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Key departmental publications, e.g. annual reports, budget papers and program guidelines are available in our online archive.

Much of the material listed on these archived web pages has been superseded, or served a particular purpose at a particular time. It may contain references to activities or policies that have no current application. Many archived documents may link to web pages that have moved or no longer exist, or may refer to other documents that are no longer available.

A National Approach to Waste Tyres

Commonwealth Department of Environment, 2001

4 Market Considerations

Market considerations come into play with regard to the management of waste tyres at two points: at the point of sale (or purchase) of the tyre and at the point of disposal.

4.1 Purchase of tyres

4.1.1 General considerations

Decisions on the purchase of tyres are relevant for a discussion on the management of waste tyres in regard to the operating life of tyres and the choice of retreads.

The operation of reasonably free markets is driven by consumer behaviour as is observed in the choices made relating to, in this instance, the purchase of tyres. Consumer choices are determined by a combination of product characteristics and the characteristics of the acquisition process (such as convenience).

Tyres are a necessary part of operating a motor vehicle. Within the broad function of providing contact with the road surface, individual tyre models deliver a bundle of characteristics in terms of driving safety and performance under different driving conditions, noise levels, comfort and tyre life. Since it is not possible in general to improve one of these bundled characteristics except at the expense of one or more of the others, the consumer's choice must be based on a trade-off which reflects the relative importance attached to each characteristic by the consumer. Superimposed on this trade-off in the purchase decision is the all-important factor of price. High priced tyres can be expected to be of superior quality either by having say roadholding performance above most of the competing brands, or where the trade-offs occur at a higher level in terms, for example, of treadwear and roadholding performance.

Of course, reaching an appropriate balance in the bundle of tyre characteristics in the purchase decision presupposes a certain level of knowledge on the part of the consumer. The perception of the authors is that little emphasis is placed on tyre life in the marketing of tyres, and very little useful or objective information is provided to consumers. Tyre brochures may describe certain tyres as ‘long life’ without providing any indication for the basis of this claim.

If tyre manufacturers and dealers find little value in emphasising tyre life in their promotional material, it can be assumed that this is because there is little overt demand for this information on the part of the general buying public. To an extent this may reflect a perception on the part of many tyre buyers that reliable advice and information on tyre life is not available.

In regard to buying tyres, owners of private passenger vehicles are relatively uninformed. Tyres represent a relatively small proportion of total vehicle operating costs (of the order of 4% for passenger vehicles). At the time of purchase of tyres, with an outlay of over $300 for a set of tyres fitted to the ‘family’ car, it would seem that for many vehicle owners the overriding consideration is to minimise costs of purchase, not the cost of the tyre over its operational life.

However, there are exceptions. For some vehicle owners, performance is an overriding consideration. Other vehicle owners will have some degree of brand loyalty and replace worn tyres with the same brand and model of tyre. Taxi, rental and other fleet owners are more likely to enter ongoing arrangements with tyre retailers (or even wholesalers) and tyre life can be expected to be a major consideration in such arrangements. It is worthwhile for fleet owners to spend resources on researching the relationship between tyre performance and price, and detailed records on past experience can be a valuable guide to inform tyre purchase decisions.

Finally, there is a perception in the case of many vehicle owners (based generally on little or no objective information) that retreads and, perhaps to a lesser extent, low price tyres offer poor value for money. This perception is based on a combination of safety considerations and low expected tyre life.

The quality of retreads has improved over time and all retreads fitted to vehicles must now meet the Australian Standard AS 1973-1993. The Standard expressly requires the name of the retreader to be placed on the retreaded tyre. Nevertheless, in practice purchasers of retreads face considerable uncertainty in regard to the purchase of a specific retread in view of the variability in retread quality. As a result, the market for passenger retreads is derived mainly from two segments of the vehicle owning population: those who can afford only retreads, and ‘knowledgeable’ consumers (such as fleet owners) who are in a position to evaluate product quality.

Section 4.1.2 below reviews indicative prices for new tyres and retreads both for heavy trucks (including buses) and for passenger vehicles.

Uniform Tire Quality Grading System (UTQGS)

The Uniform Tire Quality Grading System (UTQGS) is a tyre information system operated by the US Department of Transport designed to help buyers make relative comparisons among tyres. The UTQGS is not a safety rating and is not a guarantee that a tyre will last for a prescribed distance or perform in a certain way. It simply gives tyre buyers additional information to combine with other considerations, such as price, brand loyalty and dealer recommendations. Under UTQGS, tyres are graded by the manufacturers in three areas: treadwear, traction and temperature resistance.

The UTQGS information is located in two places on the tyre:

The treadwear grade is a comparative rating based on the wear rate of the tyre when tested under carefully controlled conditions. For example, a tyre graded 200 should have its useful tread last twice as long as a tyre graded 100. However, real world tyre tread life, in kilometres, depends on the actual conditions of their use. Tyre life is affected by variations in driving habits, service practices such as tyre rotation, wheel alignment and maintaining proper inflation pressure, as well as differences in road characteristics and climate.

Advice from the tyre manufacturers suggests that treadwear indicators are of less use in Australia where driving conditions vary much more than in the US and other OECD countries. Notwithstanding the validity of the claim in regard to driving conditions, for the majority of vehicles in Australia the greater part of kilometres driven are on urban streets or good quality highways. Some tyres imported into Australia exhibit the UTQGS ratings if they are also sold in the US.

4.1.2 Retail prices and decisions

Truck tyres

High quality tyres for heavy trucks and buses retail for around $550 to $600 per tyre. Prices for cheaper versions start in the range $350 to $400. A retread on a casing supplied by the customer costs $200 to $250. The price for a good quality casing is currently $50 to $70, which is a substantial reduction from recent prices which were in the range $120 to $130. Clearly, at the previous price levels, retreads would be uncompetitive with new tyres at the low end of the price range.

Advice from industry is that there is little difference in the expected life of new truck tyres at different prices. The life of the tread is approximately 150,000 to 200,000 km for tyres fitted to the drive wheels, and perhaps double this figure for tyres on the trailer wheels.

However, low quality tyres are not so suitable for retreading. The life of the casing for high quality tyres is of the order of 600,000 to 700,000 km. Clearly, unless the vehicle owner derives some value from the fact that the casing can be retreaded, there is little incentive to purchase the more expensive tyres. The relatively high value of casings reflects the high proportion of truck tyres that are retreaded; many truck tyres are retreaded multiple times.

Passenger tyres

The cost of tyres accounts for 3% to 4% of the total cost of operating a passenger vehicle.

Prices for casings for passenger tyres vary substantially depending on the demand for a particular tyre size from time to time and within different regions. Generally, prices are in the range $5 to $10 for a good casing. A retread for a standard passenger vehicle costs between $40 and $50. In general the margin between the prices of retreads and new tyres at the low end of the scale is of the order of $10. Prices for new tyres for family cars start at $55 to $70.

Tax effects

The retread industry has been adversely affected by the goods and services tax (GST). Prior to the introduction of the GST, new tyres attracted sales tax of 22% on the wholesale price while retreads were tax-free. GST is payable now on both retreads and new tyres. The result has been that the tax payable on new tyres has dropped while the tax payable on retreads has risen by 10%.

Of course, in a competitive situation where substitution is possible between new tyres and retreads, manufacturers/importers and new tyre outlets may have chosen not to pass on to the customer through lower prices the full reduction in tax payable. Nor may all retreaders have passed on the full impact of GST in the price of retreads. But certainly, the end result has been increased pressure on the margins for retreaders.

On the other hand, in the period of time since the GST was introduced, the Australian dollar has depreciated sharply in value against the US dollar and some other currencies. This would tend to raise the prices of imported tyres from these countries, making retreads comparatively more attractive. Once again, importers may choose not to raise their prices by the full amount due to the change in relative value of the currencies, and there may be lags while stocks already in Australia are exhausted.

4.2 Charges associated with waste tyres

The overwhelming impression from discussions with industry representatives and others is that most parts of the waste tyre industry are very competitive and that profit margins are slim. The level at which landfill gate charges are set can play a critical role in providing appropriate incentives for different options in the management of waste tyres.

Operators in the waste tyre industry cannot be expected to make decisions that promote optimal community outcomes if they are not faced with paying landfill gate fees which reflect the real costs of the provision of the service. The costs, in the case of landfill, include the direct financial costs of operation, as well as the costs of environmental damage and loss of local amenity, and a component for the value of the landfill space consumed by the waste tyres.

Landfill gate fees that are set too low provide the wrong signals to promote non-disposal options for waste tyres. As the landfill gate fee rises, the effective cost of waste tyres to recyclers is reduced (as waste tyre generators switch to avoid the higher landfill fees) and this improves the economies of the recycling operation (for example, the price of the finished product can be reduced). Unfortunately, higher landfill disposal charges also encourage inappropriate practices such as illegal dumping, and this may need to be addressed by increased regulatory effort, which in turn carries a cost.

In recent years, landfill gate fees in the more closely settled areas have risen to more closely cover operating costs. Payment for the external costs of landfill disposal can be covered through a waste levy (such as exists in SA and the urbanised areas of NSW).

Table 4.1 Summary of landfill gate fees - passenger tyresa


($/tonne) ($/tyre)
Shredded Whole Shredded Whole
ACT $33 $110

NSW $62 $160b
$0-$3.50
NT $28 $40 $0.25 $0.36
Queensland

$1.50-$3.00 $2.00
SA $28-$32 n/a $1.10-$7.70c n/a
Tasmania $77/10m3


Victoria

$0.50
WA $25-$150 $50 per tonne
more than for
shredded tyres


Note:

(a) Blank cells indicate no information
(b) Charges are for Sydney metropolitan area (SMA) but will increase from 1 July 2001. Whole tyres may not be disposed to landfill in the SMA or extended regulated area (ERA). Whole tyres must be shredded or have their tyre walls removed prior to disposal.
(c) $1.10 for passenger tyres, $7.70 for truck tyres

It is useful, though not straightforward to compare the landfill gate fees for the disposal of tyres with the amount charged by collectors. In some areas the charge (in cases where the tyres are disposed legally) approximates the landfill gate fee plus a component to cover the costs of collection and transport, as well as profit for the operator. Estimates of the amount charged to the waste generator in the case of illegal disposal are about half this level. The issue is confounded when casings for retreads are managed as an integral part of the collection function; that is, the collector retains the not insignificant value of the casings which offsets, to some extent at least, the cost of managing the remainder of the waste tyres.

In the scheme operated by Queensland Cement, collection charges in the north of Queensland are of the order of $2.50 per tyre. This charge can be supported since local councils have agreed to increase their landfill gate fee for waste tyres to this level or above. In the more densely settled areas in South East Queensland, where there is significant competition for the collection of waste tyres, charges are reported to be considerably lower at approximately $1.80 per tyre, which is within the range reported in other parts of Australia.