truck manufacturers will still be hurting-and this will mean more tires for the replacement truck tire market.
The Rubber Manufacturers Association (RMA) expects OE demand will increase 6.4 percent to around 5 million units as new truck sales rebound in the second half of the year. It also forecasts that replacement tire sales will rebound by nearly 3 percent to around 16.5 million units as the manufacturing sector gains momentum as well.
With slow demand but an ample supply of tires in the beginning of the year, there could be softer truck tire pricing this year. Also adding to this downward pressure on pricing is the price stabilization of raw materials, which may even start to decline later in the year.
If a tire manufacturer blinks and reduces prices due to lower manufacturing costs in order to gain market share, this could spark more competition in the industry and aggressive pricing.
The importation of Chinese tires is still a concern to tire manufacturers as well as to tire dealers. Ten years ago, imports accounted for only 19 percent of total tire sales. In 2006, they comprised 46 percent. Chinese imports accounted for 23 percent of the tires imported in 2006 (up from just 6 percent in 2000).
In 2007, the influx of low-price truck tires slowed a bit. The price differential that once was about 25 percent between a recognized brand tire and a Chinese import has dramatically changed. Due to the fluctuation in the price of the U.S. dollar and the calculation change in the Chinese value-added tax (VAT) on finished goods, the price differential on Chinese truck tires is now only in the 10 percent range.
Further, with the U.S. government making it clear that it will go after importers of these products if a recall is mandated, these tires may not be as attractive to dealers as they once were.
Those of you thinking you will always have an edge with these tires may have to rethink your market strategy, especially if you also sell retreads. This slight price advantage may not be worth jeopardizing your investment in retread equipment.
Whatever you do, it's important to know your tire supplier as well as your obligations if the National Highway Traffic Safety Administration (NHTSA) determines a product is defective or non-compliant with DOT standards.
Ultimately, retailers are responsible for every tire sold and installed, so consult an attorney and your liability insurer to ensure you understand what your responsibilities are going to be with the tire supplier you select.
Don't think the advancement of Chinese tires is thwarted. Companies like GITI Tire (USA) Ltd. relocated to a larger facility in California last year due to its growth in North America. China Manufacturers Alliance (CMA) L.L.C. opened its first wholly owned distribution center in Memphis, Tenn., and will open a second on the West Coast that will stock Double Coin Holdings Ltd.'s Double Coin-brand tires.
Double Coin tires also have been approved for fitment on certain International Truck and Engine Corp. vehicles and IC Corp. school buses.
These Chinese tire companies have and are continung to hire savvy Americans with tire industry experience and market understanding to penetrate the North American truck tire market, and they will continue to make inroads.
Take a closer look
Another thing you have to be on the lookout for is look-alike and counterfeit tires. Look-alike tires have the same tread designs as recognized tire brands but have the real manufacturer's name on the sidewall.
All the major tire manufacturers are suing companies for stealing their patented tread patterns. You don't want to get in the middle of a lawsuit.
More difficult to recognize are counterfeit tires. These look exactly like the tire that is copied-right down to the name and logos on the sidewall. It's extremely hard to identify these tires, but the tip off would be the price. If it is too good to be true, it probably is.
While the outside appearance of the real and copycat tires is often identical, there is no guarantee that the construction and rubber compounds also are the same.
Counterfeit truck parts have been a big problem for years-they're usually inferior in quality to the parts they mimic-and that situation is now appearing in tires. If there is an accident as a result of a defective, counterfeit tire that you sold but nobody claims they made, who is going to get sued? (You guessed it!)
Competition for freight will continue to heat up in the first half of the year due to continued consolidation in the trucking industry as more truckers throw in the towel or are purchased by another company. Thus, you could easily see your fleet accounts disappear or private fleet accounts change their tire purchase patterns if they move to lease/rental equipment or outsource their transportation function.
Diversify your customer portfolio to ensure your business won't suffer if you lose one or two fleet accounts.
Commercial tire dealers do not need to build excess inventories as tire supply should be plentiful throughout 2008. And the first quarter should be slow, so don't stock up on special deals unless you are certain you can move them if you need the cash flow.
Profits ahead
Tire manufacturers are poised to have a profitable 2008 after laying the groundwork in 2007. Most of the tire companies closed high-cost plants, adjusted their production lines to outsource or eliminate low profit products, and in essence embarked on major cost-reduction programs.
While Bridgestone Americas Holding (BAH) Inc. has pretty much left Bandag Inc. alone since its acquisition last May, expect changes to occur in 2008 both on the employee/operations side as well as in the dealer area. In late December, BAH made its first moves to drop long-standing tire dealers who were not both Bridgestone and Bandag dealers. Service Tire Truck Centers and Valley Tire Co. were both dropped as Bridgestone dealers. They recently switched from Bandag to Michelin Retread Technologies.
Most Bandag employees expect to see changes within the company in the second half of the year.
It's probable we also will see changes in the way Oliver and Michelin dealers do business with their tire and tread rubber and equipment suppliers, since Michelin North America Inc. now operates Oliver Rubber Co. as a subsidiary. It is logical that its operations will change to be more like Michelin's.
The retread market is pretty much divided now among the Big Three: Bridgestone, Goodyear and Michelin. Together they hold more than 90 percent of the U.S. truck tire retread market, with Bridgestone/Bandag holding 45 percent, Goodyear more than 25 percent and Michelin (with the purchase of Oliver) at about 20 percent.
This will put added pressure on Marangoni Tread North America Inc., which has single-digit market share, as well as other independent retread system suppliers that have no association with Tier 1 new tire suppliers and do not offer complete cradle-to-grave solutions for the commercial market.
Dealers who have well defined niches will continue to do well, but those who don't will feel stepped-up pressure to align themselves with one of the big guys.
It also is probable that we could see a dealer war heat up between the majors as they attempt to steal retreaders away from their competition.
Are changes in the wind in 2008? You bet. You'd better hone your business skills, look for opportunities to expand your business, cut costs and diversify your customer base. Why?
Because, as author John M. Richardson Jr. wrote, ``When it comes to the future, there are three kinds of people: those who let it happen; those who make it happen; and those who wonder what happened.''
You never want to be in that last group! Happy New Year!
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Peggy can be reached via e-mail at [email protected] Her previous commercial tire service columns are available at www.tirebusiness.com.