Everything seems more expensive these days — from gas to groceries, and even tires for your car.
The effects of COVID are still being felt across the global supply chain and the automotive industry is no exception. One area of concern for retailers, manufacturers, and consumers is the increased costs and reduced supply of vehicle tires. Incremental price increases followed one after another from early 2020 and continued for various reasons through to 2024 with some experts predicting a flattening for lower tier tires but a continued rise for premium brands (Modern Tire Dealer, February 2024). Downstream of this unfortunate reality lies F&I providers whose Tire and Wheel contracts have also been impacted. The rising cost of tires has caused ripple effects throughout the industry and ultimately lands with the end consumer.
Why Have Tire Costs Been on the Rise?
The rising costs of tires can be partly attributed to materials shortages and labor reductions stemming from global COVID lockdowns. Between 2020 and 2021, manufacturers saw an 80% increase in rubber costs, which trickled down through the auto industry. Compounding issues include, but are not limited to, the following:
· The cost of rubber is high in rubber-producing countries (i.e., Thailand, Vietnam,
Indonesia, and Malaysia)
· Decreased rubber production worldwide due to labor shortages
· Migrant workers were locked out of rubber-producing countries and unable to work
· Availability and cost of Carbon Black (impacts being felt from the war in Ukraine)
· Delay in getting supply to U.S. markets (due to Global Shipping, Logistics, etc.)
· Overall Inflation in the U.S. economy (not limited to tire costs)
· Increased demand for EV tires (we’ll touch more on this further in the article)
The Effects of Electric Vehicles on Tire Costs
Electric vehicles are notoriously hard on tires and the need to replace tires is much higher than typical gas-powered vehicles. This is primarily due to the weight of electric vehicles as well as their increased torque. According to AlixPartners, EVs wear out tires about 20% faster than ICEVs, and the tires cost about 50% more. This increased volume has placed an additional strain on the industry, especially as supply has been hamstrung. This unforeseen scenario can leave EV and gas-powered consumers out to dry when it comes time to purchase new tires.
Consumers are Bearing the Brunt of Retail Expenses
At the end of the day, all the supply chain disruption and rising costs in the market fall to the consumer. Consumers are paying more than ever before for new tires and tire service (installation, repair, etc.).
According to a 2023 ProPublica article, “The average price of tires has risen 21.4% over the past two years, more than 70% higher than core inflation. A tire that previously cost $100 might now cost $120; one that was $250 might be $300. That’s not counting labor, and people often have to buy more than one tire.” These increases alone are staggering but the cost of tires is not the end of the story.
Additional Impacts to Consider
· The supply issues have led to a reduced selection and inventory of many popular tire
brands
· Many dealers and service shops are charging more for tire installation
· Safety risks have emerged including an increased number of consumers driving longer
on worn-out/ unsafe tires
· Some consumers have chosen to delay regular vehicle service to avoid the cost of tire
and other component replacement
· Many consumers have resorted to high-interest loans and credit cards to pay for new
tires
The Impact on F&I Sales and Costs
F&I providers who offer Tire and Wheel protection essentially step into the shoes of the consumer when it comes to a tire claim. The same higher costs that the consumer battles become the provider’s battle. However, unlike the tire manufacturers and retailers that can increase prices to accommodate rising supply costs, F&I providers service pre-existing contracts with fixed fees. As a result, organizations that provide Tire & Wheel programs deal with smaller margins in relation to tire price increases.
Looking Forward
No one knows the extent of the economic woes that drive our economy’s inflation. And with the continued disruption to global shipping and logistics, increased costs for consumer goods could be the new normal for some time. If this is the case, tire costs may continue in their inflated state for the foreseeable future. As a result, the value of Tire and Wheel repair and replacement programs will rise. Allowing consumers to mitigate tire costs with commonsense coverage can help allay fears and unexpected expenses.
AutoXcel’s Perspective
AutoXcel is here to assist with industry-leading Tire and Wheel programs that can help protect consumers. While consumers might be reluctant to purchase F&I programs to manage monthly payments, Tire and Wheel packages really should be a consumer priority. Dealers play an important role in educating potential Tire and Wheel program buyers on the cost-benefit that works to their advantage.
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