How Global Auto Production Affected Tire Sales Volume

Goodyear is an American manufacturer of tires for cars, trucks and other vehicles. Although Goodyear tires are a little more expensive than most tire brands, vehicle owners choose them because of the above-average tread warranties. However, weak volumes, commodity costs and competition have put a stop to its growth.

In recent years, drop in global auto production has resulted to a fall in tire sales volumes. In the United States, auto production fell from 12.2 million vehicles in 2016 to under 11 million in 2018. Globally, the production if new cars have declined by 4% in 2018 alone. However, sales of replacement tires which are up by 3% this year have offset the losses.

At least 75% of Goodyear European and American tire sales are replacement tires that generally have higher margins making it a source of profitability. Meanwhile, in Asia, the story is different. Tire sales in the region particularly China and India are an even split between the sales of new auto tires and replacement tires with both suffering from a decline in 2018.

Since 2017, commodity prices have been a problem in the industry. Since tires are made from natural and synthetic rubber with the synthetic variety made from petroleum, an increase in the price of oil will affect the manufacturing costs of tires. About one-half of the raw materials used in Goodyear tires are made from synthetic rubber. When the price of oil increased to a 2-year high in October, it accounted for two-thirds of Goodyear’s raw material expenses for 2018.

After the peak, oil prices gradually receded so that Goodyear’s 2019 forecasted expenses went down from $300 million to $275 million. Additionally, Goodyear announced a 5% price hike for consumer replacement tires. Lower expenses and higher selling price could increase Goodyear’s profit margins which have declined over the last 3 years.

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