Turns out country singers are right ®“ a trucker’s life is hard. But we’re not talking about lonely stretches of highway. We’re talking business.
“There will be a serious strain on the supply of medium truck tires available in 2004, and possibly through 2006, both at the OE and dealer levels,” says Ron Gilbert, director of sales for commercial products at Toyo Tire (USA) Corp. ®Factory orders for Class 7 and 8 trucks are being received at record levels,® he says. ®OEM needs for tires in 2004 are projected to be up 10% to 15% over 2003.® In addition, ®demand for medium truck tires at the replacement level is projected to grow to about 15.2 million units for 2004, up approximately 2% over 2003,® Gilbert says.
Donn Kramer, director of marketing for commercial systems at the Goodyear Tire & Rubber Co., has higher projections. “The OE market for medium truck tires (for Class 6, 7 and 8 trucks) will increase 27% this year over 2003,” he says. He also forecasts that the replacement market will grow 4% over last year. ®This year, the replacement industry hovers around 19 million medium radial truck tires,® says Kramer. ®The OE market is estimated at 6.1 or 6.2 million, and the retread market is around 16 million.®
The commercial trailer market also is strong, says Kramer. “The trailer market will continue to be strong through 2005 due to utilization rates and the cyclical nature of the market. Sales have been down in previous years, and there comes a time when fleets have to review their equipment needs,” he says.
One of the big drivers for this surge is GDP (gross domestic product), which is up about 4.5%. Industrial production is at or slightly above GDP, Kramer says.
Most importantly, more freight is moving these days; ton-miles are up 4.3% over last year, Kramer notes. And the American Trucking Associations’ (ATA) Truck Tonnage Index rose to a record high in March.
Sales of new trucks are increasing, partly as a means of handling increasing freight demands. But some offer another reason: new EPA emissions standards affecting Class 8 trucks that are set to take effect January 2007.
Prior to the last revision of EPA emissions standards in October 2002, there was a surge in truck buying, and many are suggesting a hefty “pre-buy” period will come again in 2006. Commercial truck sales ®may well be accentuated by a pull-ahead prior to the 2007 emission standards,® says Michael Burroughes, product portfolio manager at Michelin Americas Truck Tires. ®OEM truck order boards are filling up, and plant utilization is at the maximum,® he adds.
In addition to increasing commercial truck sales, the 2002 emissions standards are also exacerbating already skyrocketing fuel costs for commercial fleets. Engines complying with the latest standards are not only more expensive, they also require more frequent maintenance and deliver lower fuel economies, says Goodyear’s Kramer. This is helping to validate the OE increase, he says.
Burroughes anticipates that 2007-compliant engines will again negatively affect fuel consumption and result in a further reduction in miles per gallon. The American Petroleum Institute estimates that the new emissions rule will increase the cost of fuel by at least 15 cents a gallon. Add that to already high fuel costs.
Lastly, new hours-of-service (HOS) regulations issued by the Federal Motor Carrier Safety Administration (FMCSA), which took effect Jan. 4 this year, mandate that commercial drivers spend 10 consecutive hours off duty instead of the eight hours of off-duty time required by the previous rules. The result, according to industry spectators, is increased operating costs and reduced productivity as more drivers ®“ and more trucks ®“ are needed to move the same amount of product.
The new HOS rules are also resulting in trucks traveling shorter distances and making more frequent stops ®“ at a time when shipper demands show no signs of waning.
Not only must motor carriers handle more freight these days, but timeliness of delivery is increasingly more important, too, as precise, just-in-time production scheduling and slim inventories become the norm.
As these trends suggest, your commercial customers are dealing with significant business challenges. They are faced with higher operating costs at a time when freight levels are soaring. In short, they’re doing more with less. “Truckload (TL) carriers’ cost-per-mile is rising approximately 3% to 6% this year due to driver pay inflation, fuel inflation and lower utilization because of the new regulations,” according to a recent report prepared by investment banking firm Morgan Stanley.
The tire dealer has a unique role in all of this: to propose not just tires and services but a strategic business offering ®“ a complete package that includes improvements in equipment utilization and reductions in per-mile operating costs.
Sell Benefits, Not Cost
Medium truck tire “end users want the lowest cost of operation,” says Kramer, ®not necessarily the lowest cost per tire, but the lowest cost of operation over a tire’s life.®
Key to profitability for trucking companies is equipment utilization. Fleets that keep their trucks moving make money. And, with the TL industry currently experiencing the tightest supply/demand environment in more than 20 years, according to Morgan Stanley, it’s critical that trucks stay on the road.
“Like everything else, the cost of service calls is going up,” says Burroughes. And tires remain the second greatest maintenance cost for fleets next to fuel, according to Al Cohn, technical marketing manager for commercial tires at Goodyear.
That means tire dealers have an excellent opportunity to impact a fleet’s cost of operation.
More than ever, overall tire life and impact on fuel consumption are the most important points to emphasize when selling medium truck tires.
The concept of offering business solutions, not just tires, is especially helpful to remember as inexpensive imports continue to flood the truck tire market. According to Kramer, tires produced inexpensively overseas by third- and fourth-tier manufacturers don’t pose a threat to upper-tier brands from a performance standpoint. “They are quality from an initial durability standpoint,” he says, ®but when it comes to retreadability, they are lacking. Low-cost imports will never supplant the tier-one products,® adds Kramer. ®But they are putting downward pressure on the industry from a pricing standpoint.
“If you’re not participating in multiple profit opportunities ®“ if you only do tire sales ®“ it will be more difficult for you to survive,” Kramer tells dealers. ®Dealers that are heavily involved in service and in the production and sale of retreads will be more capable of surviving (downward pricing pressure).®
Kramer also cautions, however, that tier-three and tier-four imports are putting pressure on the retread market. But, there is a bright side: Customers whose business is transportation are more apt to look at cost of operation rather than price, says Kramer. Dealers can effectively sell against these cheaper imports “by showing the cradle-to-grave cost of operation by using tier-one branded products, with the ability to retread multiple times, versus the imports that may be retreaded fewer times,” he says.
Toyo Tire’s Gilbert adds that these brands “drive down retread prices because they sell fleets that a new tire at a very low cost is better than a retread. At the same time, they leave a large void for quality retreadable casings in the future.” Solution? Train your commercial salespeople, says Gilbert. ®A salesman must sell features and benefits versus cost. This training must be done weekly and not just once every few months.®
How can dealers justify higher price points, especially as tiremakers continue to hike their prices due to rising costs of raw materials?
Burroughes recommends dealers continue to sell the value proposition. He notes that, over the years, tire prices have stayed relatively level, while on-road performance has improved ®“ something to point out to your commercial customers, especially if they balk at a price.
“I think it’s important for dealers to maintain their profit margins at all times,” adds Gilbert. ®That’s the lifeblood of their business. Without it, dealers cannot meet their obligations to their people, their suppliers or to themselves and their families. It goes back to training, extreme customer service, having good people, selling quality products and selling to customers who conduct their businesses in a similar fashion,® Gilbert concludes.
A Quality Casing
There’s still a lucrative opportunity for selling medium truck tire retreads in addition to the benefits of original tire retreadability. “More than 85% of fleets today use retreads,” says Goodyear’s Cohn. ®When customers invest in a truck tire, they are making an investment in the casing,® adds Michelin’s Burroughes. ®It’s likely the tire will be retreaded several times.®
“With the higher cost of fuel and new tires, fleets are looking for ways to cut their cost per mile,” says Gilbert. ®Retreading of a quality tire casing is a major way to reduce that cost.®
“It’s key for dealers to sell a product that does not generate issues, that will deliver on performance, says Burroughes. ®The performance promise is the value proposition and will make the customer happy.”
New Truck Tires Promise Fuel Savings, Retreadability
Your tire suppliers are intimately aware of the needs of commercial fleets and are adjusting their products accordingly.
For example, Toyo Tire (USA) introduced two new low-profile radials last November. The M-143 (all position) and M-1430 (trailer) tires, available in sizes 215/75R17.5, 245/70R19.5, 265/70R19.5 and 285/70R19.5, feature a special compound that increases durability and casing life by reducing heat and stress, according to Toyo. The tread design of the tires also offers low rolling resistance for improved fuel economy, the company says.
Yokohama Tire Corp. added a new drive tire, the TY577, to its long-haul tire line. Available in four sizes ®“ 295/75R22.5, 11R22.5, 285/75R24.5 and 11R24.5 ®“ the TY577 is constructed with “strain energy minimization technology” that extends casing life and retreadability, according to Yokohama.
In April, Bridgestone/Firestone North American Tire (BFNAT) introduced three new truck tires for each axle position. The new tires, R287 steer radial, M726 EL drive radial and R195 trailer radial, “are engineered to offer long-haul and long-regional-haul fleets longer original tire life and lower cost per mile,” according to BFNAT.
And, within the last year, Goodyear has introduced steer tires G395, G149 and G169; the G372 drive tire; and the G314 trailer tire. “The G395 LHS (line-haul steer) wears evenly and consistently, so that it delivers more miles to removal and a lower cost per mile,” says Goodyear.
Finally, Michelin says sales of its super wide X-One radial have more than doubled each year, thanks to benefits such as reduced weight, which translates into increased payload capacity. By replacing a set of duals with one super wide, fleets can carry “up to a half ton of additional payload” and enjoy ®4% reduced fuel consumption,® says Michelin.