Lost behind the distractions of dizzying price increases and complaints about fill rates and (depending on who you talk to) positive/negative outlooks is the simple fact that things might just get worse.
Way worse, as facts go.
We’re at the tail end of Dealer Meeting Season now and we’ve heard many presentations from many tire companies. All of them are giddy about “pent-up demand” just as they were a few years ago when “flight to quality” was floating off everyone’s lips. We saw how that went, didn’t we?
Many dealers I have spoken with have seen a positive upturn in their tire sales thus far this year. Not 2006 levels, to be sure, but Y-O-Y improvements nonetheless. And right now anything on the plus side of the ledger is a good thing.
Tire sales for some dealers, though, are just scratching by. Units are moving slow as their customers, reeling from 18-plus months of un- and under-employment, are fighting $3 per gallon gas and finding just enough to keep the family chariot afloat a little longer.
The RMA is seeing 2011 as a positive year…on the OE side. Replacement consumer tires will net out at zero gain over 2010, RMA says, while replacement medium truck tire shipments will see a 5% spurt. All in all, that is a positive.
Outside pundits and “analysts” are hailing current business conditions, some breathlessly calling for a 3%-5% improvement in “tire demand.” Perhaps they need to stop and take a breath.
Consumers can demand all they want because I’m not sure where they’re going to get them. Manufacturers are running full-out, but only have about 70% of the capacity they had just a few years ago, according to experts. After 2008-09, when inventories were burned off and warehouses emptied, that surge in consumer demand that surprised in mid-2010 spurred the machines back into action. But with fewer global plants to call on (thanks to plant closures), tiremakers have not been able to catch up to both inventory and customer (OE and replacement) needs.
And now we have another problem: Japan.
Thankfully, the massive 9.0 earthquake and resulting tsunami caused nominal damage to tire plants – primarily those owned by Toyo, Yokohama, Sumitomo and Bridgestone. A few cracks here and dents there, from all accounts, and most plants, by and large, are back on the job.
Getting raw materials to these plants and finished goods out, however, is posing a logistics challenge. In some parts of the country, passable roads and useable ports are a huge issue; in some cases there are neither. Making tires is not a problem, but you can’t make them without all of the necessary ingredients, and warehouses for finished tires are only so big.
Carmakers and auto part makers in Japan – from independents to OEMs – are also struggling, which will have an impact on auto service work in North America. Need a replacement wiper motor for a newer Nissan? Might take awhile.
And we still don’t fully understand just how the devastated nuclear power plant in Fukushima could impact the production and export of goods. This will be worth watching.
So, what does this all lead to?
I think it would be wise to temper our “pent-up” enthusiasm a bit. I think tire sales – real over-the-counter sales to real consumers, not just “shipments” – will be up in 2011, but 3% to 5% is a reach. More like 1%-2%.
As has been the case of late, some regions will see better, some worse.
Unemployment could continue to trend down, improving consumer confidence. The housing market might see a plus bump. Net incomes could rise slightly. Inflation could curb. Gas prices could fall back to the $2.75 range. Some or all of those things could conspire to improve true sales, and we would all welcome that.
Or cows could jump over the moon.
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Speaking of farm remedies, old friend Les Garrett from Garrett Tire & Auto Center in Springdale, Ark., sent this note along wondering if other dealers had experienced the same:
“Jim, for the last several years I have broken out in a rash that is the color of Firestone Red. I have been patch-tested for allergies that produced a positive for Cobalt. Cobalt, in my research is radial tire dust, and is present in any product that contains polyester. Since I quit my paper route in 7th grade, and went to work in my dad’s gas station, my tire career and exposure began (50 years). I wonder if anyone else has a rash that has been intensified through tires.
“Thanking God, my rash is gone. In my research, I discovered that not only was I touching and breathing polyester, I was wearing polyester in my uniforms. If anyone has experienced the “Firestone Red Rash” please feel free to give out my e-mail address, and I can tell them what has worked for me.”
So, anyone out there have an unexplained rash?
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Speaking of sentences you wish you hadn’t written (or are surprised you actually did), please refrain from bombarding me with cute comebacks. This one is too easy (and potentially too rude).
Stay classy!
