Replacement tires are a major fleet spend category exceeded only by depreciation and fuel. In calendar-year 2019, like-for-like replacement tire prices for passenger vehicles increased compared to CY-2018.
“Although tire prices increased 3% per unit per month in 2019 compared to CY-2018, the per transaction tire costs were up slightly, but less than 1%,” said Chad Christensen, strategic consultant for Element Fleet Management.
A key reason for the lower increase in transaction prices is that most fleets have negotiated national account pricing that is based on lower than retail prices.
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.
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. Tire prices are driven by the costs of labor, carbon black, crude oil, rubber, and steel.
Another 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.
These were some of the key findings of AF’s 25th annual fleet passenger vehicle maintenance survey conducted exclusively by Element Fleet Management. The study is based on an analysis of actual maintenance expenses incurred during calendar-year 2019 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.
“Larger wheel diameter options can add a significant cost when replacing tires. It’s not uncommon to see the optional larger diameter tire available on a model cost $100 more per tire than the base tire,” said Mark Lange, CAFM, technical services consultant for 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.
“Fleet managers need to keep tire costs in check. Larger diameter tires typically cost more and for areas of the country where snow tires may be necessary, the larger diameter snow tires may be difficult to locate,” said Lange.
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. 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 potholes. The replacement cost of the wheel and larger tire is very expensive.
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 specifications 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 to using a tire supplier where tire expenses exceed expectations.
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 stores that stock them.
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 2020 Tire Costs
Predicting future tire costs is very difficult due to many variables that influence tire pricing. The cost of commodities used to manufacture tires, such as the price of oil, rubber, and steel remain key factors driving the price of replacement tires for passenger cars. Commodity prices increased during 2018-2019.
“Tire costs are largely dependent on the cost of raw materials. Oil is typically the single biggest cost factor when it comes to raw materials and oil has remained relatively stable. Global events have a significant impact on oil costs, but tire costs don’t immediately reflect current events and reflect the previous six-12 months,” said Christensen. “We would expect tire costs to be flat in 2020, although there is always the risk of higher raw material costs.”
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. 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.