[Tyre] cost of ownership

As we transition into spring, many think of new-born lambs and flowering bulbs as symbols of the new life of the year ahead. However, for accountants and many others working in the finance side of things, the beginning of April marks the end of the tax year. Along with the end of the tax year come a reasonably regular slew of motorist spending analyses. Two such surveys caught Tyres & Accessories’ eye because they offer insights into what the tyre-related “cost of ownership” is in practical terms.

Discussing “cost of ownership” is particularly apt at the moment as carmakers and tyremakers alike try to foresee what model of ownership the car driving public will have subscribed to in the decades to come – take a look at the emphasis of several of the leading tyremakers at this year’s Geneva Motor Show for particularly high-profile examples of this (see Company News section for detailed coverage from Geneva). And, as the whole industry discusses whether car ownership will even remain the way it presently is in future “sharing economy”, it is worth reflecting on the status quo.

The most recent figures suggest the average British motorist will clock up 556,764 miles and spend a grand total of £168,880 on everything associated with their car during their driving lifetime. Of the £168,880 spent, motorists will put around £40,000 into MOTs, servicing and repairs – at least that’s what a survey conducted by car hire firm autoeurope.co.uk and published in mid-March said. Breaking the numbers down a little further, servicing cost £28,444 over a lifetime. Based on a 64.5-year driving “life”, this means £441 a year. Meanwhile, MOT and repair costs represented £10,865 of the £40,000 lifetime figure, which works out as £168.46 a year.

While autoeurope.co.uk was putting out its calculations, well-known credit card firm American Express was busy crunching its own numbers.  Amex stacked the numbers up a little differently and came to some quite different conclusions. They suggested that MOT spending worked out at £222 per motorist per year for example. What Amex reported that autoeurope.co.uk didn’t was that drivers spend something like £142 a year specifically on tyres. The fact that they have split the tyre figure out from the MOT figure suggests that we would need to put the two numbers back together to compare with autoeurope’s £441. Added up like this £364 a year for tyres and MOT is broadly comparable (especially if you add in other non-tyre service and repair costs).

A more expensive average tyre

With this in mind, it is fair to assume that £142 a year is a fairly reasonable estimate for annual tyre spending – all of which makes this number worthy of some further consideration. During the decade or so I have been in the tyre industry, one metric has remained relatively stable – that, very broadly on average, motorists replace one tyre a year per car. To look at it another way, drivers change a pair every other year. Of course, sometimes it’s a full set and other times it’s a repair, but we all get the picture. If the age-old one tyre a year change rate remains true, it means motorists – or at least the drivers that AMEX surveyed – are willing to spend a fair amount on tyres. Of course, £142 a year equates to £284 every two years. And £284 every two years (albeit for two or more tyres) suggests consumers are paying premium segment prices for their products.

A couple of years back, an online pricing survey we reported suggested that an average tyre bought online cost in the region of £70. Said average rubber was ostensibly mid-range and in the middle of the size/demand stakes. Therefore, thinking again a few years later, it appears that increased rim diameters and the increased take-up of SUVs and CUVs (not to mention inflation) means consumers are – and this is the crucial bit – actually paying more money for their tyres. It also supports suggestions that there has been a so-called resegmentisation trend in the last couple of years as drivers have traded up from budget and mid-range products they bought in the depths of the recession to more expensive – and hopefully higher quality – tyres.

Now that these two surveys have brought the suggestion that motorists are spending more on tyres out in the open, it would be fascinating to hear from the trade and third party market analysts-alike in order to learn whether or not observation are consistent with other data sources. However, one thing is clear: if consumers have become more comfortable spending more on tyres, this bodes well for those selling products at the quality end of the market.