Vaccine may usher sense of normalcy

WASHINGTON — With the potential of the country coming out of the COVID-19 crisis sometime in 2021 thanks to vaccines, the business of Washington could start to look more like normal in the coming a year.

And that business could impact the tire industry in a variety of ways.

Democrats and Republicans battered each other bloody during the election cycle from the presidential race on down, and both sides spent most of the year locked in a battle over the need for additional COVID-19 relief.

With President-Elect Joe Biden now ready to take office in late January, there already are signals that infrastructure spending will be on the new administration's agenda.

What historically has been a bipartisan effort to pass infrastructure spending ended up stalling during President Donald Trump's term, according to Roy Littlefield, executive director of the Tire Industry Association (TIA).

With a new administration set to take office, Mr. Biden has talked about plans to seek a new infrastructure spending measure for the nation.

"(Mr.) Biden wants to come in and pass an infrastructure funding bill, and we certainly support infrastructure spending and the work and jobs it brings to the industry. But we have to be careful," Mr. Littlefield said.

"What's happening with the Highway Trust Fund is that more and more percentage of that money is going to mass transit and less and less to roads and bridges."

It's not uncommon for governments to raid dedicated funds to pay for something completely unrelated. Think Social Security on the national level or recycling accounts on the local level, for example.

With 28% of the Highway Trust Fund now being diverted to mass transit, Mr. Littlefield is worried the tire and automotive repair segments could be seen as easy marks to raise more money needed to pay for the infrastructure work.

Such funding comes from a variety of sources, including fuel and truck tire excise taxes. Passenger tire excise taxes, at one point, were once in place but done away with in 1982.

An eye on taxes

Mr. Littlefield said he sees the potential for renewed interest in a passenger tire excise tax as a way to raise money, and that's something his group opposes. There also is concern about the potential to increase taxes on truck tires and truck parts to help cover infrastructure costs.

"It's one of those things that it's really important to the country, and it's really important to the industry to have an infrastructure bill, so we want that," he said about the overall idea of a renewed infrastructure program.

But not at TIA members' added expense.

While TIA represents a swath of those involved in the tire industry and includes thousands of members, the U.S. Tire Manufacturers Association (USTMA) is a much more narrow group, with just 13 members, operating 39 factories in 17 states.

As CEO of the USTMA, Anne Forristall Luke knows the first half of 2021 still brings lots of questions as the country is expected to roll out a vaccine program for COVID-19. But the industry, she said, is heading into the year with momentum.

"As you know, in 2020 we had unprecedented economic challenges in our industry," she said. "Our tire production dropped in the first quarter by 90% in the wake of factory shutdowns and the global manufacturing shutdown.

"Those are figures that were never before seen and I hope never seen again. There's been a great comeback starting in the second quarter and over this summer. We're looking to continued recovery in 2021."

Despite the expectation of a rebound, Ms. Luke said 2021 still brings uncertainty as the country awaits the results of the impending vaccine rollout. The first two quarters of 2021 will remain challenging, and beyond that there is difficulty making firm forecasts.

"In conversations with leaders of my member companies, I think we all recognize there's still going to be a lot of uncertainty in the first two quarters of next year," Ms. Luke said.

"I think a lot rides on vaccine distribution. I also think a lot rides on the ability of the Biden administration to work with Congress to get comprehensive economic stimulus over the finish line after inauguration," she said.

Mixed bag ahead

The USTMA sees both challenges and opportunities in some key areas heading into 2021, Ms. Luke said.

"One is economic recovery and growth. The next would probably be modernizing the regulatory framework around tire performance and safety given all the technology changes that are coming in the transportation sector," she said.

Both electric and autonomous vehicles have different tire needs when compared with traditional vehicles.

Environmental stewardship and sustainability are other important matters for the year and the years ahead, she said.

"We need to take a really long-game approach and reflect upon the place our industry has in society and the positive impact we can have on society through the prism of those major transformational forces," she said. "We're taking a very big picture view."

Living through 2020 actually will provide some tangible benefits for companies that have adapted and responded to the crisis.

"In my career I have rarely if ever seen a confluence of people coming together to build a better future under these kinds of circumstances. Looking back on 2020, I see a lot of silver linings in terms of business response, adaptability, worker protection, changing business models in response to rapidly changing economic conditions," she said.

"Coming in to 2021, all of that positions us to be successful while navigating these transformational forces," she added.

The country's approach toward climate change also is expected to shift when the new president is inaugurated.

"I think that we are expecting, obviously, the Biden administration is going to be more focused on climate policy than a second Trump administration would have been. We can anticipate the United States will be rejoining the Paris Climate Accord immediately," Ms. Luke said.

And that opens opportunities for the tire industry.

"The tire industry and innovations in tires are critical to achieving a lot of effective climate-change solutions," Ms. Luke said. "Even something like tire rolling resistance can have a measurable impact on fuel economy, fuel consumption."

"There's already been a lot of work that's happened in our industry to promote CO2 emission reduction, and I think we can see a lot more of that in the next few years in partnership with the incoming administration," she said.

Last in, first out

A key concern among TIA members, Mr. Littlefield said, is the possibility that the federal government will do away with the last-in, first-out (LIFO) accounting method for inventory. This method results in lower tax liabilities for companies compared with the first-in, first-out inventory approach.

A recent survey of larger members of TIA indicates ending LIFO could cost each business millions of dollars in one-time federal tax liabilities as a result of the accounting change, Mr. Littlefield said.

"The problem is you have been using LIFO and doing it legitimately through the years. Why should you get penalized now because that one-time tax would be really big?" he asked.

Along with climate change, the USTMA also expects the focus on tire and rubber particles in the environment — created as people drive their vehicles — to continue to gain more attention.

"We as USTMA have intensely accelerated our engagement with the regulators, policy makers and research to help support the research that's being done, Including looking at generating tire and rubber particles under sound scientific conditions that researchers can study," Ms. Luke said.

The pandemic has brought about some opposing forces when it comes to tire usage in the U.S. that could continue to play out during the next year.

With more people staying at home, or closer to home, during the pandemic, the number of vehicle miles traveled has decreased. But counter to that has been a trend away from public transportation causing people who normally would not drive themselves to purchase vehicles, Ms. Luke said.

While COVID-19 brought the tire industry to its knees during the spring, the pandemic also provided an opportunity for manufacturers to show their mettle.

"We all know character is revealed in a crisis. I am very proud of how our industry responded this year. Our member companies put their workers' health first," Ms. Luke said.

"They repurposed manufacturing lines to make PPE (personal protective equipment) and contributed supplies to local hospitals and community organizations all while developing business strategies to keep their companies safe and healthy during the crisis."