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Heck it's a lot less than that already. Even the Shale Oil might be producible for $10 to $20 a barrel...versus the current foreign market price of $75/bbl
Posted on 08/09/2006 8:54:06 AM PDT by Incorrigible
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China's Prices Undercut U.S. Tire Makers, Causing Plant ClosingsBY THOMAS W. GERDEL |
[Massillon, OH] -- Rapidly rising imports of tires, especially from China, are increasing pressure on American tire makers to close more plants and cut domestic production.
Passenger-tire imports, which have been steadily increasing every year this decade, topped the 100 million mark in 2005, with Chinese imports up 47 percent from 2004. And while imports have climbed 38 percent since 2000, U.S. tire output has been steadily decreasing year by year.
The trend is expected to continue, given the low cost of tires made in China and tire-making costs in the United States, said Saul Ludwig, an analyst at KeyBanc Capital Markets in Cleveland.
"Imported tires, particularly from China, are much lower cost than imports from any place else," Ludwig said.
Passenger tires imported from China last year had an average cost of $25.23, while a passenger tire from Canada cost $38.67, a tire from South Korea $37.58 and one from Japan $48.29.
Ludwig said that nearly all these imports are going to the replacement tire market, with very few sold to domestic automakers for equipping new cars.
This import trend hovers over contract negotiations between the United Steelworkers union and major domestic tire makers including Goodyear Tire & Rubber Co., Bridgestone-Firestone and B.F. Goodrich, which is part of Michelin of France. Companies want to cut costs, while the union seeks to preserve wages and benefits, and prevent further erosion of production and jobs.
Passenger tire production in the United States has fallen from 223 million tires in 2000 to 176 million in 2005, a drop of 21 percent, Ludwig said. The union is facing another round of plant shutdowns, due partly to the rising imports and a sluggish tire market.
While tire import levels held steady for the first six months of 2006, industry sales of passenger and light-truck tires fell about 7 percent. Industry observers said consumers are postponing replacing tires as they struggle to pay higher gasoline prices.
At the same time, Goodyear and other tire manufacturers have been raising prices to cover the soaring costs of oil and other raw materials.
The 7 percent drop is highly unusual for the North American replacement market. Robert Keegan, chairman and chief executive officer of Goodyear Tire & Rubber Co., said the market has been down by 3 percent or more only in four of the last 50 years. Keegan said consumers are buying fewer tires per store visit and driving fewer miles per vehicle. He also said technicians are noticing less tread depth remaining on tires being removed from cars.
Announced or potential closings include:
Continental Tire will halt production indefinitely at its plant in Charlotte, N.C., ending jobs for most of the 1,000 union workers there. The German company also said it was shutting down the remaining operations at its tire plant in Mayfield, Ky. -- a factory that once employed 2,400.
In June, B.F. Goodrich said it would cut output 30 percent to 40 percent at its Opelika, Ala., plant, which has the capacity to make 8 million tires a year.
Bridgestone-Firestone has said it will close its Oklahoma City tire plant by the end of this year. It said the plant, which employs about 1,200 hourly workers, is not competitive in the global marketplace and is suffering from substantial losses.
The industry is bracing for another potential shutdown as Goodyear follows up on its recently announced plans to reduce its private-label tire business in North America by a third, or by about 8 million tires annually.
Ludwig said he would not be surprised to see additional closings, "one for sure, maybe two," as the production cuts are made.
Private-label tires -- which are made in major tire plants such as Goodyear's but sold under a different name -- appeal to price-oriented consumers, and sellers are using low-cost imports to offer greater value to consumers than if they bought domestically produced tires.
In addition, Cooper Tire & Rubber Co. has shifted manufacture of medium truck tires from its Albany, Ga., plant to China. Cooper, which is the fourth-largest tire producer in North America, soon will start up a plant in China that will be owned by Cooper and Kenda Rubber Industrial Co. of Taiwan. The plant is expected to eventually produce 10 million to 12 million tires a year, all for export to other countries for the first five years it operates.
To keep jobs in this country, the United Steelworkers union is pinning its hopes on the growing consumer demand for larger and more specialty-type tires -- the higher-margin kind used in SUVs and other high-performance vehicles, as well as tires built from specialty materials for added safety, a more comfortable ride, increased vehicle stability, fuel economy and other features that help persuade consumers to pay more money.
"We don't want them to take this high-value work out of the country," said Wayne Ranick, a spokesman for the United Steelworkers.
The union is urging the tire companies to spend more on automated equipment for faster changeover of production, so plants can more efficiently produce a wider range of sizes and premium-priced tires.
When the old United Rubber Workers merged with the United Steelworkers of America a decade ago, the union had more than 98,000 rubber workers, but now it has less than a third of that number -- about 30,000 -- who work in tire and rubber plants in the United States.
With tire factory wages in the United States around $22 an hour, versus 73 cents an hour in China, KeyBanc Capital Markets' Ludwig does not see much chance that the rapid growth of tire imports from China will end soon.
The gap could be narrowed eventually if the pace of industrialization in China forces wages up there or if China raises the value of its currency. In the meantime, imports will continue to be a major challenge for domestic tire plants.
"The gap has to be closed," Ludwig said, "whether their costs go up or our costs go down."
Aug. 8, 2006(Thomas W. Gerdel is a reporter for The Plain Dealer of Cleveland. He can be contacted at tgerdel@plaind.com.)
Not for commercial use. For educational and discussion purposes only.
Umm . . . that was before he learned that our tariff-rate on imported tires ranges from 3.4 to 30 percent.
I am a "reformed" free-trader that believes China needs to float it's currency, enact certain minimum human rights regarding child/slave labor (to level the playing field) and stop threatening Taiwan.
Until then, tariff the sh** out of them and stop the flow of funds to their military.
You miss a very important point in your lengthy (and informative, too) post. Under what circumstances would oil cost $300 per barrel, and how would that relate to the information you posted?
I contend that oil is far more likely to cost $300 per barrel if all of it is produced here in the U.S. than if we import 100% of it from foreign sources. Just think about that for a second, and ask yourself why importing large quantities of oil is such a bad thing for us.
Dollar drops in value. (Demand for dollars falls).
We have huge quantities of untapped resources from Alaska to the OCS, and the Shale Oil deposits in the Western Slope of the Rockies. Are you saying that our oil companies if allowed to fully exploit those resources would suddenly feel free to charge more per barrel for new discoveries over and beyond the prices of their current domestic production?
I think it more likely as our production as against our demand shrinks, we lose bargaining leverage in the global market, particularly as against coercive players in that market, such as OPEC, and China etc. If we could ramp up production that would lower their ability to dictate terms, and hence a lower equilibrium price would result.
No, they wouldn't. My point is that nobody is going to produce oil in the U.S. for $25 per barrel -- mainly because the cost of doing business in the U.S. makes it impractical to do that. If 100% of the oil we used came from domestic sources, the price of oil is far more likely to be $300 per barrel than $25 per barrel -- just as the cost of anything is substantially higher if it is produced here in the U.S. than overseas.
Quite true. And that is why this policy...which is promoted by any number of folks on your side as the "free trade solution" to balance things, btw, is simply disaster. In effect, by doing so, it will be price inflation of all tangibles, with a collapse of wages: "Let's diminish the U.S., the value of all wages in it, then we can be competitive again." This is the "solution". Some solution.
And there is no guarantee that it will even succeed as against the Chi-Comms...who can simply react by doing whatever they need to keep things pegged...as they do today.
Heck it's a lot less than that already. Even the Shale Oil might be producible for $10 to $20 a barrel...versus the current foreign market price of $75/bbl
Well, then the Americans will have to return to public transportation like trains, tramways, buses, subways etc as they used to have in the past.
And to give up Mac Mansions and sprawled suburbs. Can be done. Horses in rural areas will not hurt either :)
I don't know what you mean by "my side."
And there is no guarantee that it will even succeed as against the Chi-Comms...who can simply react by doing whatever they need to keep things pegged...as they do today.
Having the yuan pegged to the dollar won't be such a smart idea under a scenario in which the value of the dollar collapses. Sure, China would still maintain a "competitive edge" agains the U.S. for those few economic elements that they have in abundance (i.e., labor). But the Chinese economy would collapse because the cost they'll have to pay for all those things they don't have in abundance (which is just about everything else) would spiral out of control.
It hasn't so far. They will just, at worst, stay "even" on those things vis-a-vis U.S. manufacturers.
Labor arbitrage ping.
Then maybe you can explain why, over a 24 year period from 1980-1993, our GDP, manufacturing output and employment increased at the highest rate when the current account deficit was also increasing.
Right. But they'll become increasingly less competitive in every other export market in the world. And if the U.S. dollar collapses, we will become a much smaller market than we are now.
The national dissavings represented in all that, which is Bernenke and Greenspan's own recognition of the situation...will hit the wall when we run out of national assets to mortgage.
No. They will be even more competitive if they lower their wages to stay below us.
And if the U.S. dollar collapses, we will become a much smaller market than we are now.
Yes. That clearly doesn't worry them in the slightest. In fact, they are likely counting on it. And then they could also just reverse roles. Jack the price of the yuan up, and then be the Hyper Power, playing "dollar diplomacy" with the economy we gave them. And abetting Communist interests. Meanwhile, the U.S. winds up being a sad, deluded, basket-case debtor nation, with no chance to recover back as against China, which will keep its 5-to-1 trade imbalance barriers [ Shields to Maximum, Mr. Sulu! ] trying scrape up any foreign exchange to repay the massive debts owed to...China etc.
Let me preface my remarks by saying my dad just hit 35 years at a former Kelly-Springfield plant, and Goodyear paid for my undergraduate education (directly and indirectly).
First off, unions are killing the tire business. There was a strike in 1997. Instead of ~3500 daily workers, my dad's plant dropped to ~500 non-union and salary workers. By the end of the strike, the plant was at 20% normal productivity, and was curing rubber at 100% of the normal rate.
Another factor is the cost of oil. Petroleum products make up 75% of a tire. If the price of oil doubles, the cost of raw materials will nearly double.
Finally, the plants are getting old. In some cases, the companies are expending the capital equipment to upgrade facilities, but in other cases they've decided it's just not worth the hassle.
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