Signs of life wantedBy Bruce Davis, Special Projects Reporter
AKRON—With a disappointing 2012 in the rear-view mirror and less-than inspiring forecasts for 2013, commercial tire dealers are looking for any and all signs of life this year.
The year has started off perhaps better than most anticipated, with trucking activity—as measured by the American Trucking Associations—up in both January and February, both from the same two months in 2012 as well as from November-December last year.
Other positive signs a “spring thaw” may be in the works?
c The U.S. trucking industry added 5,600 jobs in February and 6,500 in January, according to Labor department statistics,
c Orders for Class 8 trucks rose above 20,000 units in February, the fifth consecutive month of 20,000-plus growth, according to ACT Reaearch Co. data. The firm cited a surge in step-van orders for the gains in medium duty demand above the prevailing trend.
On the tire side, demand for commercial tires in the U.S. should increase slightly over 2012, according to Yokohama Tire Corp., as the industry achieves more supply-demand equilibrium to keep pace with a recovering economy.
Yokohama's assessment of the market from early 2013 parallels that of the Rubber Manufacturers Association (RMA), which is forecasting aftermarket truck tire shipments this year will rise about 2 percent, to 16.5 million units, based on what the association termed a “sluggish” forecast for Industrial Production Index.
Shipments in 2012 fell about 4 percent, the RMA said, to 15.9 million units as fleets opted to upgrade their rolling stock. That trend, however, led to a jump in OE truck tire shipments last year of more than 5 percent to 5.1 million units.
A sluggish forecast for the 2013 Industrial Production Index likely will limit growth this year to about 2 percent, the RMA said, to 5.3 million units.
Likewise, replacement light truck tire shipments fell roughly 2 percent last year to approximately 28 million units—a decrease of about 600,000 units—with little if any growth forecast in 2013.
From a supply standpoint, dealers can expect to be selling more foreign-sourced tires—especially from China—as imports rose slightly last year to 10.6 million units, while production by U.S.-based manufacturers dropped nearly 1 million units, or 7 percent, last year to 13.2 million units.
Medium/heavy truck tire imports from China surged 30.2 percent over 2011 to 6.33 million units, accounting for more than 60 percent commercial truck tire imports. Assuming most of these imports go to the replacement market, Chinese truck tires now represent more than 35 percent of the U.S. aftermarket.
By contrast, OE light truck tire shipments were up 2 percent last year to 4.3 million units, as domestic vehicle production using light truck tires experienced only slight growth due to soft economic conditions, the RMA reported. The category is expected to grow 2.8 percent this year to nearly 4.4 million units.
Retreading in 2012 for the most part was up slightly, if at all, for most of the companies surveyed for this Tire Business report. There were a few exceptions, but in those cases growth was tied to acquisition or other business changes.
For 2014 and beyond, Yokohama expects replacement market demand for truck tires to pick up again significantly, according to Rick Phillips, director of commercial sales since January 2011.
As for 2013, “..freight and GDP are pretty tightly tied together... Right now, GDP growth is not great but it's enough to challenge the capacity,” he said in a report issued by the tire maker. “There's a good bit of money on the sidelines, but still a lot of uncertainty so spending is very cautious.”
Mr. Phillips pointed to the housing industry as one economy segment that's starting to show signs of recovery. He also singled out the recovery efforts on the East Coast in the wake of Hurricane Sandy, which should help the trucking industry recover from lost revenue—attributed to the storm—of as much as $140 million a day.
“Hopefully, we will continue to see more good signs than bad,” he said in comments made before Congress passed the stop-gap bill Jan. 2 to stave off the fiscal cliff package of tax increases and spending cuts.
Mr. Phillips' forecast contrasts with his assessment of the industry the past two years, which he characterized as “challenging” and “surprising.”
“In the 35 years I've been in the industry, I've never seen two years back to back that were as different as 2011 and 2012,” he said, referring to an “unpredicted swing” in supply and demand and swings in the price of raw materials.
In 2011, he said, the industry experienced a bigger spike in recovery from the 2010 recessionary conditions than it had expected, which collided with tight supply to create product shortages throughout the industry, despite rising prices tied to raw materials cost escalation during the year.
“In 2012, it all switched,” he said. “We saw demand slow down considerably, which caused inventories to build, and the price of raw materials reversed course and decreased.”
State of dealerships
Among individual dealers, Southern Tire Mart L.L.C.., took over the top spot on Tire Business' independent commercial dealers' ranking with 9.4-percent growth last year to $700 million, displacing perennial No. 1 Kal Tire.
The Columbia, Miss.-based dealership also advanced on the top retreaders ranking to No. 2, ahead of Bridgestone Commercial Solutions Group, on the strength of 8.5-percent output growth to 4,200 tires a day.
Southern Tire also added OTR retreading capacity to its portfolio, at a plant the dealership acquired in east Texas. Production has ramped up quickly to a million pounds of tread rubber used last year, earning Southern Tire Mart a spot among the 15 largest OTR tire retreaders.
Bend, Ore.-based Les Schwab Tire Centers Inc. moved to No. 3 on the list, with 2012 sales of $316 million, an improvement of 23 percent over 2011. Pomp's Tire Service Inc. of Green Bay, Wis., and Best One Tire & Service L.L.C. of Indianapolis slipped to fourth and fifth despite solid double-digit sales improvements of their own.
New to the ranking are Gem City Tire of Dayton, Ohio; A to Z Tire & Battery Inc. of Amarillo, Texas; and Hill Tire Co. of Forest Park, Ga. (See charts, pages 10-11).
Goodyear's Wingfoot Commercial Tire Systems L.L.C. business retained the top spot among truck tire retreaders, consuming 38.3 million pounds of tread rubber last year at its 31 retread plants.
Twenty-two of the 50 medium/-heavy truck tire retreaders on this year's list use the Bridgestone Bandag system, compared with a dozen that use Michelin North America Inc.'s Michelin Retread Technologies system, six using Goodyear's systems, six using the Marangoni RingTread System, six using Mich-elin's Oliver/Long Mile tread rubber and processes and two that have started using the Conti-LifeCycle process.
The 50 largest truck tire retreaders operate 257 plants, turning out an average of 180 tires a day, according to data collected by Tire Business. (See charts, page 13-14).
The value of retreaded tires produced in the U.S. in 2011 was estimated recently by the U.S. International Trade Commission (ITC) at $1.4 billion, which the agency said was 35 percent greater than in 2009.
The ITC's report, “Remanufactured Goods: An Overview of the U.S. and Global Industries, Markets and Trade,” identified 680 facilities in the business of retreading truck tires, along with 18 producing OTR retreads, five making aircraft retreads and four making passenger retreads.
Roughly 90 percent of these plants came under the umbrella of the “Big Three” retread technology companies—Goodyear, Bridgestone Americas (Bandag) and Michelin North America Inc.—the report states.
NRI Inc. of Portland, Ore., and Purcell Tire & Rubber Co. of Potosi, Mo., are considered the two largest retreaders of OTR tires, while Eastern Tire Service Ltd. of New Glasgow, Nova Scotia, and Techno Pneu Inc. of Rimouski, Quebec, are rated the two largest retreaders of passenger and/or light truck tires.
Annual investment in the retread industry increased by about 20 percent during the period, to $24 million in 2011 from $20 million in 2009, the ITC study said.
There were no major mergers or acquisitions during the past year, but there were some targeted takeovers, including:
c Bauer Built Inc.'s acquisitions of Hanson Tire Service Inc. of LeRoy, Minn., and a commercial tire outlet in Omaha, Nebraska, previously run by Walker Tire & Auto Service.
The Hanson purchase brought Bauer Built outlets in LeRoy and Preston, Minn., that had catered to the agricultural market for the past 53 years and tied into the Durand, Wis.-based dealership's efforts to expand into the agricultural market.
The Omaha store acquisition expanded Bauer Built's presence in Nebraska to five locations.
c Colony Tire Inc.'s purchase of Kramer Tire Co. truck centers in Norfolk and Hampton, Va., from Monro Muffler Brake Inc., which had acquired them in its earlier acquisition of Kramer Tire. The deal was tied to Colony's decision to divest its own retail business to Monro.
c East Bay Tire Co.'s takeover of R&G Tire Center Inc., a commercial and retail dealership with locations in Kona and Hilo, Hawaii. East Bay also opened a commercial location in February in San Jose, Calif., expanding its network to six service locations in California and three in Hawaii.
c McCarthy Tire Service Co.'s acquisition of Main Tire Exchange Inc., a Dansville, N.Y.-based commercial tire dealership/retreader with locations in Buffalo, Rochester and Dansville, N.Y., extending Wilkes-Barre, Pa.-based McCarthy Tire's network into western New York for the first time. The deal included Main Tire's Bandag-system retread plant in Dansville.
c Pete's Tire Barns Inc.'s acquisition of New Haven, Vt.-based New Haven Tire Inc. and the commercial tire assets of Quirk Tire Co., including the dealership's Westborough, Mass., location.
c Piedmont Truck Tires Inc. of Greensboro, N.C., acquired two locations, in Summerville and Orangeburg, S.C., from Strobel Tire Co. and is planning to expand its operations in 2013 into Virginia's Tidewater area.
In addition, dealers across the country are investing and expanding their businesses, including:
c Allied Oil & Tire Co., a Michelin Retread Technologies (MRT) affiliate since 1998, recently produced its 1 millionth truck tire retread using the MRT process at its hybrid mold-cure/precure plant in Omaha, Neb. Allied Oil was among the first independent U.S. retreaders to convert its retreading business to MRT. Its plant in Omaha is the only one in the Midwest.
With a daily production of about 270 units, Allied Oil ranks among the 15 largest MRT retreaders in North America.
c H&H Industries Inc. of Oak Hill, Ohio, expanded its manufacturing space, added $600,000 worth of additional processing equipment, and is setting up capacity for making solid industrial tires.
c McGee Tire Stores acquired the medium truck tire retreading business of Day & Night Tire Service Inc. and consolidated those assets at its own retread plant in Eaton Park, Fla.
c Morton Supplies Inc. expanded its retread plant in Morton, Ill., by 4,000 square feet last year to accommodate an additional curing chamber and has more expansion on tap for 2013.
c Provincial Bandag Tire Ltd. is modernizing the production flow at its Sainte-Basile, New Brunswick, retread plant with a new enterprise resource planning system, with support from the New Brunswick and Canadian federal governments, which are contributing $306,100, with Provincial Bandag investing $98,136.
To reach this reporter: bdavis@ crain.com; 330-865-6145.
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