Tariffs, demand push up tire prices

DETROIT -- Tire prices are inflating.

Tariffs on imports, lower supplies and higher demand from drivers buying winter tires are combining to jack up costs.

Goodyear, the biggest U.S. tiremaker, just raised prices. Other manufacturers will likely follow to offset U.S. tariffs on Chinese-made tires and the rising cost of raw materials such as rubber and oil. KeyBanc analyst Saul Ludwig sees prices up 5 to 10 percent by January, the start of a year when Americans are expected buy about 210 million replacement tires, according to the Rubber Manufacturers Association.

President Obama recently slapped a 35 percent tariff on tires after a U.S. union claimed an influx of Chinese imports has cost more than 5,000 U.S. tire workers their jobs since 2004. Those replacement tires account for around 17 percent of the U.S. market, up from 5 percent five years ago.

Lumped together under the tariff are tires made in China by major producers -- including Michelin and Perelli -- and tires made by Chinese manufacturers and sold in the U.S. under brand names such as Ling Long and Wanli.

But Chinese-made tires aren't the only ones getting more expensive.

Goodyear Tire & Rubber Co. will raise the price on all consumer replacement tires sold in North America by 6 percent starting Dec. 1. The Akron, Ohio-based manufacturer cited raw material costs. Goodyear imports about 2 percent of its tires from China, so the increase also could offset tariffs.

A 6 percent increase would bring the cost of a set of 16-inch Goodyear Ultra Grip snow tires to $432.48, according to online retailer Tire Rack.

Cooper Tire and Rubber Co., based in Findlay, Ohio, has raised prices across its lineup to recoup the cost of Chinese tariffs. Ludwig expects Cooper to raise prices 5 to 10 percent higher in the first quarter because of raw materials costs. A set of Cooper's 16-inch Lifeliner GLS tires, the company's moderately priced line, is now around $350.

While all tires meet U.S. safety standards, there can be major differences in quality.

Jennifer Stockburger, a tire test engineer for Consumer Reports, says six of the top 10 all-season tires recently tested by the magazine were made in China by major manufacturers. But the magazine doesn't even test tires imported by small Chinese makers, who have had a mixed safety record. In 2007, for example, 255,000 tires made by Hangzhou Zhongce Rubber Co. were recalled because they didn't have a safety feature that prevents tread separation.

Still, Stockburger says tires don't have to be expensive to be good. And tires from Chinese makers can cost significantly less, from a quarter to half the cost of tires from a major brand.

Under the government's new tariff, which went into effect in September, a set of Chinese tires that would have cost $280 now cost nearly $100 more.

Matt Edmonds, vice president of the online retailer Tire Rack, says the tariff punishes buyers who want cheaper tires. "It's going to impact those who really can afford it the least."

Edmonds says inventories are falling as some manufacturers delay shipments to move production out of China. That, combined with high demand, is one more factor pumping up prices.

Tire dealers are also seeing pent-up demand from buyers who put off purchases last year and can't wait any longer to get replacements before winter. PriceGrabber.com, a shopping site, reported tire sales were up 43 percent over last October.

Even with the recent buying surge, U.S. sales of replacement tires are expected to drop about 6 percent in 2009 because of the tough economy, according to the Rubber Manufacturers Association.

But the group expects replacement tire sales to jump about 3 percent next year as the economy improves and more drivers look to replace tires on old cars rather than buying new cars. The average tire can last about 40,000 miles, says Stockburger of Consumer Reports.