Higher Commodity Prices Cause Tire Prices to Ratchet Upward
TORRANCE, CA - During the first eight months of 2011, tire prices increased at a higher rate than inflation, particularly for light trucks and mid-size cars.
On average, tire prices have continued their typical 4- to 13-percent increase - particularly for truck and commercial tires. Among the primary reasons for this increase has been due to the cost of raw materials.
These price increases are on top of prior-year back-to-back price hikes. However, the price hikes for replacement tires in 2011 were higher than those in 2010, particularly in the retail market. The fleet market has been somewhat immune from these increases due to national account pricing agreements. When annual changes do occur, they tend not to be as high as the retail side. However, this could change because of cost pressures related to tire production.
Another contributing factor driving higher replacement tire costs have been the increase in average monthly mileage as vehicles are kept in service for longer periods.
Commodity prices, in particular the higher cost of oil, which is a key ingredient in tire manufacturing are contributing to the ongoing price hikes. Carbon black is being edged up by crude oil prices. Rubber inventories are currently the lowest they have been since 2002. Adding to these woes for the U.S. market is growing Chinese demand and the weak dollar.
On the replacement side, the trend to low-profile tires with large wheel diameter sizes up to 20 inches has raised costs.
Because replacement tire production for new vehicles doesn't start until about a year after they are released to the market, fleets often have availability issues to deal with in addition to replacement costs. The economy added a wrinkle to this. In parallel to many OEMs, tire manufacturers cut production and even closed some plants. As demand has started to peak again, the tire manufacturers have seen their ability to produce tires being stretched, which impacts availability.
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