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Where Did Cheap Tires Go?

Where Did Cheap Tires Go?

With a New Year in 2013 comes new opportunities. Go ahead, balance out that budget, clear your credit card debt and start living frugally to prepare for the tough times to come as our country teeters over the on-again, off-again fiscal cliff as prices continue to climb on every product imaginable. At least the tires are still good on your car, right? Oh wait, the one's you bought in '06 for dirt cheap have no tread left? Then be prepared for some sticker shock.

The Situation

That's right. Along with everything else going up in price in the last 10-12 years, tires have followed the trend. According to the U.S. Bureau of Labor Statistics, the average price of a tire has climbed from $97.10 in January 2000 to $134.36 in November 2012. That might not seem too bad. But remember, you've got to buy four of those things! Taking that into account, the average consumer is likely to spend over $150 more for a new set of tires than they did a few years back. Ouch!

Why has the price of consumer vehicle tires continued to rise over the years? In a quick lay-person analysis, it can be summed up by two main factors: Trees and Trade.

Trees

Did you know that a large portion of the rubber used for tire production comes from simple rubber trees grown in Thailand, Indonesia and Malaysia? According to Wikipedia, 72% of all rubber in the world comes from these three countries alone.

Civil unrest such as riots, coups, and other events in these countries can impact rubber prices worldwide. Flooding, typhoons and heavy rains also affect production, as growing rubber trees relies on actual people walking out to the trees to 'tap' them daily for rubbery latex sap. You wouldn't want to walk out there in a typhoon, would you? Neither do they!

While nature and politics certainly affects the human aspect of harvesting rubber for tires in these countries, the nature of the tree itself brings its own set of issues. Rubber relies on natural processes for production via the growth of trees. These trees take up to seven years from planting to even begin production. Think of that! It's not just a matter of hiring on more workers to adjust for a sudden increase in rubber demand, but a long wait of seven years from the day you dig that hole for a seedling to the day you can tap it to sell the rubber in the international market.

So, say you have a dramatic increase in demand for rubber worldwide, which is evident with China beginning to churn out an army of cars for their own domestic use in the last 5-7 years. These cars need tires, which need rubber, which need trees, which take seven years to grow before they produce latex... The reality is a production manager's nightmare! The fact of it is that a sharp rise in demand for rubber worldwide cannot be matched with a quick increase in rubber production, and herein lies a major factor in rising tire prices.

But what about synthetic rubbers you say? Can we still be so reliant on tree rubber for our consumer tires, truck tires and tractor tires in this modern age? Well, where do synthetic rubbers come from? They are generally produced from by-products of oil. Remember how much it cost to fill up your gas tank in the example above? Relying on synthetics when crude oil is $88.62 a barrel in 2012 compared to $25.40 a barrel in 20024 will not necessarily contribute towards cheaper tires.

Trade

As big as the world is, there are only so many countries with limited land and trees providing rubber for a rapidly growing tire market across the world. The unavoidable result is competition on the world markets for the limited rubber supply as demand rises, driving up the prices of raw materials for every tire manufacturer.

These fluctuations can be dramatic and sudden. According to an analysis paper by Brett W. Fawley and Luciana Juvenal of the Regional Economist ("Commodity Price Gains: Speculation vs. Fundamentals" July 2011, The Regional Economist, Brett W. Fawley and Luciana Juvenal. http://www.stlouisfed.org/publications/re/articles/?id=2122), during 2010 the price of rubber increased by 114 percent. The culprit?

"The run-up in the price was largely attributed to bad weather, low stocks and growing demand from China's automobile industry," Fawley said.

That is quite a change in only a few short years. The cost of a pound of raw rubber in October 2002 was only $0.37 cents. Today in 2012? Try $1.45 a pound2. That is almost a 300% increase in 10 years! This rise due to market competition, limited supply and regional weather issues inevitably translates over to a narrower profit margin for American tire companies and a need to continue to raise prices for the consumer.

Now What?

So what can I do to find cheaper tires, whether they are car tires, truck tires, or tractor tires, you ask? While you can't go out and grow your own rubber trees, you can do a few things.

First, go look for for seasonal or ongoing tire sales and special deals. You can find these for consumer tires with some specialty dealers. Sometimes a tire dealer may have too many of a certain tire in stock and need to make room for the newer models, thus motivating them to have a discount tire sale. By being patient and shopping around online and in local stores, you can often find a great deal.

Second, you can limit your tire purchases to online tire sales from web-based stores. These are real tire dealers that usually work with a large national supplier, but sell to you direct from the warehouse without a storefront to fund and manage. Without the cost of having to maintain a traditional brick-and-mortar store, they save money, and you do too!

Third, you can consider buying used consumer tires. While that might sound odd, it is an increasingly popular market for people strapped for cash but needing better tires than what they currently have. Quality of course varies in wear and tear, but sometimes you can find a great deal. Let's say someone buys a new car but wants a different kind of tire on them. The "old" tires that have only a few miles on them come off and go to the used tire dealer, as good as new but only a fraction of the cost to buy! If you are actively searching around, used tires can be a great money saver. Some places even let you "rent" a brand-new or slightly used tire for a period of time and then bring it back!

Prices are going up, and the fiscal cliff is ever near. Understanding why prices are the way they are is one thing, doing something about it is another. Hopefully this short post has helped you think of ways to save on tires. If you have other tips for saving money with tires, please contact the author of this article and your suggestions might be included in future articles.


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