Tires become dear as prices rise, supply shrinks

FORT WORTH, Texas -- Sticker shock has broken out at tire stores, with retailers saying higher wholesale prices combined with tight bank credit and limited supplies are making restocking a challenge.

FORT WORTH, Texas -- Sticker shock has broken out at tire stores, with retailers saying higher wholesale prices combined with tight bank credit and limited supplies are making restocking a challenge.

Overall, consumers are paying about 12 percent more for blackwalls than a year ago, said Bonnie Moreland of Texarkana, Texas-based Golden Star Tires, adding that the jump would be even higher if he didn't absorb some of the waves of price increases imposed by manufacturers.

Dealers who advertised specials like four "economy" tires for $99 three years ago are selling them today at $299 to $340 -- if they can find the product, said George Salinas, co-owner of G&M Tires, which has two locations in Fort Worth.

The higher cost makes it harder to stock tires that are available.

"I used to carry 300 tires," Salinas said. "Now I have less than 100 in stock because I can't afford to have them sitting on the shelf."


Jim Smith, editor of Tire Review magazine, which covers the retail industry, said: "Dealers are terribly frustrated. They've always complained about prices, but this is different from historical grousing. This is a real-world, dollar-and-cents issue for them right now. They can't get customers in the door because of the prices."

Sam Timmons of Fort Worth Tire, which sells used and new tires, says it's harder finding road-worthy tires for resale because they're being driven longer and come in bald.

"Because of money problems, people are running them until they're as slick as pavement," said Timmons, who laid off five employees in February 2009 and hasn't been able to replace them. "We spend $20,000 a year getting rid of the junk tires. We just get a trickle (of good used tires), and they're sold within days."

A convergence of foreign and domestic factors has created a crunch for tire retailers and wholesalers, who are passing at least some of the pain onto consumers.

A year ago, the Obama administration responded to U.S. union complaints by imposing a punishing 35 percent import duty on Chinese tires because of allegedly illegal state subsidies.

That compounded the effects of rising rubber prices and sharply crimped production by U.S. tiremakers, which responded to the recession by laying off workers and closing plants. Cooper Tire, for example, shed 1,400 workers by closing a Georgia plant; Goodyear has trimmed its work force by 5,500 the past two years.

While retailers complain mostly about the Chinese tariff, industry analyst Saul Ludwig discounts it as the major reason for the current situation.

"Very simply, tire demand is strong, especially (for original equipment tires on) both cars and trucks," said Ludwig of Northcoast Research in Cleveland, explaining why manufacturers are raising prices.


"Raw materials are 25 to 30 percent higher than one year ago, thus the primary need for higher tire prices," he said by e-mail. "A small amount of the higher tire prices was due to the tariff (on Chinese tires), but that component of the price hike took place in September 2009."

What's clear is that tire dealers are facing a double whammy in terms of cost and supply.

"This is my 35th year in the tire business, and it's the worst I've ever seen in terms of availability and price increases," said Moreland, who is both a retailer and wholesaler. "We only get 30 to 35 percent of what we order.

"There have been at least three price increases this year and a couple last year," he said. "I got a call ... saying Cooper will have another price increase on Nov. 1 of 'up to 7 percent.' "

Goodyear earlier announced increases of 6 percent for passenger car tires and 8 percent for truck tires.

It's not bad news for everyone. Winners include:

--U.S. manufacturers, who profit by charging and selling more.

--The United Steel Workers, which pushed for the tariff on Chinese tires and now attributes new hiring and increased shifts to the trade action.


--Countries like South Korea, Taiwan, Indonesia and Thailand, which doubled tire exports to the U.S. in the first half of 2010 after the tariff on Chinese tires made their wares more price-competitive.

U.S. salvage yards, which say they are taking more tires from junked cars and sellin--g them directly to budget-minded consumers instead of marketing them to used-tire shops at a lower price.

Citing improved marketing conditions, Cooper Tire said its North American sales climbed 35 percent during the first half of 2010 compared with the same period in 2009. It reported net income of $44 million during the second quarter, compared with a $13 million loss for the year-ago quarter.

At its Texarkana, Ark., plant, Cooper moved production from five days a week to 24/7, CEO Roy Armes told analysts in August. "The three factories we have are really ramping up to unprecedented levels," Armes said.

"We've been hiring and training some new people for production, and these have all really strained and stretched our manufacturing operation," he said, adding that soaring demand prompted Cooper to ship equipment from its closed Albany, Ga., facility to plants in Arkansas, Mississippi and Ohio.

Cooper is operating at 90 percent capacity, but, Armes told the analysts, it "feels like 120 percent."

That's music to the ears of the United Steelworkers, the union that represents tire plant employees.

"There is no doubt that the relief authorized by President Obama has reversed the massive decline in domestic production," Tom Conway, a USW vice president, said in a statement that the union released on the anniversary of the tariff. The union said China was not harmed because its tiremakers switched focus from exporting to the United States to selling more on home turf.


But it remains far from certain whether the tariff has had a greater impact than possibly overzealous plant closings and layoffs before demand picked up. Tire Review's Smith says higher prices on U.S. tires reflect an automatic adjustment to keep a clear price differential from lower-end imports, which have arrived costlier because of the tariff on Chinese tires. Chinese makers reportedly have passed on only part of the tariff to customers.

Meanwhile, auto recyclers and salvage companies have found their own silver lining in the tight tire market.

American Auto Salvage on Fort Worth's north side raised tire prices to $35 from $10 or $15 a few months ago, General Manager Mike Kunkel said.

"Tires have moved up (among salvaged items) both in value and number sold," Kunkel said. "We used to wholesale a lot of tires to the corner shops. Now the customers who went to those stores come to us."

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