SEMA eNews Vol. 15, No. 6, February 9, 2012

Market Trends in Tires and Wheels

SEMA News—February 2012

BUSINESS
By Steve Campbell

Market Trends in Tires and Wheels

In a Sluggish Economy, Prices and Processes Count

  tire retailer, tire industry, wheel retailer, wheel industry
With a single, relatively simple change, tires and wheels can entirely alter the appearance and character of a vehicle.
   
The tire and wheel section is perennially one of the largest display areas at the SEMA Show in the Las Vegas Convention Center. Tires and wheels are also one of the most favored modifications that car and truck owners make to their vehicles, since a single, relatively simple change can entirely alter the appearance and character of a vehicle.

Over the past couple of years, the trends in this huge market have been affected by the economy, raw-materials costs and the tendency of consumers to hang onto their vehicles longer in an effort to conserve their cash. The result has been some movement away from overly complex and large combinations and toward simpler, more functional tire and wheel pairings.

Wheels

“The wheel market has been somewhat stagnant for the last two years,” said Myles Kovacs, president and co-founder of DUB magazine and part owner of wheel companies TIS and Dropstars. “It’s been like the fashion industry, which goes retro when it gets stagnant. The old-school musclecar influences have come back. And if you look at the Japanese segment, the Hellaflush trend is returning, with wide rims, deep offsets and really stretched tires.”

Joe Schaefer, president and CEO of Konig American and chair-elect of SEMA’s Wheel & Tire Council (WTC), said that his company also sees the cyclical nature of the market.

“Right now, it seems that some of the directional styles might be on the next wave, but it’s also safe to say that cleaner is in right now,” Schaefer said. “People are looking for clean, aggressive fitments that graduate their vehicles to that next level.”

The off-road and 4x4 category has been one area of significant growth in wheels, but even that part of the industry has seen a movement toward cleaner looks and styles that were in vogue a decade ago.

“The off-road scene is over bling and big wheels,” said Fred Williams, technical editor for Petersen’s 4-Wheel & Off-Road magazine. “A strong, light, rugged 17-in. wheel is perfect for most, and they are available in a variety of bolt patterns, backspacings and locked or unlocked bead styles. Steel wheels will always have a place for the lower-budget off-roader due to their strength, and going fast off-road has spawned an interest in high-quality forged wheels that can take abuse without adding unsprung weight, but that demand is often hindered by cost. A strong, light, carbon-fiber off-road beadlock wheel that can withstand serious abuse would be great to see.”

On the passenger-car side, manufacturers have been seeing increased demand for concave and European designs.

  tire retailer, tire industry, wheel retailer, wheel industry
Clean designs and the continuation of black finishes are two of the trends that are currently prevalent in the wheel market. Courtesy of Konig American
   
“Machined faces and combinations with clean styling and lines are very much the heavy trend in passenger-car applications,” said Joe Podiovits, sales manager for Prestige Autotech Corp. “Painted wheels with milled window designs have spurred a dramatic increase in the number of sales and the number of companies now offering these types of finishes. Flat black is still tremendously popular, and wheels with inserts offer a very affordable way to give styling options without the heavy cost of new molds.”

Manufacturing costs are one of the areas where the economy has taken a toll in the industry, and finding ways to improve efficiency while reducing weight for better fuel economy are high on the lists of most of the top-flight brands.

“The trend toward forged, spin-forged and rotary-forged wheels continues,” said Wayne Williams of ExSell Marketing. “This process helps create strong wheels with less unsprung weight that provide a quality ride for today’s more sophisticated suspensions. There is also more one-piece construction with a two-piece appearance, providing a more expensive look at a lower price, and more wheel manufacturers are now having ‘blank’ wheels produced overseas to take advantage of lower labor costs and then performing the finish and drilling procedures locally, which greatly assists in inventory management and helps reduce back-order situations.”

Schaefer said that many of the gains in wheel construction are being created by companies that have the resources to engage in intensive research and development.

“With an ever-increasing need to make cars more fuel efficient, Konig spends a great deal of time searching for ways to increase wheel strength while decreasing the amount of aluminum used. It is surprising how a change in even a small radius can sometimes result in additional strength.”

Schaefer said that his company is also using a process called MAT Technology, which was developed by Enkei Japan. In that system, the wheel is spun and the barrel is squeezed between two dies, increasing strength and reducing the amount of material required.

Another technology innovation involves a revised finishing process. Prestige Autotech Corp. President and CEO Fenton Leffick said that the Detroit automakers and most of the recreational-vehicle converters are increasingly replacing conventional chrome with physical vapor deposition (PVD), which deposits a thin metal or alloy coating onto the wheel.

“They call it ‘vacuum chrome,’” Leffick said. “Applied properly, it holds up in the winter salt country much better than chrome.”

Podiovits added that, regardless of technology, cast wheels are still the industry sales leader due to cost and will likely remain so, but he said that mono-block forged wheels and multi-piece brands offer the benefit of reduced start-up costs and minimal reduction requirements, so they are gaining popularity with manufacturers.

Because the design area seems to have hit a lull, some in the wheel community have looked to their marketing options to help spur sales. Kovacs said that he has entered into a licensing agreement with drink manufacturer Monster Energy as a way to innovate.

“I wanted to get into the off-road space, but I opted to go with Monster Energy instead of just taking TIS and Dropstars there,” he said. “That allowed us to become kind of an extension of their marketing and branding for X Games, action sports and off-road racing. We became part of their team. It’s about the cool factor and the association with the brand.”

  tire retailer, tire industry, wheel retailer, wheel industry
There is no single, standout direction in tires within the off-road market. Each subsegment requires its own design. “The crossing of rock crawling with desert racing has many rock wheelers looking for extreme traction while surviving high-speed racing to and from the trailhead,” said Fred Williams, technical editor for Petersen’s 4-Wheel & Off-Road Magazine. Courtesy of Petersen’s 4-Wheel & Off-Road magazine.
   
Schaefer and Williams pointed to social media and the Internet as more-frequently used marketing tools. Wheel and tire manufacturers and retailers benefit from tuning into their customers’ needs and concerns using social media, blogs, forums and websites, they said, offering customers not only information, but also a unique way of becoming part of a company’s planning and design process.

“Wheel manufacturers are reworking their websites and relying more and more on configurators that allow retailers, e-tailers and end users to view wheels on the vehicles they own,” said Williams, who pointed out that the wheel business is not as simple as it once was. “With tire-pressure monitoring systems (TPMS), increased staggered fitments, run-flat tires, specific load ratings and more sensitive suspensions, the wheel business is becoming more and more sophisticated,” he said. “This isn’t the ’90s, where a cheap tire and any 20-in. chrome wheel from China just get slapped onto a Tahoe and away we go. Wheel manufacturers can no longer build thousands of commodity wheels and place them in a warehouse hoping they sell. It’s too easy to guess wrong.”

Diversification provides one way for dealers to augment their businesses and find new ways to be profitable, Podiovits said.

“One-dimensional selling has become a thing of the past,” he explained. “If the pace your running now won’t get you to the finish line, find a new way to run the race. Find new ways to sell and be profitable, such as adding online retailing, restyling to auto dealers in your local market and learning how to install lift kits and other suspension components.”

Tires

Pricing is a unanimous conversational theme among industry tire experts. Serial increases have hindered the market across North America over the past year, and that has created a strain on retailers who are struggling to move even the most basic tires, let alone ultra-high-performance lines.

“The majority of consumers have been locked in on saving money wherever they can,” said Jim Smith, editor of Tire Review magazine. “Consumers are keeping their vehicles longer, so a lot of money is going into basic repairs and maintenance. In fact, there is growing concern that consumers are holding onto their tires a bit too long. With growing tire prices, more and more vehicles are on the road with dodgy tires.”

Kevin Rohlwing, senior vice president of training for the Tire Industry Association (TIA), said that those price increases are directly related to the cost of raw materials and transportation.

“Even though natural rubber prices have dropped to under $2 a pound, it was just $.58 just three years ago and went as high as $2.80 in early 2011,” he said. “When you add in the price of crude oil and the energy to heat the molds, the costs keep going up so that there doesn’t appear to be any end in sight.”

Environmental concerns have coupled with economics to propel the hottest categories in current tire technology, according to most experts.

“All of the tire companies are developing eco tires and lower-rolling-resistance (LRR) tires to reduce their total corporate carbon footprint and improve vehicle fuel economy,” said David E. Zielasko, editor and vice president/publisher of Tire Business magazine. “But they are also anticipating a new federal tire-labeling regulation that will include a fuel-economy rating. The industry is waiting for the final version of the regulation from the National Highway Traffic Safety Administration [NHTSA].”

Rohlwing said that the industry should also be aware of a recent letter from the NHTSA regarding the interpretation of the “knowingly make inoperative” provision when servicing tires on vehicles that have TPMS. The NHTSA holds that if a TPMS is functioning at the time of an aftermarket tire and wheel purchase, “a service provider would violate the ‘make inoperative’ prohibition of 49 USC 30122(b) by installing new tires and wheels that do not have a functioning TPMS system.”

“It’s important that every tire installer understand that custom tire and wheel packages must include TPMS sensors that will allow the system to operate following installation,” Rohlwing said. “In other words, if the system was working before the new tires and wheels were installed, it must be working after.”

  tire retailer, tire industry, wheel retailer, wheel industry
Falken Tire Corp. previewed its Azenis PT722 A/S at the 2011 SEMA Show. The premium ultra-high-performance touring tire is representative of a market that is seeing some growth despite price increases that have hampered the industry. Courtesy of Falken Tire Corp.
   
While following those provisions may further elevate service costs, Zielasko also pointed to elevated U.S. tariffs on imported Chinese-made passenger and light-truck tires as contributors to higher prices of entry-level tires. The tariffs currently stand at 29%, he said, so the reduction in Chinese products has been replaced with imports from other Asian countries, such as South Korea, Indonesia, Thailand and Taiwan. The tariffs are scheduled to return to the 4% level in September 2012, which may mitigate that part of the pricing conundrum.

Hank Feldman, president of retail dealership Performance Plus Tire, said that he has been in the business for four decades and has never before seen the nearly double-digit price increases that occurred twice in 2011. In addition, he has seen stories in the tire trade publications indicating that tire manufacturers will be offering rebates to consumers as a way to offset the price increases, though, that strategy doesn’t offer much help to the profit picture for the retail community.

“We’re also seeing mileage warranties on even some of the ultra-high-performance products,” he said. “Because they’re so confident of their products, virtually all of the suppliers are putting 500-mile trial rides on their tires.”

Bob Ulrich, editor of Modern Tire Dealer, said that there is a trend toward selling tires and wheels as a single package, especially over the Internet, and some enthusiasts who buy wheels without also considering the cost of the tires to go with them may experience severe sticker shock.

“There are no more ‘Four for $100’ promotions,” he said. “In fact, you’re lucky if you can get a ‘Four for $400’ deal. Low-end tires are even more expensive, comparatively. Part of the reason is the increase in raw material costs, of course, but domestic manufacturers have greatly reduced low-cost radial production, leaving that end of the market to overseas tire makers. The transportation costs and the tariffs on consumer imports from China add to the price.”

Tire Review’s Smith said that LRRs and touring tires for small SUVs and CUVs are the hottest categories currently. The quickly growing consumer acceptance of those smaller vehicles shows that American drivers want to balance the utility afforded by their old midsize and large SUVs with better fuel economy, and they see LRR tires as an important tool in the battle against rising gas prices.

In the off-road arena, tires are a mainstay for enthusiasts. 4-Wheel & Off-Road’s Williams pointed out that websites and forums allow buyers to share information about what they like or dislike from their tires.

“Though a huge portion of off-road purchases are based on aesthetics, performance cannot be ignored,” he said. “I’ve always felt that you could put big, aggressive tires on any vehicle, and it will look like a 4x4, but the diversity of the off-road market doesn’t have one standout direction in tires. Mud guys are going bigger and bigger. The crossing of rock crawling with desert racing has many rock wheelers looking for extreme traction while surviving high-speed racing to and from the trailhead. Overland or expedition enthusiasts are looking for high-mileage tires that can support added weight, and the daily-driven truck guys are interested in a 35- to 37-in. tire for fullsize trucks with leveling kits, but they still need E load ratings for towing.”

Of course, the Internet communities and research sources that Williams referred to are just as prevalent among other segments.

“The Internet has changed the whole world, and social media has become a big issue,” Feldman said. “I told my staff years ago that if you upset one customer, he would tell 10 of his friends. Now they’ll tell a million people on the Internet. But you can also make lemonade out of lemons. We want our customers to go to social media sites to talk positively about us, because we’ve always been very customer-service oriented. We believe that if they get the word out, it will drive more traffic to our stores. And it has. We’ve seen it.”

  tire retailer, tire industry, wheel retailer, wheel industry
Myles Kovacs licensed with drink maker Monster Energy to extend that company’s marking and branding to his TIS and Dropstars wheel companies as a way to innovate in a somewhat stagnant market. Courtesy of DUB Magazine
   
Feldman said that the continued proliferation in tire sizing has given dealers another obstacle to overcome. To cover the marketplace, a dealer has to offer many more sizes than it did only a few years ago, and that creates difficulties in inventory control.

“If you have to go good, better, best, it can be overwhelming,” he said. Fortunately, his very large operation in Southern California can count on a distribution network that provides twice-a-day delivery “I don’t know whether that exists in other markets around the country,” he said, “but we certainly enjoy it here.”

Retailers must also be highly attuned to the benefits of training, Rohlwing said, because lives are at stake when tires and wheels are installed or serviced.

“TIA is embarking on a 28-city training tour throughout 2012 to educate retailers on the proper procedures for servicing passenger and light-truck tires and wheels as well as TPMS,” he said. “Retailers can send a key employee to a four-day class at a local community or technical college to become a TIA Certified Instructor, which will give the dealership a qualified in-house ‘expert’ to train technicians and establish the procedures for every employee.”

Feldman said that the Internet also presents an opportunity to educate his
company’s technicians.

“We have a program in place where our guys are required to take a certain amount of online training and are rewarded if they exceed the requirements,” he said. “Most of the rubber companies have comprehensive e-training programs that we can access, and we provide a couple of laptops that our staff can check out if they want to train at home. We’re also expanding our automotive services.”

In fact, said Rohlwing, tire dealers that don’t perform vehicle repair and maintenance services are at a huge disadvantage.

“The most successful independent retailers count on tire sales for only a small percentage of overall sales,” he said. “The bulk of their revenue comes from repairing and maintaining vehicles. If dealers can make exceptional customer service part of their brand, they don’t always have to compete on price. Many consumers are willing to pay a little more if they believe they are receiving something extra that the chain stores cannot offer.”

At this stage of the economic recovery, offering something extra may make all the difference.

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