A key reason for the price increase was due to the increase in price for the raw materials used to manufacture tires. In 2018, on average, raw material prices increased 5% to 10%. Higher commodity pressures exert pressure on tire OEMs to maintain margins as their production costs increase. - Photo courtesy of gilaxia via Getty Images.

A key reason for the price increase was due to the increase in price for the raw materials used to manufacture tires. In 2018, on average, raw material prices increased 5% to 10%. Higher commodity pressures exert pressure on tire OEMs to maintain margins as their production costs increase.

Photo courtesy of gilaxia via Getty Images.

Editors note: This article is part of a three-part package that addresses fleet maintenance costs. Read related articles covering maintenance costs and oil service costs.

Like-for-like replacement tire prices for passenger vehicles increased on average 8% in calendar-year 2018 compared to CY-2017. For the purposes of this study, passenger vehicles are defined as cars, SUVs, crossovers, and minivans.

A key reason for the price increase was due to the increase in price for the raw materials used to manufacture tires. In 2018, on average, raw material prices increased 5% to 10%. Higher commodity pressures exert pressure on tire OEMs to maintain margins as their production costs increase.

In the end, commodity prices dictate replacement tire costs. Tire pricing is rising due to higher cost of raw materials and larger catalog of tire sizes.

A key reason is the increase in OEM automobile wheel diameters, which has driven up the price of fleet replacement tires, primarily because the larger the tire, the greater the manufacturing expense.

“Tire prices on average continue to increase in cost. Many factors have impacted these cost increases but are primarily driven by the continued use of large diameter/low profile tires,” said Mark Lange, CAFM, managed maintenance analyst for Element Fleet Management. “There was concern in 2018 that tariffs would impact replacement parts cost and availability. To date, we haven’t seen evidence of this trend.”

These were some of the key findings of AF’s 24th annual fleet passenger car maintenance survey conducted exclusively by Element Fleet Management. The study is based on an analysis of actual maintenance expenses incurred during calendar-year 2018 by more than 100,000 passenger vehicles, which include cars, SUVs, crossovers, and minivans.

Trend to Larger Diameter Tires

The average cost per tire has increased due to larger diameter 17- to 18-inch wheels becoming more common on compact and mid-size vehicles.

Wheel diameters are continuing to increase in size, further exerting upward pressure on replacement tire prices.

More expensive tires found on larger diameter wheels — 18-inch and larger — are even more common than previous years, along with an increase in snow tire purchases.

“Fleets are becoming interested in using all-weather tires (not to be confused with all-season) in place of winter/non-winter tires,” said Lange. “We’re also seeing more clients select snow/all-weather tires which adds significant cost with seasonal mount/dismount and tire storage.  We’ve also observed that tires seem to get ‘lost’ when they are not currently installed on the vehicle.”

Though specialty tire purchases, such as all-weather or snow tires, are primarily impacted by the weather, more fleets are shifting toward allowing the purchase of these tires based on driver’s request versus a policy based solely on geographic location and expected snowfall.

As this trend continues it could potentially push up the average cost per tire, as snow tires typically cost more than an all-season. This is, however, dependent of local weather.

The trend to larger diameter tires started in the retail market by consumers who wanted a better look for their vehicle by having a larger tire/wheel assembly to fill their wheel well. The auto manufacturers decided to produce vehicles with the larger wheels as optional equipment to keep the customer coming to the dealership and maintain some control of this phenomenon, which is extremely profitable.

During the past decade, tire diameters have increased in size to as much as 24-inch, 26-inch, and even larger. 

But, with the larger tire sizes mounted on vehicles, the wheels are increasingly getting damaged from road hazards and pot holes. The replacement cost of the wheel and larger tire is very expensive.

The concern about the number of new vehicles equipped with larger diameter tires does not appear to be abating and promises to continue to be an issue in future years.

 - Data courtesy of Element Fleet Management.

Data courtesy of Element Fleet Management.

Larger diameter wheels and the cost of the replacement tires has been an issue for the past 10-15 years and will continue for the foreseeable future. The trend has been for at least one popular model of vehicle to have a unique tire size which is uncommon and sourced from one or two manufacturers at a premium cost.

Cost of Raw Materials Increase

The cost of commodities used to manufacture tires, such as the price of oil and rubber, continue to be the key factors driving the price of replacement tires for passenger cars. These commodity prices increased during 2017-2018.

The primary factor for the price increases in 2018 was the increase in raw material costs that put upward pressure on tire costs.

Although there have been price increases in replacement tires, it impacts consumers more so than fleets, which tend to buy from national account vendors based on pre-negotiated prices.

Inventory Challenges

When ordering vehicles with unique tire sizes, many fleet drivers are surprised that they are unable to locate a replacement tire due to inventory constraints.

Unique tire sizes and specs on certain vehicles pose a challenge to fleet managers when a replacement tire is needed because there is often limited availability.

“Tire availability across the most common tire brands continues to be a challenge. Not one single tire manufacturer produces tires for every vehicle.  Sometimes this leads us to using a tire supplier where tire expenses exceed expectations,” said Lange.

 - Data courtesy of Element Fleet Management.

Data courtesy of Element Fleet Management.

The availability of a replacement tire depends on many factors: volume, production costs, type of vehicle, and whether the tire will be profitable. Therefore, in some cases, there could be only one tire manufacturer with a replacement tire that is suitable for that vehicle.

Not only is there limited availability of unique tire sizes for individual vehicle models, but there may also be a limited number of store outlets that stock them.

Another factor proven to exert upward pressure on replacement tire costs is the ongoing trend to larger diameter tires and unique tire sizes. As auto manufacturers develop unique tire sizes for new-model vehicles, it impacts the replacement tire supplies for one to two years, as other aftermarket tire companies may not immediately meet the demand for these tire sizes. This lag time limits the selection and availability of replacement tires.

Forecast of 2019 Tire Costs

Predicting future tire costs is very difficult due to the many variables that influence tire pricing. The unpredictable cost variable for tire prices is the price of commodities, such as oil, rubber, and steel, which are three key ingredients needed to manufacture tires.

Tire costs are driven by raw materials cost. If raw material prices stay consistent, tire prices stay consistent. The cost of raw materials influences most of the fluctuation in tire prices. With this said, the trajectory for replacement tire prices in the 2019 timeframe is upward due to current and forecasted commodity pricing.

“We expect tire costs to increase 5% resulting from higher labor costs but also raw materials such as oil and steel have a potential to exceed the labor impact due to political issues (tariffs),” said Lange.

In 2018, prices for the raw materials used to manufacture tires increased 5% to 10% in 2018, and the forecast is for a continuation of current prices into calendar-year 2019. But this forecast, based on past experience, can change quickly given the volatile nature of the commodity markets.

It is anticipated that replacement tire prices on light vehicles will continue to increase in 2019 to compensate for higher raw material costs. The magnitude of the price changes will be determined by the sustained strength of commodity prices.

Tire Manufacturing Innovations

One factor exerting downward pressure on fleet tire expenditures is the ongoing improvement in tire quality, which has resulted in longer wear life during the past decade. Tire tread life has been extended by 10% in the past 10 years. This has helped offset some of the recent price increases since the expense is spread out over a longer period.

There are a number of manufacturing innovations being explored and implemented by tire OEMs to reduce costs and extend wear life. One approach has been to research the use of alternate materials and commodities to manufacture tires.

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