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  • 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.

Tires. People drive on them every day, but seldom think about them.

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Why Tire Prices Are Rising

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    joey joey posted on 2021/05/15
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