The Car and Truck Fleet and Leasing Management Magazine

Tire Prices Climb as Oil Costs Soar

August 30, 2005

SAGINAW, MI – Increasing oil prices are not only causing financial problems at the pump, but also in tire stores, according to the Saginaw News. "We're starting to see the prices go up already," said John Flanagan, fleet manager of Stevens Worldwide Van Lines corporate office in Buena Vista Township. More are coming, said Thomas E. Trier, manager of Northwest Tire and Service in Saginaw. "There's been two increases from the manufacturer this year already – one at the beginning of the year and another in early summer – and there will be another increase on September 1," Trier said, noting he got his information from the company's corporate office in Flint. "The new increases will average 2 to 3 percent, although some lines will go up as much as 5 percent." "These increases are reflective of oil prices," Trier said. "They're not as drastic as gas prices, and the inflation on tires is not as bad as housing (heating fuel) and gas, but oil is a product used in manufacturing tires. "We may hold the line on the increase, but it's too soon to answer that for sure." A 28-lb. truck tire contains about 15 lbs. of steel and 13 lbs. of rubber compound, industry sources say. Of the latter, roughly half is pure rubber and the rest is materials such as carbon black and various additives. The oil content of oil-extended synthetic rubber is 25 to 33 percent, so 2 to 3 lbs. of oil were used to make the rubber portion of the truck tire. Another way to figure it is that roughly 10 percent of the tire weight is oil. Tire manufacturer costs are roughly 30 percent for raw materials, 30 percent for labor and 30 percent for capital expenditures and overhead, leaving 10 percent for profit. So, if raw materials go up by 10 percent, the public can expect a 3 percent increase in selling price because labor and overhead costs remain roughly the same, reported Saginaw News. Large companies will have a few hundred to a thousand tires on their cars and trucks. An average grower will have more than 100. At Stevens Worldwide Van Lines, the company has more than 300 tractor-trailers with 18 wheels each and more than 300 street trucks with six tires each. That's more than 7,200 tires, each tire with an average lifespan of 100,000 miles. Each vehicle logs about 80,000 miles per year. Truck trailer tires cost between $200 to $300 each while truck tractor tires cost about $300 to $400 each depending on the size, he said. Even at a mid-range price of $300 each, the 7,200 tires would add up to $2.16 million. A 5 percent increase in tire prices would cost the company $108,000.
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