The Retreading Market
Plants More Productive, But Pressures Putting the Squeeze On
Retreading has been an integral part of the tire industry and American life for over 100 years. From the earliest days of steel-studded leather bands to the first true mold-cure retreading to the innovation of precure treads, and through the necessity brought on by two world wars, retreading has remain instrumental in extracting a full productive life from tires.
Technological advances in both retreading processes and new tire manufacturing have had both a positive and negative impact on the North American retreading industry.
On one hand, the retreads produced today are the very best ever in terms of quality, longevity and value. And the number of retreads produced, for the most part, has increased year-to-year over the past few decades.
At the same time, the number of active retreaders and retread plants has steadily decreased. Production efficiencies and technological advances over the last 30 years have forced many smaller retreaders out of business or caused the consolidation of retreaders. And today, new tire manufacturers looking to optimize their relationships with fleet customers are buying up retreaders.
And the primary result of technology – lower production costs – has had a serious negative impact on passenger tire retreading, once the mainstay of this industry.
Retreading hit its peak in the U.S. in the 1960s when there was an estimated 12,500 retread plants in operation. From then on, however, the industry started to diminish in numbers. As larger plants expanded production, many smaller shops ceased to exist. The growth of radial tires brought about the necessity for retreaders to invest in new equipment in order to handle the new radial sizes. Many retreaders weren’t willing to make the investment, however, allowing large shops to get larger and the small shops to disappear.
Today, there are 1,220 active retread shops in operation in the U.S. less than one-tenth the number some 30 years ago. It is estimated that less than 100 of these still produce passenger retreads, and about 16 produce large earthmover retreads.
And by the end of 2000, the number of active shops may well drop to 1,120.
A Look Back at 1999
Tremendous changes took place in the tire and retread industry throughout 1999. Plant closings, buy outs and mergers made news. Some new tire companies announced price increases of 2 to 5 percent. Nevertheless, the retread industry enjoyed stable pricing on raw materials.
The availability of new tires improved considerably over 1998 levels, which may have had a negative impact on the retread market. Tread rubber and retread equipment imports increased somewhat as international companies promoted these products aggressively in the U.S. market.
Even with a reduction in productivity, many retreaders reported higher profit margins in 1999, primarily as a result of less price-cutting. This may be hard to believe, but more dealers are able to get their asking price for tires, and they are not trying to meet every price that comes out. Many report they have lost business, but they are pleased that their increased margins more than make up the losses.
There is hope that the record sales of Class 8 trucks in late 1998 and early 1999 generated new tires that will reach the retreading stage in 2000. However, new tire production will likely increase soon, and there is fear that prices may soften somewhat and create more competition for retreads.
Treadco and Bandag settled their lawsuit over franchise contracts early in 1999. However, Bandag and Michelin are now involved in lawsuits over competitive practices.
Michelin continued its push to open new retread plants. It now has 38 operating in the U.S. and recently opened a new plant in Canada. Goodyear also established some new plants, and Marangoni successfully opened four Ringtread System retread operations in the U.S.
Although several mold-cure plants opened in 1999, precure retreading still accounted for 75 percent of total truck tire retreading.
For the first time in many years, truck and OTR retread production was down, but many retreaders are improving their margins through production efficiency and more aggressive sales techniques.
There has been renewed interest in tire leasing to fleets as well as total tire management packages. In 1999, Bandag announced a total fleet management program under its Tire Management Solutions division, starting with a Roadway contract to manage all facets of the fleet’s tire and wheel program, including new tires, retreading and service.
Michelin recently announced a similar program called Team Agreement, which works through independent dealers to provide a total management program for tires and wheels within the fleet, including new tires, retreads and all service-related issues.
Truck leasing companies continued expanding the number of units under their control. Many small fleets that once owned trucks now contract with the major leasing companies. This has created added difficulties for smaller independent tire dealers as they are unable to provide nationwide service to the large leasing companies.
Although Bridgestone did not expand its retreading operations in 1999, there are indications it will build another mold-cure retread facility in the near future, similar to the Oncor operation in Hazelwood, Missouri.
Passenger and Light Truck Retreading
Passenger tire retreading was down dramatically in 1999, with an estimated 1.9 million units produced compared to 2.6 million in 1998. This number will likely drop to 1.4 million or less in the year 2000. There is little indication that this portion of the retread market can turn around, unless there is a major oil or rubber shortage.
The light truck retread segment also declined substantially due to the lack of retreadable casings and low cost new tires. The total units produced in 1999 dropped to 6.1 million, down from 6.8 million in 1998. This number is expected to decline to 5.9 million units in the year 2000.
Light truck tires receive a lot of abuse while in service, and many fabric sidewall steel-belted casings are not considered retreadable by retreaders. However, the all-steel casings perform very well and can withstand multiple retreads. This generates major savings for large package delivery fleets and other construction and delivery equipment.
Medium Truck Tire Retreading
For the first time in over 20 years, there was a slight decrease in the number of medium truck tire retreads produced. The total production for 1999 reached 17.4 million units, down from 17.8 million in 1998. It is estimated there will be a slight increase in the year 2000, to 17.7 million units.
One reason for the decline is a reduction in intermodal retreading. In 1999, new tires for intermodal use fell to under $90 per unit in some cases, including excise tax, tube and flap. There is a chance that intermodal retreading will improve as many intermodal fleets are switching to radial tubeless tires that will probably be more retreadable. However, the tires will run more miles, so it may not benefit intermodal retreading as much as we hope.
Another contributing factor to the decline of medium truck tire retreading is some larger fleets retread low profile casings only once and designate five years as a maximum age for retreadable casings. Also, a greater number of tires that could be repaired are being discarded, unless the injuries are very small. This impacts the repair industry as well as retreading. The decline in the number of retread plants has also affected retread production.
Earthmover retreading was also down in 1999, with 485,000 units produced compared to 495,000 in 1998. There is a feeling within the industry that the economy is slowing, so we may see another slight reduction to 483,000 units in 2000.
Several issues brought about the decline in OTR retreading. One was the extremely low cost of new tires in the smaller sizes, such as 20.5 and 23.5. In some cases, they were priced lower than a retread, and many of the low-cost new tires are not retreadable.
Nationwide, radial tires make up about 40 percent of the production in OTR retread plants. This may also be part of the problem with the numbers down as radial tires tend to be rejected more than bias ply tires. This is primarily because of belt edge separation and sidewall damage.
Aircraft Tire Retreading
Of all the different types of retreads produced, aircraft tire retreading is one of the most successful. Today, nearly 80 percent of the tires used in the commercial airline industry are retreads. For 1999, we saw some 260,000 aircraft tires retreaded. If the economy stays solid and both leisure and business travel increases, we may well see a slight increase in that number through 2000.
The demand for passenger casings is very light considering the small number that are retreaded. However, the used tire market in passenger tires continues to flourish, especially in the larger cities and several developing countries.
Light truck casings are plentiful, but many retreaders refuse to retread certain types and brands. They tend to pass over accounts that use light truck tires because they are more interested in the larger truck tires. The accounts that use all-steel light truck tire casings are finding them very worthwhile and demand is growing.
Prices fluctuated considerably on medium truck casings in 1999 as early in the year the intermodal industry demanded more than the available supply of 10.00-20 14-ply casings. As the year progressed, many intermodal companies switched to new tires and the supply loosened considerably. Radial casings are still somewhat scarce in specific sizes, especially low profile 22.5 sizes.
Retread Equipment Sales
Retread equipment sales were down considerably in the U.S. in 1999, with the exception of some imports from Italy and equipment for the new Michelin plants. Several retreaders ordered additional OTR molds and buffers for delivery in 1999 and 2000.
Nevertheless, equipment sales in 2000 will likely remain somewhat lower than in years past. Retread equipment sales are fairly strong in developing countries as businesses upgrade their equipment.
OTR section repairing was up approximately 5 percent in 1999, primarily because of the high cost of replacement tires. In my view, the quality and performance of these repairs has reached an all-time high. The tire repair materials manufacturers have done an outstanding job of providing training.
Unfortunately, truck tire repairing was down in 1999. As mentioned previously, I think a greater number of repairable truck tires are disposed of than repaired, especially when larger section repairs are necessary.
Many fleets and retread plants do not repair major tire injuries, and many do not repair tires with more than four broken cables or sidewall injuries longer than two inches. This is a serious waste of tire casings because injuries much larger than those described here are repairable and result in a safe product.
Another reason for the downturn in truck retreading and repairing may be the trucking industry’s profitability in 1999, which led to more new tire purchases and less consideration for repairing injured tires. I see many shops dispose of perfectly good original casings that display a pencil bulge in the sidewall caused by a simple nail hole injury in the tread. This manner of doing business can definitely have a negative effect on your customers’ bottom line.
There is a need for a concentrated effort by the industry associations and tire repair materials manufacturers to educate tire dealers and fleets about the proper methods for retreading and repairing tires. All parties should make them aware of how they can extend tire life through the use of proper repair procedures.
Retread Production Costs
There were few, if any, increases in the cost of tread rubber and repair materials throughout 1999. In fact, reductions may have occurred for certain products due to increased competition.
Depending on one’s location in the U.S., labor costs again increased from 2 to 4 percent. Some of the increases were due to training time for new employees, but the major increases in production costs were for health care insurance, Workers’ Compensation and employee benefits. Employee turnover was a cost factor in many retread plants that required more overtime to make up for lost production.
Looking Into the Future
When you consider all of the changes that have occurred in the last few years, it’s nearly impossible to predict what may happen in the next decade. One thing we can be sure of is that technology will advance to the point that many of today’s systems will be antiquated.
In the future, I believe, we will see a permanent bar code or a computer chip on all tires that ties to a computer system that stores all lifecycle information on that tire. This information will then be automatically fed to inspection machines, buffers, builders and other retreading equipment, allowing each tire to receive its own special treatment during retreading.
This high tech scanning system will alert plant personnel to inappropriate tread designs that will not work with a particular casing. And they will also control the radii of the buffed casings and select the proper molds for mold cure operations. They will also be able to automatically determine the correct buffed diameter and radii for precure processes, and provide billing and record keeping to the front office as each tire proceeds through the plant.
Much of this equipment is available today, but is in limited use.
I expect more application specific tread designs to improve tread life, traction, performance, fuel efficiency and casing durability. The use of spray cements in retreading will likely disappear. And I think retread plants will be pressed to deliver shorter turnaround times as fleets strive to reduce inventories.
In 2000 and beyond, the biggest challenge retreaders will face is staying abreast of new tire construction technology and in providing transportation fleets with high quality retreads that deliver the mileage, fuel efficiency and safety their customers demand.
Near term, I expect several more retread plants to close in the year 2000, which will be largely attributable to multiple location mergers.
We will definitely see more competition in the tread rubber business as overseas companies set up U.S. distributorships for their products. If oil prices remain in the $30 or more a barrel range, there could be a tread rubber price increase in 2000.
Higher fuel costs will affect many tire dealers as delivery rates increase, and, in the case of plants that operate on fuel oil, production costs will also rise.
I expect the lack of available workers that has plagued our industry for the last several years to continue in 2000. It will become even more severe unless the economy experiences a major downturn. Trucking companies are struggling to retain capable drivers, and are upgrading their trucks with more conveniences and comfort in an effort to attract and keep good drivers.
Dealers are providing more benefits for their employees, and in some cases more flexible working hours.
Another concern we faced in 1999 – the repeal of the Federal Excise Tax on new tires – will likely resurface in the near future in one form or another. If that occurs, the retread industry will respond effectively to fight it.