Michelin TireEnlarge Photo
If you’ve shopped for tires lately, you’ve probably been surprised by the sheer number of tire sizes now available, as well as the increasing price for tires of all sizes.
Manufacturers are feeling the pain as well, and while no one is reporting production delays due to tire availability, this much is clear: even automakers are paying more for tires, and may be buying them from secondary suppliers as primary suppliers run short on inventory.
Demand in the U.S. is up from 55 million tires in 2010 to 62 million tires in 2011, and the trend shows no sign of reversing any time soon. By 2016, demand is expected to hit 79 million units annually, and manufacturers are scrambling to maintain pace. Both Continental Tire and Michelin report that they’re running three shifts per day and are at maximum capacity, and a planned expansion by Continental won’t come on-line until 2013. Did industry analysts under-forecast demand?
Not exactly. In 2006 and 2007, four tire manufacturing plants in the United States were shuttered, in favor of plants with cheaper labor in China. Those plants represented capacity of some 71 million tires per year, more than enough to meet current and future production demands. Rising labor costs caused manufacturers to look East, and China seemed like the land of opportunity. It may have been, except for a three year tariff imposed on Chinese tires by the Obama administration. In 2010, the tariff was 35 percent of a tire’s value; in 2011, this fell to 20 percent and by next year it will fall to 25 percent before being eliminated entirely. The move may have saved U.S. manufacturing jobs (at least temporarily), but it created a product shortage that no one saw coming.
As if a short supply and high demand wasn’t enough to raise prices, raw material prices have shot up at alarming rates. Component prices jumped 47 percent in 2009, and grew another 56 percent last year. The numbers aren’t in for 2011, but the cost of everything has grown in the past year, so it’s likely the trend will continue. Michelin, Continental and Goodyear have all raised prices several times in recent years to account for rising raw material costs, and even automakers are paying more for tires (although they’re still paying far less than consumers). That cost gets passed along to consumers with new car price increases, and most automakers have raised prices at least once in 2011.