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Business Fleet – Market Trends

The Impact of Larger Diameter Tires on Fleets

February 28, 2013

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Replacement tires are the third-largest expense category for fleets, behind depreciation and fuel. Over the past seven years, fleet managers have witnessed multiple price increases from all the major tire OEMs. According to an annual maintenance survey conducted by GE Capital Fleet Services, the average replacement tire cost per month rose 15 percent, and, on a cost-per-mile basis, rose 10 percent in 2012 compared to 2011. There are a variety of factors influencing costs, such as commodity prices and increased global demand; however, the industry-wide retail trend to larger diameter OE tire sizes is a key factor in driving up replacement tire prices in the past decade.

The trend to larger diameter tires is occurring on many models in the compact, intermediate, and minivan segments. OEMs are constantly seeking to improve the handling characteristics, driving experience, and fuel efficiency offered by their vehicles. Tires have been a major contributor to attaining these goals.

One tire variable vehicle manufacturers utilize to tune the handling and performance characteristics desired in a vehicle is tire size. Often, this process leads to a totally new tire size that is not currently found in the market. This approach to vehicle engineering will likely continue in the future, as manufacturers strive to offer technologically advanced vehicles that, among other things, require larger tire specifications to achieve optimum performance. For example, in 2012, almost 60 percent of all tires were 17- to 18-inch wheel diameters. The costs of 17- and 18-inch tires are greater than the 15- and 16-inch tires that have been standard in the past. As a consequence, fleets have seen an increase in tire replacement costs due to larger tires becoming standard with many new vehicles.

Larger Tires Cost More

Larger OEM wheel sizes are a major factor in escalating fleet tire costs as many mid-size vehicles and minivans are now equipped with larger wheel diameters than in the past. The bottom line is that the larger the tire, the more material it takes to produce, which increases the cost of the replacement tires. Larger diameter tires can add $100-$200 in additional expense per set. From a vehicle selector standpoint, the costs for replacement tires can vary as much as 30 percent or more for different tire sizes on the same vehicle. Some vehicles have a standard and optional wheel size available, which fleets should check when developing selectors.

Currently, only five out of the top 10 replacement passenger tires are 16-inch diameters. Years ago, the top 20 tire sizes satisfied almost 80 percent of the market needs. Today, those same top 20 tire sizes would satisfy less than 50 percent of the market.

“According to the Tire & Rim Association, there were approximately 111 passenger car radial tire sizes in 1990 and that number grew to 328 in 2010. Of those, the majority of fitments 20 years ago were 13- to 15-inch wheel diameters, and in 2010 the typical tire sizes were 15- to 20-inch diameters,” said Eric Strom, product manager for GE Capital Fleet Services.

Another trend is the increased shift to lower profile tires, which are primarily geared to retail buyers, but are migrating onto some traditional fleet vehicles. Some manufacturers are engineering vehicles to have low-profile tires with large wheel diameter sizes up to 20 inches on some new models. This raises the cost for replacement tires due to the additional raw material costs.

“Another less reported factor driving up costs per unit is the trend toward placing tires with high speed-ratings on new vehicles — the higher the speed rating, the higher the cost of a replacement tire,” said Bob Ulrich, editor of Modern Tire Dealer magazine, a Bobit Business Media sister publication. According to the OEMs, this is done to improve handling, ride-control, and safety, but it also increases the per-unit cost. An H-speed rated tire is good for sustained speeds up to 130 mph. However, most companies would fire any driver who was caught driving this fast in a company-provided vehicle.

Shortage of Replacement Tires

Larger-sized tires cause other challenges, such as shortages of replacement tires due to unique tire sizes or load capabilities. Since fleet vehicles need tire replacements much sooner and more frequently than retail customers, fleets continue to experience increased costs and limited tire supplies for newer-model vehicles. This occurs because the manufacturing of replacement tires in those new sizes is limited; replacement tires don’t always become available as quickly as required by high-mileage fleets. As a result, demand outstrips supply and prices rise.

Over the past several years, an overall increase in optional and standard tire size, plus a greater variety of popular tire sizes, has led to stocking issues in some smaller tire store locations, which can result in increased cost, both in direct tire pricing and driver and vehicle downtime. The diversity of tire sizes impacts replacement tire supplies for one to two years, as other aftermarket tire companies may not immediately meet the demand for these tire sizes. This lag time limits replacement tire selection and availability.

While the trend toward larger tires is adding costs, fleets are finding ways to increase tire tread life with better attention to vehicle alignment, tire rotation, and making drivers aware of the importance of proper tire inflation, along with testing different tires to determine the best option for the fleet. In addition, the ongoing improvement in tire quality has resulted in longer tread life. Tire life has been extended by 10 percent during the past 10 years, helping to postpone the need for replacement tires.

Let me know what you think.

mike.antich@bobit.com

Comments

  1. 1. Donald Thomson [ March 01, 2013 @ 03:49PM ]

    Good article, Mike. I've tried to avoid anything larger than 16" rims on my fleet's light vehicles because of the higher replacement cost. The difficulties you cite in the rapidly-growing number of tire sizes' impact on tire availability hadn't got on my radar yet. It's not so bad for a scheduled replacement, but what happens when a tire is ruined and you need to get your truck back on the road today? For a fleet our size to inventory all the tire sizes has been difficult in the past, and we've relied on a tire contractor for most of our replacements. The situation you describe would indicate that a lot of local tire dealers will be more reliant on their wholesale distributors for day-to-day sales.

    I've wondered in recent years about the economics of the larger tires. An 18" tire has a significantly longer wear surface (circumference) than a 16" or 15" tire. Therefore, I'd expect it to wear for significantly more miles before it needs replacement than the smaller tire. The proof is in tire cost per mile. You've quantified that at a 10% increase ("According to an annual maintenance survey conducted by GE Capital Fleet Services, the average replacement tire cost per month rose 15 percent, and, on a cost-per-mile basis, rose 10 percent in 2012 compared to 2011.", my italics). That's the critical element for me. The higher circumference isn't going to buy me even a breakeven, much less an advantage, in my tire costs. As you state, the increase in cost isn't all due to larger tire sizes, but it's a factor. Thanks! --- Don Thomson CAFM, City of Salem, Oregon

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AUTHOR BIO

Mike Antich

Editor and Associate Publisher

Mike Antich has been covering the fleet management and vehicle remarketing markets for more than 20 years. During this period, Mike has written or edited more than 4,600 articles on the subjects of fleet management, manufacturer fleet activities, the fleet leasing industry, and vehicle remarketing. He was inducted in the Fleet Hall of Fame in 2010.

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