NEW YORK (AP) -- Shares of both major U.S. tire makers tumbled Friday on worries about what will ultimately happen to tire pricing and demand after a tariff on tires made in China expires next week.
Brett Hoselton cut his ratings for Goodyear Tire & Rubber Co. and Cooper Tire & Rubber Co. to "Hold" from "Buy," noting that the upcoming expiration of tariffs has resulted in a great deal of uncertainty surrounding future tire pricing and demand, which will likely keep the stocks from rising much any time soon.
Hoselton said that after the tariff expires on Wednesday, some tire makers will cut the prices of the cheaper tires they make in China in hopes of picking up market share, while others will leave them unchanged, effectively raising prices and increasing the profit they make off of each tire.
The analyst said he thinks Cooper can reduce the prices of its lower-end tires by 10 percent to 15 percent without hurting its profits, just because it won't be paying $40 million in tariffs each year. But that could result in it also having to cut the prices of its more expensive models in order to keep the price gap between its low- and high-end products from getting too big.
Meanwhile, Goodyear may have to slash its prices in order to compete with Europe's Michelin, which has already cut prices and is expected to do so again once the tariff expires, he said.
In addition, Hoselton said that tire prices are already falling slightly more than he previously expected they would, and it appears that raw material prices have reached their bottom and could start rising again. Both of those factors will ultimately reduce tire maker profitability, he said.
At the same time, both the stocks of both companies have risen significantly in recent months, making them less attractive as investments, he said.
In morning trading, Goodyear shares fell 61 cents, or 4.6 percent, to $12.77 while Cooper dropped $2.04, or 9.3 percent, to $19.95.