Where do you think the raw material for all those new tires will come from, and how much do think it's going to cost?
According to Michelin's 2010 financial reports, North American demand for new trucks increased 25 percent year-on-year despite remaining below 2007 levels. The report also pointed to 23 percent growth in truck sales in China last year, and astonishing growth of 47 percent in South America.
For 2011, the company sees steadily increasing global tire demand and rising raw materials prices. In mid-February, Michelin announced it will raise prices on its Michelin and BFGoodrich branded new truck tires and retread products by 12 percent effective March 1.
Bridgestone, Yokohama, Goodyear and most other tire producers have also posted price hikes in the 6- to 8-percent range beginning Q1 2011. In its 2010 financial report, Bridgestone also noted its fiscal results were "plagued" by rising raw material costs.
There have been discussions of late - if you follow the rubber world - about potential shortages of raw material, natural and synthetic rubber in particular. While none of the major tire makers say they see true shortages on the near horizon, most indicate natural rubber prices are going up. Oil remains a moving target, but global demand seems to be pushing prices up - though it's a little difficult to tell these days with all the unrest in the Middle East and North Africa playing havoc with supply and therefore with pricing.
Goodyear Chairman and CEO Rich Kramer says higher raw material prices are the most significant challenge facing the tire industry today. In Goodyear's fourth-quarter conference call, Kramer noted, "Since October, we've seen natural rubber increase as much as 70 cents per pound, or nearly 40 percent, to about $2.50 per pound.
"Despite this increase in price and persistent discussion of weather-related production declines," he added, "we have no concerns over supply, as it remains ample."
Michelin estimates the full-year impact of raw materials costs on operating income more than $2 billion, assuming natural rubber costs average $4.80 per kilogram. In mid-February, rubber was trading at records near $6 a kilogram, having risen more than 20 percent this year after a 60 percent rise in 2010.
All that to say what most of you already know only too well: Tire costs are going to rise in 2011.
Two for the Price of one?
Dollar for dollar and mile for mile, retreaded tires are a compelling alternative to virgin tires - especially when you look at lifecycle costs. It's always difficult to use exact prices because of volume discounts, business relationships, etc., but the cost of retreading your own casings and remounting them can be half the price of a new tier-one tire. Consider that with proper inflation, diligent management, and a little luck with regard to road hazards, a casing could see two and sometimes three retreads in many applications.
You may have to pull the original from service a little earlier, like with 6/32 of tread rather than 4/32 or less, Bandag tells us, but the savings in the long run will far outweigh the slightly shorter life on the original tread.
If you're in a position to run a retreaded casing in a regional or local application after a few years of on-highway service, you might squeeze even more life out of a casing. The math keeps looking better and better.
Bill Sweatman, president and CEO of Marangoni Tread North America, says there are so many options today when it comes to tread design and compounding options, a fleet can tailor a tire for its exact needs.
"Because we don't need to optimize or generalize the design over a really broad customer base in order to get a good return on our development investment, it's easier for us to focus on achieving the result we want," he says. "One of the beauties of retreading is that you can customize the product to get the performance you want without producing a whole new tire."
Tread pattern and compounding options have never been better, and they are available in low-rolling resistance, high-traction, and wide-base for on-road, as well as a multitude of patterns for regional, local P&D, and even severe service/off-road treads.
Later this year, Marangoni will roll out its new Energeco tread, made with a proprietary compound designed to lower rolling resistance. It will be incorporated into both lug and rib tread designs in a ring-tread format.
"We'll be introducing more new product this year than we have ever done in the past, and right now, medium-duty is one of our fastest-growing markets," Sweatman says. "We have extended the product line and we're expanding our manufacturing capabilities. The smaller tires require smaller rings, so that has meant some changes to our manufacturing processes."
For those concerned about getting good quality retreaded tires out on the road, Goodyear just rolled out its Gold Medallion casing certification program, to give customers an added level of assurance that each retreaded cap-and-casing they buy on the road is as good as it can be.
The program assures that each casing accepted into the program meets a set of minimum standards, including a maximum age of four years from the date of manufacture, no bead or section repairs, and no more than two spot repairs and three nail hole repairs to the casing.
"We know retread users are often reluctant to buy cap-and-casing tires from a supplier they don't know," says Jay Hofner, general manager of commercial retreading at Goodyear. "We developed the Gold Medallion certification so customers will know what they are buying anywhere in the country the product is available."
The Gold Medallion tires are available in popular sizes in G305 LHD Fuel Max, G316 LHT Fuel Max, and G182 RSD designs.
So as oil prices creep upward, consider retreads as a hedge against inflation. Retreads consume less than a third of the oil required to make a new tire, and with manufacturing and performance standards improving all the time, retreaded tires really are becoming a value proposition. But like new tires, it's still up to you to look after them.
From the March 2011 issue of Heavy Duty Trucking magazine.