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Tire Prices Rise In The U.S., Sticker Prices Could Soon Follow

Benjamin Hunting
by Benjamin Hunting
June 30, 2011

Lost in the wash of attention paid to the parts supply problems facing Japanese automakers devastated by earthquake and tsunami damage this past spring is another industry-wide shortage that could soon be making an impact on vehicle pricing in the United States: tires. More specifically, car companies located in North America are having difficulty procuring the tires they need to shod their cars, trucks and crossovers prior to sending them to the showroom.

According to The Automotive News, there are several factors at play when it comes to understanding why the supply of tires has recently become so limited. At the core of the problem is a lack of manufacturing capacity within the tire business itself. Tire companies began to reduce their presence in the United States, Mexico and Canada in 2006, closing plants and wiping out the production capacity for as many as 71 million tires. The hole in the American tire market was initially filled with foreign competitors, but a restrictive import tariff imposed on Chinese tires in 2009 – a tax that will continue throughout most of 2012 – did not help to reduce the rising cost of tires as auto makers began to stress the production pipeline to its limits.

Exacerbating the problem has been the rising cost of the raw materials used in the production of automobile tires, including startling 56 and 47 percent jumps in the past two years, respectively. Key components such as rubber and carbon black continue to grow more expensive precisely at the time when demand for tires is reaching its peak.

One of the indicators that problems were afoot with regards to tire production has been the price increases faced by motorists attempting to source replacement tires for their automobiles. The aftermarket tire business has seen substantial price jumps over the past several years, with The Automotive News reporting that companies such as Michelin have been raising retail prices for tires three times in that last 12 months alone. The shortage has now caught up to auto manufacturers in terms of elevating their own tire costs, with some brands now having difficulty finding tire companies which are capable of producing high performance rubber for special edition automobiles. Overall, car companies are shelling out between $75 and $300 per tire, depending on the application.

Tire companies have responded to the lack of production capacity by committing to build new plants both in the United States and elsewhere in the world, but none of these facilities will come online until 2013 at the earliest. Currently, North American drivers consume tires at the rate of 62 million per year, but that figure is projected to rise to 79 million by the end of next year. It seems likely that eventually the increased tire costs faced by automakers will be pushed down the line to the sticker price of brand new cars and trucks, where buyers will be forced to ante up additional cash.


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