Editors note: This article is part of a several-part package dealing with operating costs in 2019. Read related articles that offer and in depth look at fleet maintenance, warranty recovery, and preventive maintenance.
The increase in replacement tire prices in calendar-year 2019 averaged 2% to 7%, varying by tire brand. The moderate price increases were primarily due to more stable commodity pricing, which exerted less pressure on tire OEM margins as their production costs remained relatively flat.
“In general, tire prices have increased at a rate slightly greater than inflation. These price increases are somewhat offset by increases in tire longevity and quality,” said Kelley Hatlee, CAFS, national service department technical support supervisor for Enterprise Fleet Management.
While today’s inflation rate is relatively minimal, the rate of inflation was a contributory factor to exerting upward pressure on replacement tire prices. “However, when adjusted for inflation, tire costs in 2019 were basically flat when compared to last year,” said Chad Christensen, strategic consultant for Element Fleet Management.
Tire costs will vary from company to company depending on the types of vehicles in service and the fleet application.
“Average price of tire replacement is again up in 2019 – about 6%-7% higher than in 2018,” said Wuich of Donlen.
Agreeing with this assessment is Merchants Fleet. “Much like 2018, tire prices have continued to rise. Manufacturers point to keeping up with rising operating costs attributed to market demands, technology, and geopolitical tensions,” said George Albright, director of fleet maintenance for Merchants Fleet.
Also, in agreement is LeasePlan USA.
“The pricing has trended upward for the better part of 2019,” said Mark Ackerman, director, maintenance and repair for LeasePlan USA. “Increased vehicle sales and demand for low rolling resistance tires are creating further raw material challenges and demands.”
Other factors cited by manufacturers as contributing to the price increases were higher commodity costs, brand value strength, and tariffs.
In the past, price increases for replacement tires impacted retail consumers more so than fleets, which tend to buy from national account vendors based on pre-negotiated prices.
“Tire prices have only experienced minimal increases over the past few years,” said Mark Donahue, manager of fleet analytics for EMKAY. “However, national account programs are no longer as willing to absorb the majority of price increases, as recent increases have been as high as 10% on select tire lines. The cause of this rise is primarily due to the growing cost of rubber.”
The bottom line is that the No. 1 factor influencing tire costs is the cost of raw materials, which drives replacement tire prices. When raw material prices stay stable, tire prices stay stable. Volatile commodity prices, such as crude oil prices, causes fluctuation in tire prices. Based on past experience, commodity prices can change quickly given the volatile nature of the commodity markets.
In 2019, the global natural rubber industry remained at low ebb, as a result of the China-U.S. trade war, damage by plant diseases and insect pests, and local economic factors.
Global natural rubber price presented a choppy downtrend and in 2019, global natural rubber prices set all-time lows. The forecast is that the price of natural rubber may level off and pick up in 2020 or 2021. In the end, commodity prices dictate replacement tire costs. Tire pricing is rising due to higher cost of raw materials.
“Similar to the root causes of the increase in oil prices, raw materials and the expense to transport the product to market have also been on the rise. These increases are causing the end-product’s cost to climb, as well,” said Donahue of EMKAY.
Top Fleet Spend Category
Replacement tires are a major fleet spend category exceeded only by depreciation and fuel. Sometimes, tire expenses are grouped into the overall maintenance spend category.
“Overall, tire spend in 2019 represents about 18% of all maintenance spend – no change from 2018 or 2017. For light-duty vehicles, tire spend in 2019 represents about 22% of all maintenance spend – down slightly from 23% in 2018,” said John Wuich, vice president of strategic consulting for Donlen.
With the low cost of fuel, both the retail and fleet markets, are driving more miles, which accelerates overall tire wear and replacement. “With the low cost of fuel, miles driven is continuing to go up and therefore tire replacement becomes more often,” said Mark Ackerman, director, maintenance and repair for LeasePlan USA.
More fleets are leveraging non-traditional replacement options. Tier 3 and 4 tires continue to grow in popularity, providing a pricing challenge for name brands. Higher prices have prompted some fleets to expand non-brand replacement tires. “We’ve recently seen an increased focus on competitive pricing among some name brand tire models and sizes. This has given more opportunity to non-branded manufacturers, allowing fleet operators to have more options,” said Hatlee of Enterprise Fleet Management.
However, OEMs selling brand name tires are narrowing the price gap. Name-brand tire prices have become even more competitive to the more unfamiliar brand tires that have been usually a lower cost point.
Growth of the Van Market
Growth of the van market in commercial fleets, with its special tire requirements, is forecast to exert other pressures on replacement tire prices.
“The sustained growth of the commercial van segment influenced tire costs in 2019. While models, such as the Ford Transit, Ram ProMaster, and Mercedes Sprinter continue to gain popularity among fleet operators, the number of tire options for these vans remains somewhat limited,” said Chris Foster, manager, truck & equipment maintenance for ARI. “Until recently, only a small number of manufacturers offered tire models for these vehicles and most options were rather expensive. However, we’re now beginning to see more tire manufacturers offer affordable, high-mileage alternatives for these popular commercial vans and that’s helping to drive replacement costs down slightly.”
In good news to fleets, more snow tires are available in the euro-spec/odd tire sizes, which has driven down the cost of these tires. The added availability of these tires though has increased the number of tires being purchased.
Unique Tire Sizes
A perennial factor exerting upward pressure on replacement tire costs is the ongoing trend to larger diameter tires and unique tire sizes. The increase in OEM automobile wheel diameters has driven up the price of fleet replacement tires, primarily because the larger the tire, the greater the manufacturing expense.
“The increased use of larger diameter tires on a growing number of models is influencing costs. Consumer preference is clearly trending toward larger wheel sizes and automakers are responding to that demand accordingly,” said Foster of ARI. “Standard OEM rim diameters are moving toward the use of 18-inch or 19-inch tires for a wide-range of models with several offering 20-inch options for some vehicles. And with more models featuring these larger tires, naturally the cost to replace those tires increases as well.”
However, other portfolios are seeing this trend start to diminish. The trend to larger diameter and more costly tires is started to subside. “We’re not seeing as many new vehicles being delivered with unique or uncommon tire sizes/specifications. For those currently on-road, we’re seeing greater availability of these tires across several manufacturers,” said Mark Lange, CAFM, technical services consultant for Element Fleet Management.
Cost Mitigation Strategies
The participating fleet management companies shared cost mitigation strategies adopted by their fleet clients to reduce spend for replacement tires.
“The increase in tire price is being offset by increased emphasis on both tire strategy and preventive maintenance, resulting price management and extended intervals between replacements. Donlen is seeing more fleets use analytics to understand where tires are being purchased and at what price. Using this data, pricing thresholds in some cases may be implemented with tools and technology used to advise fleets on where to purchase. Also, tools like e-coupons used to notify drivers of upcoming services and preferred shops are resulting in higher maintenance compliance including tire inspections, inflation and rotation,” said Wuich of Donlen.
One silver lining is the ongoing improvement in tire quality, which has resulted in longer wear life. Tire life has been extended by 10% during the past 10 years, helping offset some price increases.
“Some tire manufacturers are now offering tire technology that allows snow-rated tires to be driven year-round, making them true all-season tires. This eliminates the need to purchase a set of all-season tires and snow-rated tires. It also prevents downtime resulting from seasonal tire change overs and tire storage fees,” said Hatlee of Enterprise Fleet Management.
As a major spend category, it is important to develop a tire policy as part of your overall fleet policy.
“These factors further underscore the importance of incorporating a comprehensive tire policy into your overarching maintenance and vendor strategy,” said Foster of ARI. “We typically work with our customers to help them partner with a national account vendor whose locations align with their operating footprint. This allows them to take advantage of consistent pricing and availability regardless of geography to help control operating costs and minimize downtime.”
Through the use of telematics data and predictive modeling, fleets can gain a better understanding of the impact of driver behavior on tire wear and, ultimately, costs. As a result of this data, there is now a better understanding among fleet managers as to how acceleration events, harsh deceleration events, and over speed limit driving can statistically impact tire wear and spend.
Forecast of 2020 Tire Prices
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. The other unpredictable factor is external geopolitical forces, such as we have recently seen with the imposition of tariffs on Chinese-produced tires.
“Tariffs imposed by the federal government have played a large role in price increases. Additionally, the cost of synthetic and natural rubber prices has risen in 2019,” said Albright of Merchants Fleet.
One concern about tariffs is the uncertainty it creates in the market. “Overall, tire prices increased slightly in 2019 – likely influenced somewhat by trade tariffs – but the increase was relatively minimal, ranging from approximately 2 to 4% on average,” said Foster of ARI. “Looking ahead, there is still a great deal of uncertainty surrounding potential tariffs and their long-term impact on the automotive industry. That being said, it is possible that tariffs will have a greater influence on tire prices as we head into 2020.”
LeasePlan USA also predicts price increases for replacement tires in calendar-year 2020.
“Tire prices will continue to increase well into 2020 and possibly beyond due to continued raw material challenges and shortages,” said Ackerman of LeasePlan USA.
Agreeing is Donlen. “A number of manufacturers have been in the news recently announcing tire price increases for U.S. and Canada. So, a continued trend upward in tire price. Also, a continued trend in tire strategy that includes both price strategy and emphasis on proper maintenance. Also, there’s been an emphasis on vendor managements and choosing cost-effective vendors for oil changes, tires, and tire rotations,” said Wuich of Donlen.
EMKAY offered this assessment of the probability of price increases for replacement tires in calendar-year 2020.
“It appears price increases will continue. If commodities and transportation costs continue to rise, we could see national vendors passing more of the expense onto the consumer. With tires already being a large expense, especially for an aging fleet, we may see fleets testing different solutions to counteract the growing cost. One example may be the purchasing of a higher-cost tire with a longer tread-life,” said Donahue of EMKAY.
Tire operating costs is a perennial concern with fleets, which can be effectively addressed by driver attention to tire inflation levels. Most instances of tire wear and higher fuel costs are directly associated with the fleet not properly maintaining air pressure.
“A continuation of 2018 and 2019 relative to price increases being passed down to the consumer. To combat, fleets will look to save money through retread programs and an emphasis on driver training relative to proper air pressure and other tire-wear and maintenance strategies. The cost of tires being passed down to consumers will continue to mirror the overall cost of oil and other raw materials. Additionally, more tire manufacturers have leveraged support teams designed to help fleet customers and FMCs with making targeted tire selections,” said Albright of Merchants Fleet.
Since oil represents a large percentage of the raw materials used to manufacture tires, the forecast for future oil prices is a positive sign.
“Oil makes up a significant percentage of a tire’s cost and oil is forecast to remain relatively flat in 2020. With no anticipated labor disruptions, tire costs should remain relatively flat or slightly increase,” said Lange of Element Fleet Management.
Tire prices are driven by the costs of labor, carbon black, crude oil, rubber, and steel. While the price of natural rubber continued its sharp downward trend, carbon black, crude oil, and steel prices increased in 2019.
Barring unforeseen events, the industry consensus is that commodity prices will be higher in 2020, led by higher natural rubber prices, which will translate into higher tire prices.