AKRON (Nov. 29, 2010) — Tire manufacturers used to be able to make a case that their products were the biggest bargain component found on a vehicle. That's changed.
Tires are highly engineered products that perform amazing, contradictory feats, like holding onto a road, cornering without skidding, carrying immense loads, yet providing a soft ride and fuel economy. These characteristics and more—and the fact nothing has been invented to replace the tire—make it a critical part of a vehicle. Yet the price of a tire never matched its value.
Blame it on the overly competitive nature of the tire business. Point to rampant price cutting that makes many tire types mere commodities. Complain about the enormous power of the auto makers, who force their will—and discounts—on tire makers whenever they feel the need.
The result was great news for the consumer: a bargain-basement price for a top-shelf product. Not so great for the tire industry.
Things are different today. Tires aren't cheap anymore. What isn't different is that tire makers still aren't getting the return on what they put into their products.
Entry-level tires certainly can be had at a relatively low price. But for a typical family-size car, replacing the tires will take $400, $500 or more out of the consumer's pocket. Higher-end tires, of course, will have a bigger impact on the wallet.
One tire price increase after another has been instituted over the past year. Higher demand for tires as the recession recedes and tire makers' inability to produce enough tires to meet demand are factors in the price hikes.
The main reason, though, is the one that causes tire makers to continue to struggle financially—high raw material costs.
Natural rubber is the biggest culprit, with prices hitting record levels. A barrel of oil recently rose to $92, fueled by the falling value of the dollar, which impacts rubber chemical and synthetic rubber prices.
The tire makers should be reaping a major gain from raising prices, but instead are just playing catch up with rising costs.
The tire industry just doesn't have any luck.
This editorial appeared in Rubber & Plastics News, an Akron-based sister publication of Tire Business.