Public Sector Fleets: Tires are Getting Bigger & More Expensive
For the second consecutive year, there have been multiple waves of price increases for replacement tires. In 2005, there were three price hikes and another three price hikes in 2006. A key reason has been the dramatic increase in the cost of oil, which is not only used to manufacture tires, but also to transport them to market.
The latest round of price hikes had Bridgestone/Firestone increase tire prices by as much as 4 percent Sept. 1. Likewise, Goodyear raised prices on its medium-truck tire lines and retread products by as much as 5 percent. Effective October, Michelin will raise prices on its entire passenger and light truck replacement tires by 3 percent and Yokohama will increase prices up to 7 per-cent. These price increases are trying to keep pace with the escalating cost of oil, a key component to manufacturing tires. For example, a 28-lb. truck tire contains about 13 lbs. of rubber compound. The oil content of synthetic rubber is 25 to 33 percent; meaning 2 to 3 lbs. of oil are used to make the rubber portion of the tire. Another way to say this is that roughly 10 percent of a tire’s weight is oil. In addition, other raw material costs used to construct a tire has skyrocketed (see chart below), and there appears to be no end in sight.
Larger Tire Sizes Designed for Specific Models
A second factor contributing to higher tire prices is that tires are getting larger. In the past few years, more new cars have been equipped with 17- and 18-inch tires, and those sizes are becoming a bigger part of the replacement tire market. The bigger the OE tire, the more expensive the replacement tire.
The same is true with light trucks. As recently as late 1990s, the 16-inch tire was the dominant tire for commercial light trucks. It represented 80 percent of commercial light-truck tires. Since the turn of the century, there has been a transition with light commercial trucks to lower-profile, larger 17- and 18-inch tire sizes.A third factor contributing to higher tire prices is that more and more manufacturers are designing tires specific to their vehicles. Manufacturers want their vehicles to perform in specific ways, and they spec the tire to be engineered to meet these requirements. As a result, a tire company develops a tire just for that model. The increased proliferation of tire sizes can result in temporary shortages for replacement tires immediately following new-model introduction. Another concern is increased liability exposure. Since tires are optimized for a specific vehicle – from size and speed rating to inflation pressure and, in some cases, position – vehicle manufacturers believe OE fitments provide the best-engineered ride and handling characteristic of a vehicle. The use of a substitute replacement tire, if a tire-related accident should occur, may be grounds for litigation.
Growing Use of Off-Brand TiresFleets are scrutinizing tire costs and are closely managing the cost of replacement tires. One response has been a growing use of less expensive off-brand replacement tires. In addition, fleets are increasing the use of recapped tires because they provide comparable tread life as new replacement tires. Often public sector fleets often do themselves a disservice by getting locked into only buying specific brand-name tires. Many non-traditional tire OEs offer comparable products, sometimes at more competitive pricing.
With petroleum prices edging upward, prices for replacement tires will most likely increase again in 2007. With this in mind, it is the OE tires, not the replacement tire, which are the cheapest tires because they come with the vehicle. If you want to reduce tire expense, focus on extending the tread life of the original OE tires by having your user groups keep tires properly inflated, rotated every 5,000 miles, and regularly inspected for uneven wear. Oh, well, we can at least wish this would happen, can’t we?
Let me know what you think.