Big Tires More Profitable

[SubLGT]

http://www.tirebusiness.com/article/2017...ear-investments

Quote:
...Sweetening the pot for tire manufacturers is the fact that these tires are more profitable than their smaller counterparts. Goodyear's projections for the industry's average gross margin per rim size is $9 for tires smaller than 17 inches and $25 for tires 17 inches and larger.

Here's one big reason why: Its 15-inch tire averages $50 a pop, while a 19-inch tire brings in more than $100 and a 20-inch tire tops $200….

And 17 inches just happens to be where the rubber meets the road — at least for now. The demand for tires with rims 17 inches or greater is growing at 18 percent a year, he said, compared with 3-percent overall growth in consumer tires...

Auto makers are making the switch to larger rim sizes largely because consumers like how they look, according to tire industry veteran Nat Leonard, president of Smithers Rapra and Smithers Pira, which provides tire and materials testing services and market data reports….


Only $9 average profit for a tire manufacturer on a 16" tire? I am surprised. I am also a little surprised that the author of the article uses the word "rims" instead of "wheels".

 

[bdcardinal]

That sounds about right. There isn't a lot of profit in tires and people don't seem to understand that.

 

[IndyIan]

I'm pretty surprised that there's much difference at all for production cost for different size tires. $75 cost of production for 19" and $41 for 15" sounds like a lot of difference to me.

 

[Rand]

tire molds and amount of materials used..
also the fact they are averaging.

a 44" mud bogger with a 15" wheel wont have too much production cost difference vs a 44" mud bogger with a 17" wheel.

on the flip side
14" 185/65r14 could be a $5 a tire profit vs a 225/35r18 with a $25 per tire profit.

 

[javacontour]

Originally Posted By: IndyIan
I'm pretty surprised that there's much difference at all for production cost for different size tires. $75 cost of production for 19" and $41 for 15" sounds like a lot of difference to me.


It likely costs more to make a low profile 19" tire than a similar higher profile 15" tire.

The 19" is likely speed rated. Many 15" tires don't carry the same speed rating.

So the 19" low profile, higher speed rated tire has likely has more to it than a 15" 70 aspect ratio tire for a 1990's family sedan.

Not to mention, the molds and engineering were probably paid for years ago relative to the likely newer 19" tire.

 

[Wolf359]

Yeah, the whole bigger tire thing is driven by consumers who don't really know better. Super annoying, especially when you get a bent rim and flat tires all the time from a low profile OEM setup.

 

[javacontour]

Toyota salesman did me a favor, unknowingly.

We were comparing RAV4 to Highlander. He put us in a Highlander with lower profile tires, etc, thinking oilBabe would like the bling.

She didn't like the ride, thought the RAV4 rode better.

The RAV4 had 17" wheels, the Highlander 19" or 20" IIRC.

He probably saved me 10-15K

We went with the RAV4 XLE because it comes with the smaller 17" wheels and tires and doesn't have leather.

 

[Kestas]

I too don't see the extra manufacturing costs for a low profile tire. Shouldn't competition among the tire manufacturers bring the prices in line? One can only gouge the public for so long.

Originally Posted By: javacontour
It likely costs more to make a low profile 19" tire than a similar higher profile 15" tire.

The 19" is likely speed rated. Many 15" tires don't carry the same speed rating.

So the 19" low profile, higher speed rated tire has likely has more to it than a 15" 70 aspect ratio tire for a 1990's family sedan.

Not to mention, the molds and engineering were probably paid for years ago relative to the likely newer 19" tire.

I imagine the increased speed rating on a low profile tire may come from its architecture (shorter sidewall) than any extra quality in the production process.

I also imagine the older tire molds don't last as long as you think. Many of the older tires are not available as they come out with new designs. New molds go along with it, no matter what size the tires are.

 

[Ethan1]

Originally Posted By: SubLGT
I am also a little surprised that the author of the article uses the word "rims" instead of "wheels".

You have to remember that the majority of the public does not know the difference between "tires" and "wheels". However, if you say "rims", people are likely to envision a wheel. MTV has succeeded in educating our youth

 

[Chris142]

I dont believe that profit margin for a second! I can walk into pep boys and pay $145 for a tire. But if I buy it through my commercial account its $85.

 

[4WD]

Supply and demand - not as many 20's on a Yaris ... volume produced per "set up" factors in as well in a world that wants 3 dozen choices of vanilla ...

 

[bepperb]

Originally Posted By: Chris142
I dont believe that profit margin for a second! I can walk into pep boys and pay $145 for a tire. But if I buy it through my commercial account its $85.


But that's the margin for the retailer, and that might be quite good. The margin in the article is for the manufacturer. There should be a margin for a distributor in there somewhere, too.

 

[Linctex]

Originally Posted By: SubLGT


And 17 inches just happens to be where the rubber meets the road — at least for now. The demand for tires with rims 17 inches or greater is growing at 18 percent a year, he said, compared with 3-percent overall growth in consumer tires...


The 17's on my F-150 are a VERY common size. I can buy very nice condition used tires for cheap.
"17's are the new 15's"

Good used 15" tires are near impossible to find.

 

[Mr Nice]

Originally Posted By: Wolf359
Yeah, the whole bigger tire thing is driven by consumers who don't really know better. Super annoying, especially when you get a bent rim and flat tires all the time from a low profile OEM setup.


I saw on TV the other day the 19" wheels on the Accord Sport are being stolen at a very high rate. One lady had her OEM Honda Accord Sport wheels stolen twice.

Sure they look nice but why have such big wheels on such a low performance vehicle?

 

[javacontour]

Originally Posted By: Kestas
I too don't see the extra manufacturing costs for a low profile tire. Shouldn't competition among the tire manufacturers bring the prices in line? One can only gouge the public for so long.

I imagine the increased speed rating on a low profile tire may come from its architecture (shorter sidewall) than any extra quality in the production process.

I also imagine the older tire molds don't last as long as you think. Many of the older tires are not available as they come out with new designs. New molds go along with it, no matter what size the tires are.


Maybe Capriracer will chime in...

 

[spk2000]

Anyone know how much an OEM factory pays for tires? I was shocked when I heard the number vs what I have to pay for the same tire. There is some huge markup somewhere and someone is making a lot of money.

 

[xxch4osxx]

Originally Posted By: spk2000
Anyone know how much an OEM factory pays for tires? I was shocked when I heard the number vs what I have to pay for the same tire. There is some huge markup somewhere and someone is making a lot of money.
Don't forget they are also likely buying tens of thousands of tires at a time. The more you buy at a time, the better the discount per tire.

 

[Quattro Pete]

Originally Posted By: Mr Nice
Sure they look nice but why have such big wheels on such a low performance vehicle?

You just stated it yourself: it's for the looks.

 

[javacontour]

Originally Posted By: Quattro Pete
Originally Posted By: Mr Nice
Sure they look nice but why have such big wheels on such a low performance vehicle?

You just stated it yourself: it's for the looks.


It's like makeup for a car.

It's far easier to put a little lipstick on the car than actually improve its performance

 

[CapriRacer]

Originally Posted By: javacontour
Originally Posted By: Kestas
I too don't see the extra manufacturing costs for a low profile tire. Shouldn't competition among the tire manufacturers bring the prices in line? One can only gouge the public for so long.

I imagine the increased speed rating on a low profile tire may come from its architecture (shorter sidewall) than any extra quality in the production process.

I also imagine the older tire molds don't last as long as you think. Many of the older tires are not available as they come out with new designs. New molds go along with it, no matter what size the tires are.


Maybe Capriracer will chime in...


The law of supply and demand works pretty much even down to individual tire sizes. The more demand for a particular size, the more costly it becomes.

It is a fallacy to think that the cost of manufacture is what drives the cost of the product (or service). That only serves as a lower limit. Every well run business will charge as much as it possibly can.



Originally Posted By: spk2000
Anyone know how much an OEM factory pays for tires? I was shocked when I heard the number vs what I have to pay for the same tire. There is some huge markup somewhere and someone is making a lot of money.


First, what individual buys 200,000 (or up to a million) of the same tire, delivered on an even and regular basis, in full truck loads, to the same place, for a year, with no warranty, directly from the manufacturer (meaning distributor nor retailer). Do that and you too can get that price.

BTW, this applies to cars, shoes, food, whatever product or service you can think of. Retail is an expensive proposition for a manufacturer or service provider.