It's a classic case of the good, the bad and the ugly in the North American tire industry.
The good news is that demand is up and continues to rise. The bad news: Prices are rising as fast as or faster than demand.
The seemingly endless stream of tire price hike announcements, higher tire demand and a lack of supply have caught up with the market. It's not a pretty picture.
This is the issue facing tire dealers as 2010 draws to a close. It appears 2011 could be more of the same until inventories come more in line with demand.
For now, the issue of supply is so acute that some dealers are complaining they are only getting 30 percent of the tires they order. These are for all types of tires, including passenger and light truck, medium truck and forestry. One dealer told Tire Business he anticipates supply “will be an enormous problem this winter.”
At the same time, manufacturers—experiencing a huge run-up in rising raw material costs—have had to steadily increase the prices they charge their customers just to keep pace.
Michelin North America Inc. executives, at a recent gathering of the tire maker's Alliance Associate Dealers, acknowledged the problem, which other tire manufacturers also are experiencing. The firm, they said, has had trouble keeping fill rates at an acceptable level. It is running its U.S. factories 24/7 to build inventories and fill backorders.
Much of this situation is the result of the recession that began in late 2008 and ran throughout most of 2009, when the tire market collapsed and tire makers pared down inventories and reduced production.
Since then, demand has rebounded stronger and faster than anticipated, a positive problem exacerbated by the shortage of entry level tires from China as a result of the high import tariffs imposed by the Obama administration.
Dealers, for their part, are scrambling to find tires while being forced to either pass on the higher prices to customers or find some workable combination that includes absorbing some of the costs themselves.
While the situation has been positive for some dealers, who are experiencing record sales and profits, that's not been the case with others. Many are complaining that despite the rise in sales, their gross profits are lower as they try to cope with rising tire costs.
It's a chronic problem that gives dealers little choice but to grin and bear—and hope for the better.
That's where the ugly part comes in. Raw material prices, led by natural rubber, are rising again, likely portending more price hikes in the future.
Is there a limit to how much prices can rise as budget-conscious consumers struggle to cope with ever-increasing costs just to equip their vehicles even with entry-level tires?