 |
Posted on 08/09/2006 8:54:06 AM PDT by Incorrigible
|
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.
If cheap labor is the enemy of automation, it's also the enemy of quality.
Very good point.
Cute little, cuddly puppies, too.
I like your tagline. It's becoming a common theme with a lot of guys I know.
Reducing/eliminating taxes would not make up the $19+ / hour difference between US and Chinese pay. It would help, but not enough.
Don't know. Intellectual analysis by mantra seems to be in vogue.
Treasury bonds pay interest in dollars. It would be the lender who has the problem of convertibility not the US. Total non-problem.
Wheat, corn, soybeans, beef, pork, chicken?
Foreign investors in China have no such flexibility in their business decisions, so their currency has no real underlying value to it (if you have any doubt about this, just ask anyone who has done business in China how much value they place on Chinese currency). What this means is that China's currency only has any value in the sense that it has a defined relationship to another currency (i.e., the U.S. dollar). If you are a Chinese tycoon and you want to buy thoroughbreds from a Saudi prince, he sure as hell isn't going to accept a bazillion yuan for it unless he knows for sure that a bazillion yuan exchanges directly to some fraction of a bazillion U.S. dollars.
In linking its currency to the U.S. dollar, what China has done is institutionalize itself as a cheap manufacturing center for U.S. consumers. In other words, they have voluntarily done what no American in his right mind would ever do -- permanently establish himself and succeeding generations of his family as a low-paid laborer who manufactures things he'll never be able to afford.
Just think about that for a moment. China has basically established itself as our permanent source of slave labor.
Damn there goes my plan to get myself a Trigger.
Oh, well at least my city mansion will become more valuable. Of course I will have to bring in a front-end loader to get the books out.
It's important to understand the distinction between "price" and "cost." The price of something represents the amount of money you must pay to buy it. The cost of something is the value of it when you compare it to alternative uses of the capital and labor used to produce it.
U.S. agricultural products are "cheap" because U.S. farmers are heavily subsidized. When you factor in the cost of a $150 billion Federal farm bill, your loaf of bread costs a heck of a lot more than the $1.99 you pay at the supermarket.
Great Britain's economy collapsed because of WWI not its Free Trade policie. In fact, it was under Free Trade that it came to dominate the world economy. Adam Smith showed the means by which Free Trade INCREASES the Wealth of Nations. You should read it sometime.
Pretty sad what passes for being a serious student these days.
From: The Truth about History and Trade - Bruce Bartlett.
"The period from 1886 to 1914 witnessed a great change in English policy. It is the period of abandonment of laissez-faire in colonization, commerce, industry and agriculture. Great Britain began to modify her cosmopolitan ideas of free trade and laissez-faire, and to concentrate on developing trade within the British Empire."
"The abandonment of free trade during World War I coincided with the beginning of Great Britain’s economic decline. Freedom to trade had been the strongest pillar of Britain’s general free-market policy. When that pillar fell, the doorway opened to socialist measures of all kinds. British history in the 20th century is essentially one of almost continually expanding government control of the economy, and an equal decline in Great Britain’s power and influence in world affairs."
This all sounds eerily similar to the policy you're suggesting the US needs to adopt. No doubt this would lead to the same result. I'm certain your reply will include the protectionist revision of history by William Hawkins.
Folks might remember it from the soundtrack of The Cable Guy.
Where did you come up with the idea that a debt owner can dictate how that debt is serviced? If the owner does not want dollars it is just too damn bad for him.
Not if the new debt that the government generates in the future can't be sold in Treasury Bonds for that very reason. Hence, this reveals the long-term Achilles heel of the heedles borrowing and spending strategy.
Total non-problem.
We'll see, won't we?
"The abandonment of free trade during World War I coincided with the beginning of Great Britain’s economic decline. Freedom to trade had been the strongest pillar of Britain’s general free-market policy. When that pillar fell, the doorway opened to socialist measures of all kinds. British history in the 20th century is essentially one of almost continually expanding government control of the economy, and an equal decline in Great Britain’s power and influence in world affairs."
The evidence is definitive that the decline wasn't caused by abandonment of free trade policies...but had already happened while the British were fully under the sway of free trade zealots who infested the bureaucracy...and when the evidence came that the UK's industrial infrastructure was being seriously wounded by predator nations, they did start shifting gears at the turn of the century...but they didn't fully implement an industrial restoration policy until they were already in the midst of WW-I. And it was seriously compromised by the dependancies that the zealots had blithely promoted as "strengths." The decline was caused by predators isolating industries as targets of opportunity, and then denying Great Britain its broad mass markets. Great Britain lost its economies of scale previously enjoyed. At this point, they were already a "Dead Industrial Empire Walking." The belated, and fitful modest implementations of protections were "too little, too late."
Sorry Paul, you aren't getting off this one so easily. It is curtains for your side. The evidence is in. You lose. If you were an honest debater you would rethink your whole position vis-a-vis trade.
The chart was REAL wages i.e. wages after inflation is factored OUT. NOMINAL wages increased even more.
Another economic concept you need to understand is the difference between real and nominal.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.