Frost & Sullivan Product Report: Tires and Wheels

Jan. 1, 2020
Despite the close relationship between the wheel and tire product categories, the nature and demand of the products are extremely different.

Despite the close relationship between the wheel and tire product categories, the nature and demand of the products are extremely different. Wheels in the North American automotive aftermarket are mostly accessory purchases to enhance the overall look of the vehicle, whereas tires are clearly a replacement product that are directly related to safety and performance.

Frost & Sullivan's 2008 vehicle modifiers research indicates that there has been a slight decrease among modification enthusiasts who choose wheel replacements in comparison to 2006. Moreover, Frost & Sullivan finds that the North American replacement tire aftermarket generated approximately $15.8 billion in revenues, while the 2007 wheels aftermarket generated less than $1 billion.

In 2007, market research indicates that performance tires generated $4.2 billion in manufacturer level revenues, roughly 26 percent of total passenger car tire revenues. Tires in this product category include HP and UHP tire units. It is expected that unit shipments in this product category will continue to increase, due mainly to the increased application of HP and UHP tires as stock OE on the vehicle.

Production costs are expected to increase again for the manufacturers in the tire and wheel categories because of the rise in fuel and metal prices. More than 90 percent of aftermarket wheels are produced in China or other low-cost offshore countries, and tires are expected to show a similar production trend in the foreseeable future.

Overall, there has been an increased presence of low-cost import tires, which now include the private label channel and major brands.

Performance tires exhibit a trend toward an increased presence of offshore manufacturers such as Kumho, Hankook, Toyo and Yokohama. These companies supply HP and UHP tires to the aftermarket at a competitive price, in comparison to other premium brands with minimum compromise in quality. Most of these tires are manufactured offshore and imported into North America to save on production costs. Research shows that these brands have R&D facilities in North America, Europe and Asia.

The demand for tires and wheels is influenced by various factors. While the U.S. economy showed signs of trouble in 2007, households have reported less disposable income, expected to negatively impact not only the performance tire and wheel aftermarkets, but also the overall vehicle accessories and performance modification aftermarket.

Furthermore, the rise in fuel prices, which seem to be increasing daily, has resulted in higher operating costs for the end user. The implications can be seen by the first decrease of annual average miles driven during the last five years. Higher fuel prices also indicate that drivers are expected to drive "softer" by ensuring low rpm to increase the vehicle fuel efficiency. Decreased annual average miles driven and softer driving are expected to delay tire wear, thus negatively impacting industry unit shipments.

Interestingly, tires and wheels behave similarly when it comes to marketing and popularity. Unit sales in both categories are heavily influenced by design and also have a high and low price variance. Low cost tires and wheels are generally offered in discount packages to the consumer. Frost & Sullivan's research indicates that brands such as Hankook Tire and Kumho are becoming popular among consumers because of their reliable quality offerings at relatively low price points. For performance products, the trend of "inch-up" is still very active with vehicle owners in the sub-compact sports vehicle category. Performance wheel manufacturers continue to develop and market lightweight performance wheels, and performance tire manufacturers are continuing to develop new tread designs to differentiate their products with increased performance. These efforts allow the manufacturers to successfully cater their products to the aftermarket at a premium pricing strategy.

When it comes to unit sales, more than 80 percent of tire sales were made through independent tire dealers and warehouse clubs. When choosing a service provider, consumer decisions are driven by convenience and variety of offerings. Service providers with easily accessible locations have the best opportunity to capture business.

For participants in the performance wheels and tires category, a slight decrease in overall revenues should be expected during the next two to three years, as the economic crunch in North America has resulted in a decrease of the average household disposable income.

To make matters worse, the rise in fuel prices has increased manufacturing costs, which continue to be passed along the distribution system. In a time of economic challenges, the key to remaining profitable is to evaluate internal processes for ways to decrease costs and keep a keen eye on the change in consumer demand. For distributors and dealers, it is important to not only track the changes in consumer demand, but also ensure that unnecessary costs are avoided with inventory costs and logistics. Mixing the product offerings and turning to low-cost import performance brands may also be a profitable option for dealers to consider.

Kyu-min Oh is a senior industry analyst with the Frost & Sullivan North American Automotive & Transportation Practice. He focuses on monitoring and analyzing emerging trends, technologies and market dynamics in the North American automotive aftermarket.

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