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Tire Review Magazine
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Increasing Sales at Your Tire Shop: Small, Effective Changes to Up Your Net Profit

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News/price increase
October 9, 2018

Market Dynamics Affecting Recent Tire Price Increases

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Tire Review Staff

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At least eight tiremakers have increased their prices in the last two months, due to a variety of factors in an eventful year for the tire industry.

At the start of this month, Kumho Tire USA, Bridgestone Americas, Cooper Tire & Rubber Co. and Firestone Ag increased prices, with the highest increase at up to 6% across Kumho’s products. The month prior, Goodyear Tire & Rubber Co. increased prices on select consumer tire lines by up to 3%. Singapore-based manufacturer Giti Tire USA announced up to a 5% price increase on passenger and light truck tires and up to a 10% hike on all TBR tires starting Nov. 1. As tiremakers struggle to keep healthy operating margins, many manufacturers cite the rising cost of raw materials, transportation and labor as the reason for raising prices this year.

“It’s hurting us and everyone about the same way,” says Richard Smallwood, CEO and president of Sumitomo Rubber North America Inc., about the increase of raw materials. Sumitomo, which manufactures Falken Tires, increased its prices 3-7% on certain Falken products in April.

Anthony Deem, Tire Review contributor and vice president and senior equity research analyst for automotive at Longbow Research, said since last December, the market has seen price inflation on some raw materials used to make tires including oil and steel. Since December 2017, oil prices have jumped 21%, and steel prices have risen 33% due to inflation. Deem said there has also been a 12% decline in natural rubber spot pricing.

“The inflation we’ve seen in 2018, it’s very significant,” Deem says. “But what people don’t realize is that tiremakers are trying to increase prices because they still have a long way to go from fully recovering from raw material inflation seen pretty much after the 2016 election…. In my opinion, the tiremakers haven’t done enough.”

Deem said if the raw materials costs can remain stable with 3% inflation, based on Cooper Tire’s raw material index, there’s potential for many manufacturers to recover at least half their losses from 2017-2018 inflation. Therefore, a scenario for another price increase in the first quarter of 2019 isn’t far fetched.

Higher transportation costs are another factor with ocean freight rates reaching a two-year peak, according to magazine Supply Chain Drive. Smallwood says the truck driver shortage has also impacted shipping.

“It’s costing us more to ship tires than it did a year ago,” he says. “The trucking industry is nearing full capacity, and they don’t have to keep prices low because supply is lower than demand. The tonnage is up, and trucking companies are charging more. The increase they have now is labor.”

Smallwood and Deem agree competition among tiremakers has stalled increases from coming sooner.

“If you raise your prices, you might be afraid that your competitors won’t,” Smallwood said. “The increases are smaller than what you’d normally see, but that’s caused by the fear of losing share in the market…. It still comes down to your operating profit. If it isn’t very good, at some point, you’re going to have to make a decision.”

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