Predicting future tire prices is very difficult due to the many variables that influence tire manufacturing, distribution, and retail pricing.
According to one of the tire industry’s trade magazines, Tire Review, “the weakened economy, lack of consumer confidence and high global unemployment rates have resulted in a plunge in auto sales and aftermarket tire sales.”
In addition, Tire Review reported: “In the supply chain, consumption of tire materials has dropped in line with tire manufacturing, creating declining prices for natural and synthetic rubber and other key commodities. Changing consumer patterns, such as working from home and e-commerce, are likely to have a lasting effect on tire industry practices.”
The price of commodities has a direct relationship to the ultimate retail price of a tire. For instance, since oil represents a large percentage of the raw materials used to manufacture tires, the forecast by some analysts for flat oil prices in the future is a positive sign for future fleet expenditures. However, in a Sept. 1, 2020 study, Goldman Sachs reported that other analysts expect Brent crude to increase to $65 per barrel from today’s $45 per barrel in the third quarter of 2021.
Nevertheless, the price of commodities, such as oil, rubber, and steel, which are three key ingredients needed to manufacture tires, are unpredictable cost variables in determining tire prices. Based on past experience, commodity prices can change quickly given the volatile nature of the commodity markets.
So, what is the fleet industry’s forecast of the cost of replacement tires and retreads and their impact on fleets in 2020-2021 calendar-years?
“There is concern about increases in raw material costs, especially oil, which would have a material impact on the cost of tires,” said Mark Lange, CAFM, technical services consultant for Element Fleet Management.
There may be credence behind these concerns as recent price trends point to higher tire costs in the 2021 calendar-year due to recent indications of upward pressure on commodity prices. “Overall, per tire cost has increased across multiple brands, with all manufacturers noting increases in raw materials, labor, and distribution costs,” said George Albright, director, fleet maintenance for Merchants Fleet.
Others likewise forecast that tire prices will trend upward in 2021 as demonstrated by the recent pricing announcements from several large tire OEMs.
“Manufacturers, such as Michelin, Goodyear, and Pirelli, have increased replacement tire pricing thus far in 2020,” said Mark Ackerman, director, maintenance and repair for LeasePlan USA.
Another factor putting upward pressure on future tire prices is the growing trend by fleets to upgrade tires during the new-vehicle acquisition process.
“We are seeing an increase in tires being upgraded during the factory order process, as well as immediately following delivery. In particular with gas & oil, construction, and engineering fleets. Standard issues are being replaced early with more aggressive treads,” said John Wuich, vice president of strategic consulting services for Donlen.
On the flip side, there are other industry trends that promise to lengthen the interval between ordering replacement tires.
Since tire prices are dynamic and are influenced by a variety of variables, it is difficult to reach a consensus on a future forecast on tire prices.
One camp focuses on commodity prices and their unpredictability. “The expectation is that overall tire cost per tire will increase across most manufacturers due to continued pressures on the increases in raw materials, labor, and distribution costs,” said George Albright, director, fleet maintenance for Merchants Fleet.
Another factor cited has been the growth in last-mile delivery fleets, which is the fastest growing fleet segment operating in an environment with a high number of stop-and-go miles per unit. “Increases in urban driving by last-mile fleets will continue to fuel demand for cargo van and step van tires,” added Albright of Merchants Fleet. “We have observed increased demand for durability among tires, especially with cargo vans and step vans. Urban driving in last-mile fleets have driven the need for higher mileage tires with lower to mid-range price points.”
Market uncertainty and its impact on the supply chain is another unknown quantity that is difficult to forecast.
“Looking ahead, with the market uncertainty caused by the pandemic and other factors, it is somewhat challenging to accurately forecast long-term costs with much confidence. For example, one factor we’re monitoring closely is potential supply constraints on some tire models due to disruptions in the manufacturers’ production schedules during the pandemic,” said Chris Foster, manager, truck & equipment maintenance for ARI. “Additionally, we’re beginning to see a few manufacturers announce plans to increase prices slightly as we head into 2021 due to higher than anticipated operating costs. It appears likely that tire costs will be slightly higher across the board in 2021.”
The ultimate outcome of the pandemic and the strength of the economic recovery are driving many predictions on future pricing.
“During this period of economic recovery, it is unlikely that tire prices will significantly increase as demand and miles driven will be limited,” said Erin Mills, national service department manager for Enterprise Fleet Management.
The time to watch is April 2021, which is when tire OEMs have traditionally announced new pricing.
“Until there is a turnaround, cost may remain the same for potentially the first half of the year. With less purchases being done; we do expect the cost to increase either in April or September of next year. Those are the two times where tire manufacturers have historically reviewed their pricing and made changes,” said Troy Fleener, team lead, maintenance for Emkay.
One consequence of the pandemic has been an increased interest in retreads by commercial fleets.
“Most clients are looking to cut costs at this time. Retreads on the truck side were not highly sought after from certain clients and I do think now they are considering them as an option,” said Fleener.
During the economic shutdown, many fleet vehicles were parked for extended periods by company employees. One consequence of this prolonged inactivity has been the emergence of flat spotting, which occurs when a tire has been stationary under a vehicle load for an extended period. As a result, the tire develops a flat spot in the area where it is in contact with the ground. “This is an issue that we have seen with some of our client’s tires. We have been proactively working with our customers to remind them to move their vehicles at least once a month to avoid this,” said Tony Hernandez, team lead, truck maintenance for Emkay.