Whatever Happened to Cheap Tires?

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You have probably noticed it by now. You go to the grocery store, and your bill is way more than you had to budget for a few years back. You leave the store to fill up the car, and notice you have to drop almost $80-100 each time just to fill the tank. You get home and open the mail to find your electric bill is over $200. Prices are going up. Haven’t noticed it yet? Well, then try to go buy some new tires for your car.

The Situation

That’s right. Along with everything else going up in price in the last 10-12 years, tires have followed the trend. According to the U.S. Bureau of Labor Statistics(6), the average price of a tire has climbed from $97.10 in January 2000 to $134.91 in September 2012. That might seem pretty modest. But remember, you’ve got to buy four of those things! Taking that into account, the average consumer is likely to spend over $150 more for a new set of tires than they did a few years back. Why has the price of commercial truck and consumer vehicle tires continued to rise over the years? In a quick lay-person analysis, it can be summed up by three main factors: Tariffs, Trees and Trade.

Tariffs

One of the biggest exporters of cheap, entry-level tires is China. During the darker days of the recent U.S. Economic recession, the Obama administration slapped heavy tariffs on all tire imports from China in an attempt to protect American-based manufacturing jobs. Tariffs, if you didn’t know, are basically taxes that the folks in China have to pay to the U.S. Government to bring their tires into America to sell. According to an article by Tire Review(1) the tariffs started as steep as 35% in September of 2009, and dropped 5% each year until they were supposed to be ended this September. Think of it; that’s $35 extra for every $100 of tire coming in from China! In order for the company in China making the tire to make a profit, and the American-based store selling the tire to make a profit, they are forced to raise the price. Who gets that extra $35? Not you, but the government. Where does that extra $35 come from? It comes out of the potential savings you, the consumer, could have had with a cheaper tire.

Trees

An amazing fact about tire production is that a good portion of the rubber used for tire production comes from simple rubber trees grown in Thailand, Indonesia and Malaysia. According to Wikipedia(2), 72% of all rubber in the world comes from these three countries alone. Unrest in these countries can impact rubber prices worldwide (remember the riots and violence in Thailand in recent years?). Flooding, typhoons and heavy rains can also affect production, as it relies on actual people walking out to the trees to ‘tap’ them daily for rubbery latex sap. You wouldn’t want to walk out there in a typhoon. Neither do they.

Nature and politics can affect the delicate process of harvesting rubber for tires in these countries. But another aspect of the process can affect the ability of rubber growers to respond rapidly to increased demands for their product. Rubber relies on natural processes for production via the growth of trees. These trees take up to seven years from planting to even begin production.

So, say you have a dramatic increase in demand for rubber worldwide, such as China beginning to churn out an army of cars for their own domestic use in the last 5-7 years. All of these cars need tires, which need rubber, which need trees, which take seven years to grow before they produce latex… The reality is that a sharp rise in demand for rubber worldwide cannot be matched with a quick increase in rubber production, and herein lies a major factor in rising tire prices.

What about synthetic rubbers you say? Can we still be so reliant on tree rubber for our consumer tires, truck tires and tractor tires in this modern age? Synthetic rubbers are generally produced from by-products of oil. Remember how much it cost to fill up your gas tank in the example above? Relying on synthetics when crude oil is $88.62 a barrel in 2012 compared to $25.40 a barrel in 2002(3) will not help towards cheaper tires.

Trade

The world only has a few countries with limited land and trees providing rubber for a rapidly growing tire market across the world. The unavoidable result is competition on the world markets for the limited rubber supply as demand rises, driving up the prices of raw materials for everyone. These fluctuations can be dramatic and sudden. According to an analysis paper by Brett W. Fawley and Luciana Juvenal of the Regional Economist(4), during 2010 the price of rubber increased by 114 percent. The culprit?

“The run-up in the price was largely attributed to bad weather, low stocks and growing demand from China’s automobile industry,” Fawley said.

Consider this for the situation today. The cost of a pound of raw rubber in October 2002 was only $0.37 cents. Today in 2012? Try $1.45 a pound(5). That is almost a 300% increase in 10 years! This rise due to market competition, limited supply and regional weather issues inevitably translates over to a narrower profit margin for American tire companies and a need to continue to raise prices for the consumer.

What Can We Do To Find Cheap Tires?

So what can I do to find cheaper tires, whether they are car tires, truck tire, or tractor tires, you ask? While you can’t go out and grow your own rubber trees, you can do a few things.

First, you can shop around for seasonal or ongoing tire sales and special deals. You can find these for consumer tires or even discount truck tires with some specialty dealers. Sometimes a tire dealer may have too many of a certain tire in stock and need to make room for the newer models, thus motivating them to have a discount tire sale. By being patient and shopping around online and in local stores, you can often find a great deal.

Second, you can limit your tire purchases to online tire sales from web-based stores. These are real tire dealers that usually work with a large national supplier, but sell to you direct from the warehouse without a storefront to fund and manage. Without the cost of having to maintain a traditional brick-and-mortar store, they save money, and you do too!

Third, you can consider buying used consumer tires, used discount tractor tires, or used discount truck tires. While that might sound odd, it is an increasingly popular market for people strapped for cash but needing better tires than what they currently have. Quality of course varies in wear and tear, but sometimes you can find a great deal. Let’s say someone buys a new car but wants a different kind of tire on them. The “old” tires that have only a few miles on them come off and go to the used tire dealer, as good as new but only a fraction of the cost to buy! If you are diligent in searching around, used tires can be a great money saver.

As the cost of everything continues to climb, consumers need to be creative to save money on groceries, gas and, of course, tires. If you have other tips for saving money with tires, please contact the author of this article and your suggestions might be included in future articles.

1. “Tire Tariffs And Other Ways to Kill Retail Tire Sales” July 18, 2012. Jim Smith, Tire Review Magazine. tirereview.com/Article/102759/tire_tariffs_and_other_ways_to_kill_retail_tire_sales.aspx

2. “Natural Rubber” November 9th, 2012. Wikipedia. en.wikipedia.org/wiki/Natural_rubber
Chart Data of WTI Crude Oil Prices from ycharts.com. November 14th, 2012. 
ycharts.com/indicators/crude_oil_spot_price

3. Chart Data of Rubber, No. 3 Smoked Sheet (RSS3) from indexmundi.com. November 9th, 2012.
indexmundi.com/commodities/?commodity=rubber&months=120

4. “Commodity Price Gains: Speculation vs. Fundamentals” July 2011, The Regional Economist, Brett W. Fawley and Luciana Juvenal. stlouisfed.org/publications/re/articles/?id=2122

5. U.S. Bureau Of Labor Statistics. Series ID: CUSR0000SETC01 Item: Tires Period: 2000-2012 data.bls.gov/pdq/SurveyOutputServlet

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Source by Dan Sem