Tiremakers raising U.S. wholesale prices (UPDATE: Adds closing stock prices in final paragraph.)
biz.yahoo.com
By Karen Padley
CHICAGO, June 28 (Reuters) - U.S. tire prices are headed higher next week for the second time this year, with even beleaguered Firestone joining in.
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Most manufacturers will charge 2 percent to 5 percent more for consumer tires beginning July 1 due to higher raw material and energy prices. Bridgestone Corp.'s Firestone unit also is boosting its prices for commercial truck and bus tires by 3 percent to 4 percent.
Analysts said tiremakers are still playing ``catch up,'' despite increasing prices by 2 percent to 7 percent early this year. Prices for petroleum-based products, which make up 25 percent of a tire's cost, and other raw materials rose sharply in 2000 and the first quarter of this year.
``Goodyear (NYSE:GT - news), Cooper (NYSE:CTB - news), Continental , Michelin have all experienced declining profitability because of the cost squeeze over the last year and a half,'' said Saul Ludwig, an analyst with McDonald Investments. ``They need to get back to at least respectable profits.''
GOODYEAR FIRST TO BOOST PRICES
Goodyear, the largest U.S. tiremaker, kicked off the latest round on June 15 by adding 4 percent to the price of its car and light-truck consumer tires. Most other tiremakers will follow next week.
Continental AG's Continental Tire North America Inc. will increase prices by as much as 5 percent, Cooper Tire & Rubber Co. will implement a 2 percent to 5 percent increase and No. 3 Firestone will add up as much as 4 percent. Similar increases also are planned by Yokohama Tire Corp., Kumho Tire USA and Pirelli Tire North America Inc.
Michelin North America, the second-largest U.S. consumer tire producer, will be the last to jump on the bandwagon. It will raise prices by as much as 5 percent on Aug. 1.
It's unclear what impact the recall of Firestone Wilderness Tires, first by Firestone and more recently by Ford Motor Co. (NYSE:F - news), have had on price increases. Goodyear, the first to notify dealers in the latest round, did so before Ford announced its recall of 13 million Firestone Wilderness tires.
The recalls, however, have shifted some of Firestone's market share to other tire manufacturers as a result. Firestone said consumer sales of its flagship brand for car and light truck tires have fallen 50 percent in the first half of this year.
``As long as they're gaining market share, they're feeling pretty bold about raising prices,'' said Rod Lache, an analyst with Deutsche Banc Alex. Brown.
He also noted the tire industry, which hasn't always been able to make its price increases stick, has consolidated in the past decade.
``There's a structural change taking place in the industry, which has been suffering from acute overcapacity in a very commodity-like market,'' Lache said.
The industry's capacity will shrink even more with Firestone's announcement Wednesday that it plans to close its Decatur, Illinois, plant by year-end. The plant, Firestone's oldest, accounted for about 10 percent of the company's total capacity.
BOTTOM LINE IMPACT
Analysts expect the price increases eventually to help the tiremakers' bottom line. The companies make more money on consumer replacement tires than they do on tires shipped to the auto and truckmakers.
``The real opportunity is if these companies are able to implement some price increases and gain some market share in the replacement market,'' Lache said. "That's going to be very meaningful to the bottom line.
It could take some time until the impact is felt, though. McDonald's Ludwig said the increases may not show up on invoices until midway through the third quarter. As a result, the results of higher wholesale prices may not be seen until the fourth quarter, he said.
Consumers also might not feel the full impact of the price increase right away. While Firestone operates some of its own retail stores, the other manufacturers go through independent tire dealers. In the past, many of those independent dealers haven't passed along the entire wholesale price increase.
``Even as prices are going up, the discounting still goes on by the dealers,'' said Raye Hazan, a senior consultant with Find/SVP, a market research firm. ``Consumers are willing to pay more but I think the dealers are going to feel it out.''
Goodyear shares rose 66 cents to $28.51, Cooper Tire gained 3 cents to $13.79 and Ford rose 54 cents to $24.81 on the New York Stock Exchange. In overseas markets, Bridgestone shares gained 0.8 percent, Michelin shares rose 2.13 percent and Continental shares increased 2.25 percent. |
