Changing the Tire in 2022 - SMARTER PERSPECTIVE: AUTOMOTIVE INDUSTRY - Hilco Commercial Industrial
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SMARTER PERSPECTIVE: AUTOMOTIVE INDUSTRY
Changing the Tire in 2022
By Gregory Baldor
In this article we take a look at the THE PRESENT
changing tire industry and how the
impact of ever-changing tariffs prior Fast forward to 2022. All Sears auto
to the arrival of the pandemic and a centers have closed, GM’s Pontiac and
precipitous drop in the number of Saturn brands are defunct, and the
miles driven during its height in 2020 tiered tire nomenclature is generally
have now been further exacerbated by no longer used as a result of a much
reduced production output, increased broader range of manufacturers now
raw material pricing, shipping delays offered on OEM vehicles as well as
and higher import costs. imported replacement tires.
THE PAST Thus “changing the tire” in 2022 is a
significantly different prospect in today’s
Not that long ago, U.S. car owners market and impacts a large segment
could drop in at any one of 900+ Sears of the industry, including passenger
Auto Centers to obtain replacement and light trucks. The largest subset of
tires on their popular Pontiac and might fall across a broad marketplace the tire market is replacement tires,
Saturn vehicles. The Pontiac most spectrum. OEM tires including anchor or those tires purchased to replace
likely received a Tier One tire (OEM brands such as Bridgestone, Michelin, a vehicle’s OEM tires due to wear or
brands such as Goodyear, Michelin and Continental, and Goodyear, have puncture. According to IHS Markit, the
Bridgestone that were on the vehicle typically been considered Tier One, average age of vehicles on the road in
when purchased), while the Saturn may the category holding the greatest the U.S. topped 12 years for the first
have received a Tier Two (secondary market share across both the U.S. and time in history, up from 11.9 in 2020
brand such as Goodyear’s Kelly) or Tier Canada. These flagship brands of the to 12.1 in 2021. Older tires with many
Three (private label Sear’s branded) tire. world’s four largest tire manufacturers miles driven, equate to the need for a
enjoyed backing by the industry’s greater number of replacement tires
One of the words widely used within largest advertising spends, generally overall. This ongoing trend, during
the tire industry over the years has been commanded the highest prices, and which we have seen vehicles stay on the
“Tier.” Companies and product lines typically have been considered the road longer, reflects both the increased
were historically categorized as either “best” tires in terms of the “good-better- durability of automobiles as well as
Tier One, Tier Two, or Tier Three, etc. best” selling strategy widely utilized their higher cost of replacement in
to describe where different tire brands across the industry. today’s market.
While the number of replacement
tires needed to sustain those older Passenger and Light Truck Tire Availability
vehicles has increased, it follows that, The snapshot below indicates the range of passenger
to some degree, the number of new and light truck tires available
tires has been impacted in the opposite
direction. Furthermore, in addition REPLACEMENT TIRE MARKET SHAR E SIZES BY RIM DIAMETER
to the more crowded U.S. market
referenced earlier, tire manufacturers BRAND PASSENGER LIGHT TRUCK INCHES PASSENGER LIGHT TRUCK
now find themselves operating in an Goodyear 11.0% 9.5% 12 1 –
intensely competitive international
Michelin 9.0% 6.5% 13 14 –
marketplace with diverse needs and
specifications that make production Bridgestone 7.0% 6.5% 14 26 8
more complex and costly. This, in turn, Firestone 7.0% 6.5% 15 55 41
trickles down to distributors, who also Falken 5.0% 4.0% 16 61 39
now must carry an increasing variety
Continental 4.5% 2.0% 17 62 51
of tire sizes and labels to meet the
expanding needs of understaffed and BFGoodrich 4.0% 7.5% 18 66 50
overly scheduled installers. These Cooper 4.0% 5.5% 19 30 1
factors, combined with an active merger Hankook 3.5% 4.0% 20 34 45
and acquisition environment which is
Yokohoma 3.5% 5.0% 21 4 –
consolidating industry players at each
level, makes the tire industry a highly General 3.0% 5.5% 22 10 28
intricate landscape right now, not just Kumho 3.0% 2.5% 23 2 –
for those along the supply chain, but
Multi-Mile 2.5% 2.5% 24 7 20
also for asset-based lenders who must
Nexen 2.5% 2.0% 26 1 6
navigate how to best support their tire
portfolio companies and limit their own Toyo 2.5% 5.0% 28 – 2
downside risk during this crisis period. GT Radial 2.0% 1.5% Total 373 291
Hercules 2.0% 3.0%
NOTABLE DEVELOPMENTS
Pirelli 2.0% 2.0%
ACROSS THE INDUSTRY
Mastercraft 1.5% 1.0%
Manufacturers Nitto 1.5% 1.0%
In 2020, production by U.S.-based
Primewell 1.5%
materials to increase by over $10,000.
We also saw European Brent Spot prices
Oil Prices dollars $ per barrel
rise 59.9% from $57.77 a barrel in $100.00
January 2020 to $92.35 in January 2022. $80.00
$60.00
The impacts have been evident. Case
$40.00
$20.00
in point: In early April of this year,
$0.00
leading manufacturer Michelin North
-$20.00
America, Inc., announced its sixth price
-$40.00
increase in about a year. The company
-$60.00
cited “Market dynamics” as the
1/2/2022
1/2/2020
3/2/2020
5/2/2020
7/2/2020
9/2/2020
11/2/2020
1/2/2021
3/2/2021
5/2/2021
7/2/2021
9/2/2021
11/2/2021
rationale. As the announcements were
made, competitive manufacturers and Source: Refinitiv
importers also raised prices to a varying
degree and timing from Michelin’s.
At the time of acquisition, Cooper was 1) The formation of Tirehub, a joint
the fifth largest tire manufacturer in North venture of Goodyear and Bridgestone
Michelin Price America and 13th in the world operating – the number 2 and 3 tire producers
Increase History in 15 countries with $2.5 billion of annual respectively behind Michelin.
EFFECTIVE DATE PERCENTAGE sales of replacement tires produced in 10 Established just ahead of the pandemic
2/1/2021..................5% facilities with 19 distribution centers. The to more effectively control and ensure
4/1/2021..................5% combined entity reported 2021 sales of continued distribution of their tires
7/1/2021..................5%
9/1/2021..................5% $17.5 billion. in the U.S., the move resulted in the
1/1/2022..................5% pair removing their brands from the
4/1/2022..................5%
Importers (Tires & Raw Materials) largest U.S. distributor, American Tire
Tariffs and duties have had a significant Distributors, Inc.
effect on the U.S. tire market in recent
years. The Trump Administration’s 2) One of the largest independent
additional 25% tariff on various goods tire wholesalers in the country, U.S.
from China, including tires, rubber, Autoforce acquired Treadmaxx Tire
Source: Michelin North America
and rubber chemicals, took effect in Distributors in October 2021, then
May 2019. In November 2020, the U.S. purchased Max Finkelstein, Inc in
Department of Commerce announced January 2022. These moves added
The U.S. Tire Manufacturers Association evidence that tiremakers and tire 14 Treadmaxx distribution centers
(USTMA) is the national trade exporters in Vietnam benefited from across the south/southeast and 13 Max
association for tire manufacturers government subsidies during 2019. Finkelstein distribution centers on the
that produce tires in the U.S. Thirteen As a result, consumer tires imported to Eastern seaboard and in the Northeast,
member companies operate 57 tire- the U.S. from Vietnam were assessed to the company’s capabilities during a
related manufacturing facilities in 17 with Countervailing Duties (CVD). The highly competitive period.
states and generate more than $27 rates of the subsidies for the two largest
billion in annual sales. On March 1, passenger car radial (PCR) producers Retailers
2022, USTMA reported that total U.S. are Kumho Tire Co. Ltd. at 10.08%, and Following significant reductions related
shipments for 2021 were 335.2 million Sailun Co. Ltd. at 6.23%. During May to the COVID-19 pandemic in 2020,
units. In March 2021, the USTMA had 2021, the USDC further announced that vehicle traffic has returned to more
a modest prediction of 315.7 million passenger and light truck tire importers normal levels, with remote working
units for 2021 after experiencing from South Korea, Taiwan, Thailand, still impacting those numbers to
historically low results of 303.2 million and Vietnam would be assessed anti- some degree. The U.S. Department
units in 2020, off from 332.7 million dumping duties between 13.25% and of Transportation (USDOT) stated that
units in 2019. Compared to 2021, 98.44% (varying by company). The cumulative travel on all roads through
2022 replacement passenger and light International Trade Commission (ITC) August 2020 versus 2019 decreased by
truck tire shipments are projected to confirmed these rates as of June 2021. 15.3%, or 332.5 billion vehicle miles.
increase +0.9% to 226.8 million units Although the tire industry was deemed
and decrease -0.3% to 38.5 million units, Distributors “essential,” it was still affected by the
respectively. In recent years, we have seen various pandemic; many installers operated
steps taken by both manufacturers on reduced hours or had periods of
In June 2021, The Goodyear Tire & and wholesalers/distributors across complete store closures. Consumer
Rubber Company completed the the industry to address the ongoing driving behaviors changed as many
acquisition of Cooper Tire & Rubber challenges associated with competition employers allowed office staff to work
Company, two of the leading tire and profitability. Among those most from home. USDOT data indicates that
manufacturing companies in the U.S. notable have been: cumulative travel on all roads travel for
Tire Materials
Tires contain many rubber compounds
and other materials which enable them to (Big Brand) retail locations in California. selling tires may already have been sold.
safely perform in the face of a wide range Under the Big Brand umbrella, In addition to ensuring that borrowing
of demanding conditions. acquisitions in the fourth quarter of bases are adjusted accordingly for such
2021 created the eighth-largest retail occurrences, lenders should also be
chain in the U.S. with West Coast mindful of the impact that surging steel
purchases of American Tire Depot (101 and oil prices continue to have on those
outlets), Integrity Tire (13), Purcell Tire involved in the production, distribution
and Service Centers (11), Tire World (6), and sale of tires.
•----•------------- 3 Community Tire Pros & Auto Care (6),
•------------ 6 C&R Tire & Automotive (5) and S&S Tire Hilco Valuation Services has significant,
Auto Service Center (3). validated expertise in the tiremarketplace,
•------------ 5
including production, importation,
•-------------
--------- 4
•-------- Additionally, at the end of 2021, Reinalt- distribution, and retail installation.
•--------1 •------------ 2 Thomas Corporation DBA Discount Tire Leveraging our deep industry knowledge,
Company (DTC), a leading retailer with we have delivered valuations on dozens
nearly 1,100 stores across 36 states, of Companies in the U.S. and Canada
•------------ 7
acquired Tire Rack Inc., the largest over the past five years. As one of the
direct-to-consumer online retailer in world’s largest and most diversified
the U.S. Tire Rack has 11 distribution business asset appraisers and valuation
centers totaling 2.7 million square feet advisors, we serve as a trusted resource
of warehousing capacity. to companies, lenders, and professional
1. Bead: Tire bead bundles (usually strands of wire)
secure the tire to the wheel. service advisors, providing value opinions
CONCLUSIONS across virtually every asset category.
2. Bead Filler: A rubber compound placed above the
bead bundle that may be used between the body Hilco Valuation Services has the ability
plies which wrap around the bead to tune ride and The continued presence of tariffs, to affirm asset values via proprietary
handling characteristics. persisting shipping delays, and a series market data and direct worldwide asset
3. Belts: Typically, two belts with steel cords laid at of price increases, are all having a disposition and acquisition experiences.
opposing angles. Belts provide stability to the tread
area of the tire, which contributes to wear, handling significant effect on the U.S. tire market. Access to this real-time information, in
and traction. In addition to changing duties, the contrast with the aged data relied upon
4. Body Ply: Most tires have one or two body plies, tire industry is affected by higher raw by others, ensures clients of more reliable
each typically comprised of polyester, rayon, or material and tire costs attributed to valuations, which is crucial when financial
nylon cords within a rubber layer. Body plies the pandemic’s influence on container and strategic decisions are being made.
function as the structure of the tire and provide the
strength to contain the inflation pressure. shortages, port activity (both loading
5. Inner Liner: A rubber compound used to retain the and unloading), higher ocean freight
inflation pressure inside the tire. costs, and extended transit times. Rising
6. Sidewall: A rubber compound used to cover the oil prices are affecting the price paid at
body plies on the sides of the tire, which provides the pump and the highest inflation rates
abrasion, scuff and weathering resistance. in decades may dampen the appetite
7. Tread: The tread rubber compound and tread pattern for consumers to drive and possibly
provide grip and abrasion resistance contributing to
traction and treadwear. delay vehicle maintenance including
replacement tires. GREGORY BALDOR IS A
Source: U.S. Tire Manufacturers Association TIRE SPECIALIST AT HILCO
Given the current environment, we VALUATION SERVICES
urge lenders with exposure to the tire Greg has appraised numerous North
all of 2021 versus 2020 increased 325.2 industry, and in particular distributor American, European, and Asian
billion vehicle miles, or 11.2%, to 3228.8 exposure, to closely monitor inventory tire-related companies involved in
billion vehicle miles, while the month of levels, product mix and aging. With the production, importation, distribution,
January 2022 increased by 4.1% over number of tire sizes and the quantity and installation. Greg received his
January 2021. of brands growing tremendously in CPA designation in the 1980’s and
recent years, the need to maintain holds a degree in accounting and
Of note on the retail side in terms extensive stock has increased and we business administration from the
of consolidation, Percheron Capital have seen instances of distributors with University of Vermont. Contact
entered the industry in April 2021 by disproportionate inventories of less Greg at gbaldor@hilcoglobal.com
acquiring 20 Big Brand Tire & Service desirable, aged merchandise. The best- or 802.760.7653.
Find Additional Smarter Perspectives at hilcoglobal.com
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