Since our last report on selling tires several months ago, some new issues have hit the industry, possibly bringing along major changes. Although some of you are wondering how these issues, mainly the prospect of born-on dating, will affect the industry, no one knows exactly how it will unfold.
What we do know, however, is that there’s still a profit to be made, and specialty markets and technological innovations are creating many opportunities for the future tire business.
But before you dive into the market face first, it will be important to keep in mind several issues, including increasing raw material costs and the Tire Industry Association’s proposed check-off program. If approved, the program, recently named the Tire Initiative for Research, Education and Safety (TIRES), would pass a small fee to consumers when they purchase new and replacement tires. The goals of the program would be fostering consumer education, industry training, research and development.
As for price hikes, well, they are to be expected and most people we spoke with aren’t alarmed. Michelin will raise prices 5 percent by the middle of this year to compensate for increasing raw material costs. And in our State of the Industry report, we learn that many segments of the aftermarket plan to increase product prices.
Spoiled rubber
The issue that could pose the most significant effect on the industry is the idea of born-on dating for tires.
Last November, an auto-safety research firm submitted a proposal to the National Highway Traffic Safety Administration (NHTSA) asking the federal government to require tire manufacturers to put easy-to-read born-on dates, or expiration dates, on both sides of tires. The group, Safety Research & Strategies, Inc., also requested the government issue a consumer alert to make motorists aware of tire degradation.
Sean Kane, president of SRS, says his company submitted the proposal because their research shows that tire performance can start to degrade after six years.
“It all hinges back to the factor that tires age statically, which basically causes the internal adhesion of the tires to degrade to the point where the belts don’t hold together,” he says. The tires can have tread separation although they appear new, he adds.
In their study, SRS found that unused tires that have been stored for more than six years should not be used by consumers. Their information was gathered by surveying the litigation involving tire tread separation, Kane explains. According to their report, worn tires caused more than 50 crashes and the list is growing.
Kane also mentions that, although there are variables like how and where the tires are stored, some players in the industry say six years is a good point. He cites German brands, such as Volkswagen, that place warnings in the owner’s manual stating that old tires can fail in use and consumers should replace them after six years, regardless of tread wear.
Kane says NHTSA, which has been conducting tire aging studies for several months, is expecting to make a regulation in June.
Ellen Martin, spokeswoman for NHTSA, says representatives are still reviewing SRS’s petition and could not make any comments. NHTSA is conducting research on tire aging at VRTC in connection with the TREAD Act mandates, however, the work is ongoing and the association could not provide more data.
Aging debate
Whether this issue will have a large effect on tire dealers remains to be seen. For some, born-on dating doesn’t present a problem.
Brian Archer, tire and wheel buyer for VIP Discount Auto Stores, says VIP turns over their inventory about four times a year, and the time period that safety groups are asking the government to require is about six years.
VIP sells a number of brands, including Goodyear, Michelin and Firestone.
Some in the industry, however, say they realize the importance of getting old tires off the road.
Joe Kovac, president of Florida-based retail store Kovac Automotive, thinks an expiration date, rather than a born-on date, should be put on tires.
“I also agree that after six years the tire shouldn’t be on the road,” he says. “In my opinion, any tire that’s going to be ridden on the highway needs to have expiration dates.”
Wholesalers say it is too early to tell how this issue would affect their business.
“There are so many variables that we’d have to take into consideration,” says Ross Kogel Jr., director of marketing at Tire Wholesalers in Michigan. “I think it’s too early to draw any conclusions.”
Although the issue would likely have an impact on inventory, its extent is unknown. Kogel says that in a main warehouse, there is an average of five to seven inventory turns a year.
For dealers, however, there is a downside. Born-on dating would likely bring immense pressure to destroy tires after the date has passed.
“That means when I get a truckload of 400 tires at my back door, I need to be aware of the production date on every one of them,” he says. “I could get one and a half-year-old tires from the manufacturer.”
Supplying auto and light truck tires, his mainstream tires normally don’t sit in his warehouse for more than six weeks, but some tires have been back there for a year.
Kovac thinks manufacturers should step up to the plate on this issue and be responsive to the dealers by offering scrap value for the tire.
“I think they should give the dealer credit for the tire if they agree to scrap the tire — to make sure it’s destroyed or made so it can’t be resold.”
Dan Zielinski, spokesman for the Rubber Manufacturers Association (RMA), the national trade association for the rubber industry, says while dealers might suggest an auto salvage buy-back program from manufacturers, it’s unclear if that would manifest into reality.
In terms of the issue itself, RMA is concerned about the lack of scientific data to back up an expiration date because a tire’s serviceability is dependent on a number of factors in addition to just age, such as storage, maintenance and mileage.
“We have a safety concern about this, and it’s that if a tire expiration date becomes mandatory, customers will think their tire will last for X number of years, regardless of service conditions,” he says. “I think it would be a mistake to send the public a message that age should be the primary issue with their tires.”
The primary issue, he stresses, should be that tires are maintained, with regular rotation, alignment and pressure checks. The average estimated life span of a tire is 45,000 miles. Most tires wear out before they age.
And although Zielinski acknowledges that frequent tire replacement could translate to increased sales for manufacturers, he says it would be irresponsible to tell customers to get new tires if the industry couldn’t back their claims. And, depending on the date, suppliers might tell customers to replace tires when they still have useable life in them.
Tuning into the market
Despite the unanswered questions surrounding born-on dating, one thing is certain: specialty and performance tire sales are continuing to increase as the tuner market expands. Since 1996, the Specialty Equipment Market Association (SEMA) has seen performance and specialty tires increase almost 52 percent, says Jim Spoonhower, vice president of market research for SEMA.
Consumer motivation for those tires is extremely high, so any future increases in the cost of tires as a result of raw material price increases will not be a deterrent. Spoonhower says unless the price increases are extreme, the enthusiasts will say “I gotta have that.”
One area that has yet to be thoroughly tapped is the muscle car restoration market, which is a growing niche, according to some in the industry. Those consumers are abandoning the large performance tires to go for the original “look” on cars like ’69 Camaros and ’67 Pontiac GTOs. For these consumers, the 14- to 15-inch wheel size is ideal, and tire makers are ignoring that size.
If you have a pretty heavy population of muscle car restorers in your area and want to branch into this market, there are two main options: offer the original tires (you can buy in quantity from a company like Coker tires) or offer the right-sized tires in any brand. The main thing to remember is these consumers are typically willing to spend the money as long as they can find the items they want.
Just don’t forget that with specialty tires comes additional equipment costs, as it is usually different from that used for normal passenger tires.
Don’t scrap the idea
So, are the prospective rules and regulations going to affect sales? More than likely, the regulations will be something that sellers simply must keep a close eye on throughout the coming year.
The sales of wheels, tires and suspension products, however, are expected to reach $9.6 billion in 2007, according to a recent Mintel report. Total sales have grown by an average of 6.9 percent from 1999 to 2003, but growth is expected to accelerate by an average of 7.1 percent from 2004 to 2007.
“In our business, we’ve had an increase in tire sales,” says Archer of VIP. “As long as we train our people and be our best, we’ll always increase.” He adds that any time is a good time to get into the tire business, citing the many add-on sales that come from tires, like brakes and suspensions.
“The tire business is a great business,” comments Kovac, who also thinks business is improving because mega dealers are getting reasonable and not giving tires away, so smaller dealers are able to make a profit. And with the profitable spin-off that maintenance on cars provides, Kovac says he wouldn’t discourage anyone from entering the market — unless, of course, they were building in his backyard.
