NASHVILLE, Tenn. -- Business volumes continue to look positive for North America’s tire manufacturers but the outlook on their costs remain uncertain due to volatile raw materials pricing.
“Predictability has been almost impossible with raw materials. There are too many things going on. It’s like trying to predict the stock market,” attested Kurt Danielson, president Bridgestone Commercial Solutions during the company’s Media Boot Camp held earlier this week.
A basic truck tire with four belt construction can contain 14-15 different rubber compounds. The price of rubber has come down of late but is still up substantially when looking at it over a 10-year window. There is concern that once the North American and world economies kick back into full gear the resulting increase in production will place pressure on raw material inventories and thus pricing.
Higher raw materials costs pose a particular challenge to tire manufacturers selling into the for-hire and owner/operator truck market segments. Profit margins remain thin in these sectors and as a result most customers are very adverse to any price increases.
Would this then be the right time to buy more rubber and other raw materials at the current lower pricing in anticipation of higher pricing to come?
Not necessarily, according to Danielson and other Bridgestone officials.
“We are trying to take as much volatility out of the equation as we can because it’s not good for us and it’s not good for the trucker. We have plans to hedge as much as we can. But there is a risk in buying too far out,” Danielson said.
The many offshore manufacturers based in India and China which have been pumping low-cost tires into the North American market are another threat the established brands have to contend with when considering their pricing.
For their part, Bridgestone officials say they differentiate themselves by focusing on and educating buyers on total cost when it comes to tire purchasing.
“It’s not about the acquisition price. It’s about the total cost over the life of the tire,” said John Boynton, vice president, sales, for Bridgestone Commercial Solutions. “Customers are saying help us with the predictability of our tire costs, rather than what is the cheapest price you’ve got.”
Danielson also pointed to the increasing amount of government regulation, particularly on the environment side, which he believes will make it continually more difficult for offshore low-cost tire providers to stay in the game. And with the SmartWay program now extended to retreads, shippers themselves may start to play a larger role by demanding that their carriers only use SmartWay approved products.
“The offshore products are a threat but we don’t fear them long term because we believe we have something that differentiates us,” said Scott Damon, vice president, marketing.