WASHINGTON—Consumer shock at high gasoline prices has translated into a big drop in aftermarket tire sales, one that probably will continue all year.
In contrast to a predicted modest gain in tire shipments for 2006, replacement tire shipments fell about 5 percent in the January-May period compared with a year ago, according to a new report from Merrill Lynch & Co. Inc. Original equipment shipments are off, too, which was expected.
"Consumers are postponing replacing tires as other costs eat into their disposable income, in particular high gas prices," the report said. "This is a trend we expect to continue as long as gas prices remain high."
OE deliveries were higher in the first quarter of 2006 and about flat in the second three months, in keeping with North American light vehicle production, Merrill Lynch said. With vehicle production expected to drop 10.1 percent in the third quarter and 11.3 percent in the fourth, the report implied a weakness in the OE market through the end of the year.
Squeezing more miles
Dennis Virag, president of Automotive Consulting Group Inc. in Ann Arbor, Mich., agreed with Merrill Lynch that tire shipments have slipped, and also as to the reasons why.
"I think the thing that is driving tire shipments down is energy prices," he said. "People in need of tire replacement are now trying to squeeze an extra couple thousand miles out of their tires."
The current situation is very different from the forecast this past March by the Rubber Manufacturers Association´s Tire Market Analysis Committee.
In that forecast, the RMA projected a shipments increase of slightly more than 1 percent in 2006 compared with 2005, thanks to steady economic growth in both the consumer and commercial sectors.
The committee did project a 2-percent drop in OE passenger sales because of decreasing sales and production of new cars.
It predicted that light truck OE tires would remain at roughly 6 million in shipments between 2006 and 2011. For OE commercial tires and replacement tires in all categories, the committee forecasted modest growth in 2006 and beyond.
Although he couldn´t discuss specifics, an RMA spokesman acknowledged tire shipments generally declined in the first half of 2006. The Tire Market Analysis Committee is scheduled to meet soon to make new projections for 2006, but no new RMA figures are available yet.
Similarly, Bridgestone/Firestone said it couldn´t reveal any projections for shipments until its parent firm, Bridgestone Corp., announces its latest financial figures. That announcement is scheduled for Aug. 9. Cooper Tire & Rubber Co. deferred all questions on tire shipments to the RMA.
A ´70s flashback
In a recent letter to Goodyear´s North American Tire employees, Jon Rich, Goodyear North American Tire president, said tire shipments declined almost 7 percent for the first half of this year.
"It seems as though the tire business is in its own version of "That ´70s Show," Rich said in his letter.
Over the past 50 years, he said, this is only the fourth time year-to-year shipments have been down; one was in 2001, in the aftermath of Sept. 11, and the other three-the first two in the 1970s-were in response to sharply higher energy prices.
"What has history taught us?" he wrote. "First, when gas prices settled down in the 1970s and early ´80s, there was a surge of growth in tire sales. After all, purchasing replacement tires can be deferred-especially in a tight economy-but they cannot be eliminated.
"Second, having been through this kind of cycle before, we´re not content just to hang on and wait for the business to turn on its own. We continue to develop new products for both consumer and commercial use."
Both Virag and Merrill Lynch agreed that an uptick in replacement tire sales is inevitable, and sooner rather than later.
"One point of optimism amidst all the bad news is that consumers are still driving," the Merrill Lynch report said.
According to the American Automobile Association, some 34 million people traveled via motor vehicle during the July 4 weekend-a 1.3-percent increase over the year before.
That implies that motorists can´t put off buying replacement tires for their vehicles indefinitely, the AAA report said.