Tires. People drive on them every day, but seldom think about them.
When buying a car, people are more likely to think about the fuel economy, rear seat space or sound system than they are to think about the
tires, until it rains or until the tires fail, or until you have to pay to replace
them. The sticker shock that can attend replacing a set of tires may be especially acute for a growing slice of drivers
today due to one big factor: the SUV.
Sport utility vehicles are all the rage, making up about half of all tire sales in 2020, a roughly
20% increase since 2007.
A Consumer Reports survey in 2019 found that SUV tires are quite a bit pricier than those you would put on
sedans, coupes or even minivans.
Those were not the costliest tires bought by survey takers.
That distinction belonged to sports car tires, which ran up to nearly $190.
The shift to SUV's is driving up the price of tires for the average buyer, and they aren't the only factor poised to drive
up the cost.
Electric cars also stand to raise higher prices as they take over the auto market.
So far, tires have been somewhat resistant to the onslaught of e-commerce that has afflicted many other sectors of retail.
A lot of consumers still buy their tires through dealers, and even online sellers rely on traditional dealers for installation.
But the tire space is very competitive, and all players are trying to find new ways to connect with savings-focused
customers.
The history of tires stretches at least as far back as the mid-1800s.
Early tires were solid rubber, which were good at protecting wheels, but not great for cushioning riders against bumps in the road.
The pneumatic, or air-filled tire, is attributed to Robert William Thomson, who filed a patent for a
design in 1845.
The mid- to late-1800s were also when many of the world's best-known tire brands were founded, especially the European ones.
French tire manufacturer Michelin traces its history as far back as 1832.
It was renamed Michelin in 1889, and it developed the first detachable bicycle tire in
1891. Italian maker Pirelli began as a general producer of elastic rubber goods in
1872. In America, Charles Goodyear developed the vulcanization process in 1839.
He used heat and sulfur to turn flexible but weak natural rubber into a much stronger and more reliable substance.
The discovery, named after the Roman God of fire, Vulcan, was crucial to the development of rubber for industrial
uses and, of course, tires.
Japanese makers came a bit later, including what is now the largest tire maker in the world, Bridgestone.
Bridgestone started out as a division of another Japanese manufacturer.
In 1930, it began producing its first tires and renamed itself Bridgestonein 1931.
It would become one of the world's largest tire makers in 1988 when it merged with the American manufacturer,
Firestone. Tire makers are typically divided up into tiers by those who follow the industry.
There are tier one brands, which typically include the best-known and often highest priced names:
Michelin Goodyear, and Bridgestone, for example.
These are often the brands whose tires are installed stock on cars and factories and brands that make a lot of the specialty
tires customers will favor for certain types of vehicles, especially high-performance ones.
Below them are the tier two brands, which tend to be a bit lower-priced, have a bit less market share and seem to be less
aggressively-marketed by their makers.
These often include brands such as Bridgestone's Firestone brand, Good Year's Dunlop, Michelin's
B.F. Goodrich, and the Yokohama and Tokyo Brands.
Tier three tires are often thought of as value brands: the cheapest.
This third category has become a favorite of shoppers who are using the internet to buy tires.
In a note published in February 2020, Northcoast Research discussed a survey of 100 Amazon
installers in 20 major cities across the U.S.
Contacts at Sears saw a lift of four to five customers per week from Amazon sales, Pep Boys saw an
additional three customers, and tire installer Monroe saw one or more customer per week on average.
57% of customers said the tires they installed were cheap tires, value brands or tier three,
some of which they hadn't previously seen.
41% were seeing a mix of brands, most of which were coming from tier two.
Only 2% of contacts in the survey saw an influx of tier one-branded tires.
Right now, Amazon has a modest impact on tire retail, and it is unclear how popular selling online could become.
One of the challenges tire makers face is distinguishing themselves from each other to customers.
Consumers can be price-sensitive, and in the words of one analyst, they often see tires as all the same: big, black
rubber doughnuts. The most commonly reported reason for selecting a particular tire brand was price in one
Consumer Reports survey, followed by tread life and how much a customer trustsa brand.
A tire is basically made up of rubber compounds, along with steel belts and wires to provide structure and strength, though
tire manufacturers say up to 200 ingredients can go into a single tire.
There are, of course, all kinds of tires, but basically bigger tires require more materials, more construction time
and therefore higher cost.
A 2019 survey from Consumer Reports found the median price of a tire for a sedan, coupe, hatchback or minivan was
$137, not including the cost of installation.
The price for an SUV tire was $162.
Pickup trucks were even more expensive at $175.
SUV's come in all sizes, but are generally larger and heavier than comparable passenger cars and their same size
segments. The heavier vehicle is, the stronger the tire will need.
SUV's also often have larger wheels and will simply need a larger tire.
The proliferation of SUVs has led tire makers to broaden their lineups, and in some cases, create new categories
of tires made specifically for SUV's and crossovers.
"Some of those vehicles can take, depending on the size, it can take a car tire, or they could take a
truck tire, or they can take what the manufacturers are making now, this new segment called
the SUV/crossover type product.
They are a bit more expensive than car tires only because they come in larger sizes, and
unlike clothing, you pay more money for a larger size tire than you would asmaller tire."
Customers are often surprised at the higher price they will pay for SUV and pickup truck tires.
"You know, there's a lot more 17- or 18-inch diameter tires being produced than 12- or 13-inch diameter tires this year.
And that's really just a function of how the car population is evolving.
There's more raw materials.
There's more natural rubber, synthetic rubber that's in those tires.
So those tires, you know, they cost a fair amount more.
Additionally, you can't make as many tires at your existing facilities when you're making bigger tires.
It just takes up more space."
The thing is, this is not likely to reverse course.
And over the long term, it could pose some problems for some makers.
In addition, a lot of vehicles, including traditional passenger cars, like sedans, can come with larger wheels or special tire packages
that could prove costly to replace.
"For consumers buying cars, when you're buying a car, inspect the
tires and the wheel package that comes on the car.
A lot of times people will buy a car, and nowadays, they're coming with bigger and bigger wheel sizes.
But those tires are more expensive, and sometimes you don't necessarily need that."
Another trend on the horizon could push up tire costs even higher: the rise of the electric vehicle.
Electric and hybrid vehicles are heavier than internal combustion cars and trucks, which means they need sturdier and even more
durable tires. Because the tire market is so
competitive, tire makers and retailers continue to try to find ways to distinguish themselves.
On the retail side, providers such as Monroe and Les Schwab say that providing service to customers is really what
distinguishes them, not only from e-commerce sellers that lack storefronts and installation services, but also from big box
retailers such as Wal-Mart.
Tire producers are also looking for ways to differentiate themselves.
One way is connecting with consumers through retail.
Goodyear has taken this approach with a pilot program in parts of the East coast.
The Roll by Goodyear program involves both home installation and boutique-looking tire shops, which are
indeed a highly unusual way of selling tires.
Bridgestone has been trying to reposition itself as a "mobility company."
Bridgestone is adding sensors to its tires, which it says can be done for not much more money.
The idea is to use these sensors to improve automated driver assistance systems and provide other information to drivers.
The sensors on board tires might be an example of a technology that has found its moment.
Bridgestone merged with American maker Firestone in 1988.
Little more than a decade later, the company found itself in the midst of a massive scandal involving faulty, uninflated
tires that had been installed on one of the first massively popular family SUV's, the Ford Explorer.
The fallout from that scandal resulted in a government mandate to provide tire pressure monitoring systems on cars
through sensors in the tire.
About 20 years later, sensors inside tires may provide makers like Bridgestone a new way to serve customers and distinguish themselves in the
marketplace. "Also, Michelin has made some acquisitions, some smaller acquisitions within the
telematics realm of things.
And so, you've got tire sensors and maybe you fold that into car connectivity and fleet telematics,
right where you could form a rental fleet which tires on particular cars need
to need tire replacements, right.
All of that plays into future potential revenue, additional revenue sources for sure.
But again, I think it's still very early days from a tire producer standpoint how impactful that
will be."
Companies such as Bridgestone, Hankook, and Sumitomo face some additional challenges in the near term, say analysts who follow the
industry. One is looming tariffs resulting from trade tensions between the U.S.
and some Asian countries.
In 2021, there is a 30% tariff on tires coming from South Korea, Taiwan, Thailand and
Vietnam. Bear in mind, there is already a 15% tariff on tires from China.
"Incurring an almost 30% tariff rate on average.
For these volumes, you're going to see price increases not related to raw materials inflation, but just to
mitigate the impact from these tariffs.
Two tires are on a similar playing field from a brand perspective, if one's priced higher because of tariffs...
We should see some shifts in the market share for sure."
This could lead to a noticeable bump in the cost of tires.
"I think however you slice it, whether the tires are coming from South Korea or the tires are coming from South Carolina, you're going to
have higher prices that are higher in 2021."
There could also be a bit of a shake up in market share favoring domestic producers and those who produce in countries not affected by the tariffs.
American maker Goodyear holds the largest share of the North American market for both factory-installed and replacement
tires. In 2021, Goodyear bought fellow American tire maker Cooper Tire and Rubber Company for about
$2.8 billion dollars. Cooper is the fifth largest tire maker in North America.
The deal, the companies said, is meant to grow Goodyear's North American market share and its presence in China.
It could prove to be a good time to be a premium tire maker.