Tires, oil prices in costly alignment

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Always a big expense, tires are becoming even more costly as the price of raw materials, especially oil, goes up.

Just as truckers have no choice about paying the passed-down cost of diesel fuel – which surged 34 cents in a single week after Hurricane Rita to a record $3.14 a gallon – spokesmen say the tire industry has no choice but to pass along its own soaring costs.

“It takes about 22 gallons of oil to manufacture a new commercial tire and seven gallons to build retread products,” says Goodyear Tire & Rubber spokesman Dave Wilkins. Each $1 increase in the per-barrel price of oil costs Goodyear $20 million, he says.

“In addition, natural rubber prices hit a 12-year high and surged about 40 percent in a 60-day period this summer,” Wilkins says.

Output from the major rubber-producing nations is expected to remain level or drop in the coming months, while demand remains high among tire manufacturers worldwide – including those in that emerging economic behemoth of China, where expansion likewise is driving up prices in global oil markets.

On Oct. 3, Goodyear announced a temporary 30 percent reduction in North American tire production because Hurricane Rita disrupted supplies of raw materials, though all its tire plants continued to operate.

Raw materials account for more than 30 percent of a tire’s costs, and the costs of those materials are expected to climb at least 17 percent this year, says Kurt Danielson, Bridgestone Firestone’s director of commercial marketing for North America. Retail price increases can’t keep pace with those costs, Danielson says.

“It’s not only raw materials, but everything else – shipping, the cost of doing business – is up dramatically,” Danielson says. “2006 will be tough from a supply viewpoint.”

Bridgestone increased truck tire prices 5 percent in 2004, then twice again this year: 7 percent in January and 8 percent in May. On Sept. 15, Bridgestone Firestone announced another round of increases for “passenger and light truck, truck and bus, and agricultural and off-the-road tires,” effective Nov. 1, but Bridgestone’s truck tire division later said its prices would be unaffected by that increase.

“Raw materials increase daily,” says Clif Armstrong, commercial marketing director for Continental Tire North America. “Raw materials are extremely volatile, and that affects everything we do.”

Continental increased truck tire prices at least twice in 2004, Armstrong says, and twice again in 2005. A third increase of up to 7 percent was passed onto dealers as of Oct. 1, but how soon dealers raise their prices is uncertain because of varying inventories.

Michelin representatives declined to discuss tire pricing.

“All manufacturers suffer the same with raw materials,” Armstrong says. He expects just as many price increases across the industry in 2006, “if things continue as they are.”