China's Prices Undercut U.S. Tire Makers, Causing Plant Closings

Newhouse News ^ | 8/8/2006 | Thomas W. Gerdel

[Incorrigible]

Derrick Yannayon, assistant lab manager at Standards Testing Laboratories, sets up a tire for the bead unseat test. The lab, headquartered in Massillon, Ohio, tests tires to see if they meet federal standards. (Photo by Gus Chan)

China's Prices Undercut U.S. Tire Makers, Causing Plant Closings BY 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.

[Mase]

Fortunately, those with much better math skills than mine already answered your question. Here's another source who looked at real wage and job growth for the same time period.

NAFTA and Job Losses

But real hourly wages have risen since 1994 (1994-2004) for all workers. For all workers, hourly wages rose 38.4% while the Consumer Price Index (CPI) just rose 27.1%, hence the real gain.

Looks like real wages increased 11.3% during that time period which seems to track pretty close to your figures. Follow the links to the BLS charts on wages for all workers.

The only argument guys like Edwards (Shadow Government Statistics) can use to make their case is to claim that the fedgov is lying about the real rate of inflation. It may sell books to the economically challenged but it exposes him as nothing more than a charlatan. If the fedgov was lying about the CPI, the markets would have it quickly figured out and rates would have to increase.

[nopardons]

Your figures look right, but since I'm NOT "treading water", I can only assume that something is wrong with those who claim that they are. *shrugs*

[nopardons]

You know what?

CCPing novella sized posts, to forward your agenda, does only two things; they prove that you know how to CCP and bore everyone but you, to death. Most of us don't even read them. Obviously, you can't write anything worthwhile, all by yourself, so you go off and look for ANYTHING that sort of, sometimes, kinda looks as though it "proves" your position. Sometimes you've been called on the fact that they don't and then you do a Ralph Kramdenesque "homminah hommmmmmmmminah...."

[nopardons]

And don't forget that Wikipedia allows just about ANYTHING to be posted there, whether it is true/factual or not. Anyone can add ANYTHING to that site.

[nopardons]

LOL

[nopardons]

BRAVO, in spades !

[nopardons]

LOL, LOL, LOL

As a fellow bookaholic, I am probably the ONLY one here who can understand and appreciate that part of your post. :-)

[Paul Ross]

So, you are now calling Alexander Hamilton a communist. And only James Madison a conservative? You have some nerve. And Jefferson and Madison came around when they had their noses rubbed in the disastrous results of their benign neglect policies by war. Hence, belatedly they also supported Hamilton's policies promoting self-sufficiency. But only after the War of 1812.

As for your tirade on Infant Industries protection, and the ubiquitous failures of government, keep in mind, that for all their inefficiencies and screw-ups...it actually worked for England and the U.S.. Today for the U.S. its employment would be a last resort to counter foreign manipulations, particularly with China, and likely unnecessary if we practiced the true American System again. I like the idea of a general revenue tariff, ala' Hamilton as well...combined with a Thatcherite approach to shifting our tax revenue away from punitive anti-capital approaches [ Income Tax, Capital Gains tax, etc. ] and emphasizing taxes on consumption.

The turn-around causes a lot of initial pain...but the general evidence is that it is worth the change. It cures a lot of the socialist ills that the Big Government Psuedo Libertarians have afflicted us with. And don't deny that your whole series of polemics are a defense of the status quo. Don't tell us that you are trying to defend "our liberty" when you afflict us with the IRS. And don't tell us you aren't. You make it unavoidable, as a political reality.

Only Thatcher and Hamilton provide a way out from under the oppressive socialist edifice you are defending in effect. Not Von Mises or Cato foundation.

As for your views on Thatcher and Reagan, I think you misunderstand the brand of free trade they espoused. They espoused real free trade. Not Phoney Free trade which is what you palm off. That means state intervention to counter foreign state intervention. Bilateral reciprocity in other words...this is what they practiced.

And it is interesting that you condemn Ha Joon Chang. I would gladly condemn him too. I would go further, I suspect he is who the Chi-Comms listen to.

But rejecting him out of hand for his politics is unwise due to one little thing. He has pointed to inarguable facts. The facts are stubborn things. They confound you. And you can't deal with them, can you? All you can do is try and mount insane ad hominem attacks. That's all you and Todd do. You have been defeated by facts. Your own citations corroborated Chang's time-line. H'mmmm. Maybe your sources are "socialist" liars too, eh? Any ways, you should know that it is almost impossible to find an economist who does not engage in ivory tower analysis. Even Milton Friedman is guilty. Social welfare (small W) analysis is ubiquitous. It is a standard exercise. And it is one of the tests of the value of policies.

And as for Hawkins, it appears he was accurate...and you are being misleading. You can't argue the facts, despite this belated attempt to be relevant, where you undoubtedly THOUGHT you had pulled your contradictory ass out of the fire of the facts:

<.I>Britain adopted the doctrine of free trade in seriousness when they repealed the corn laws in 1846

Untrue. The KarlMarx-endorsed corn laws had nothing to do with manufactures. And hence this was not as serious an "adoption" of free trade as you assert.

and the Navigation Acts in 1849.

Again not really true, albeit that is when those were ended. Let's take a look at that claim. First, you need to also recognize that the actual economic ascendancy of Britain is generally accepted ot have originated from those acts. Not their subsequent ending...some more history from the much-maligned Wikipedia disputes your claims thereto:

Many scholars, including Adam Smith, have viewed the Navigation Acts as a very beneficial example of state intervention. The introduction of the legislation allowed Britain's shipping industry to develop in isolation and become the best in the world. The increase in merchant shipping also led to a rapid increase in the size and quality of the British Navy, which led to Britain becoming a global superpower.

Hence, generally-accepted economic understanding attributes British national economic ascendancy to those policies...unless you now dispute Adam Smith. Somehow, I expect you will. And the success which followed, when the Navigation Acts were repealed, were in fact made possible only through other British restrainsts on trade which guaranteed their advantage...the virtual monopoly on shipping, as noted here in Wikipedia again:

The Navigation Acts were repealed in 1849 by which point Britain's utter domination of world shipping allowed them to pursue a more laissez-faire philosophy.[citation needed]

But oh, no! You claim that almost anything can be written in Wikipedia! T'sk. T'sk. Disprove it.

Bartlett equates the height of free trade in Britain with the signing of Anglo-French Commercial Treaty in 1860. Bartlett and Kennedy are absolutely correct in ther assessment.

Sounds like you are misconstruing the actual quotes. They said Britain's comparative economic power was at its zenith.

I understand why big government protectionists would want to revise the facts that so clearly condemn protectionism.

Sounds suspiciously like what a Big Government type, trying to duck and cover would say. Interesting how you so cavalierly attack mainline Reaganites. Yet you have the gall to accuse me as follows:

What do you know about reality? Your sources are consistently lefty and big government.

Hawkins sure isn't. Adam Smith isn't. Alexander Hamilton isn't. Jefferson and Madison who came to agree with the need for self-sufficiency weren't. And neither am I. Guess we know more about reality than you do. I'm comfortable with making that contention.

You have a lot of nerve coming here and lecturing others about what constitutes real conservatism.

Because we have truth on our side. You don't.

[Paul Ross]

BRAVO, in spades !

LOL! Too bad he can't get his history right. And his ad hominems bite him in his own ass.

[Paul Ross]

You can't make this stuff up!!

Wow. You are clincially insane. You go with a stupid caption, and then fail to look at the data which is evinced in their chart which debunks their own caption! LOL! As you say, "You can't make this stuff up!!"

SO, when you claim this:

He uses a chart that shows there is no relationship between trade deficits and exchange rates, as proof that trade deficits weaken the dollar.

Apparently you can't read a chart:

What's the last four years showing in that chart Todd? The Trade imbalance is dramatically increasing. And the dollar is declining.

But all the author and you would like to dwell on are the three and four years of intervening from '98 to 2001/2 currency behaviour from when the trade balance took an especially serious dive... The "gap" which your author and you likely argue "no relationship" does nothing of the kind. It can be accounted for by a number of factors, not the least of which market interferences by various governments for their own purposes. Can you say CHINA? Thought so. You can't. So you are still left with the most clear evidence of a relationship...and its bloody recent. Not ancient history.

[Toddsterpatriot]

What's the last four years showing in that chart Todd?

You are dense, aren't you?

The chart shows that some years the dollar strengthens as the deficit increases and some years the dollar weakens as the deficit increases.

But all the author and you would like to dwell on are the three and four years of intervening from '98 to 2001/2

You mean when the trade deficit more than doubled from $230 billion to $468 billion while the dollar rose by 25%? If that's not proof that you're right, I don't know what is. LOL!!

It can be accounted for by a number of factors,

So sometimes factors make the dollar go up and sometimes factors make the dollar go down. While the deficit constantly increases. Makes me wonder, "Where Is the Dollar-Deficit Relationship?" Fool.

Like I said before, you just like to hear yourself talk, don't you? You never add any information to the discussion. At least no correct information.

[1rudeboy]

I wonder if something happened in late '01 that reversed the trend for the dollar? Hurricane? Earthquake?

[nopardons]

Too bad that unlike Mase and Toddster and expat and I, you can't post a single thing to refute anything we post, unless you go GOOGLE, CCP things which, for the most part, you don't understand/haven't read in full/ doesn't help your position one bit.

Was that last be the old second grade : "I'm rubber, you're glue...." jab? It sure looks like it. LOL

[Mase]

So, you are now calling Alexander Hamilton a communist.

Reaching pretty hard now aren't we? Maybe I should post a picture of Captain Hyperbole here.

Madison and Hamilton fought one another on the proper role of government for most of their lives. You choose to embrace Hamilton when you're arguing for more government control of the economy and you side with Madison when your arguing for more states rights or for less control by central government. You like to have it both ways. My point was simply that you're an opportunist and not the idealist you would like us to believe.

As for the rest of your post....it's very simple. We have two different conclusions about a specific time in British history. I've chosen to accept the facts offered by conservative Bruce Bartlett and world renowned historian Paul Kennedy. You've chosen to believe the revisionist facts offered by a Korean who's in bed with the United Nations.

I see you're also trying again to revise Reagan's history and his belief in free trade. We've been through that mill too many times for me to want to do it again. Why do you persist in thinking that because he gave the protectionists a little bit of what they wanted so he could get what he wanted, that he was somehow in favor of government intervention in the economy? It doesn't make sense but that's never stopped you before. Suffice it to say that the only form of fair trade is free trade. Unless of course, you believe that government is responsible, capable and reliable when managing trade. Is that what you believe? Who knows what you really believe since you're even trying to turn Adam Smith into a protectionist. LOL

Hawkins is an isolationist in the mold of Pat Buchanan. Like PJB, he's moved so far to the right he's come out on the left. Regardless of what Hamilton, Jefferson and Madison thought about the freedom to trade, I'm sure they'd all want to run from you for advocating higher import tariffs after seeing that modern day government takes about half our income just in payroll taxes. Somehow I don't think that's what they had in mind.

As for the ad hominem nonsense you want to whine about....give it a rest will ya. You are a protectionist and an opportunist. You do a pretty good job of dishing out your own digs so stop feigning indignation and grow a little skin.

[CWOJackson]

I don't like pat buchanan any more then the next person with more then 6 brain cells, but don't you think your personal comments about him are a little crass at this time?

All it would have take was a quick glance at his columns for the past three weeks and you would have realized he was in mourning. But NOOOOOOO...you just pile on with the personal insults while he sits in a darkened office, drinking straight from a bottle, clutching an autographed photograph of Rachel Corrie to his breast, sobbing...

You insensitive jerk! Call yourself a Compassionate Conservative?

[Paul Ross]

So, you are now calling Alexander Hamilton a communist. Reaching pretty hard now aren't we? Maybe I should post a picture of Captain Hyperbole here.

Maybe you should, for yourself. You were the one attacking Hamilton as "socialist". You're the one with the lame ad hominem attacks. And you perpetuate them further in your response. In fact:

As for the ad hominem nonsense you want to whine about....give it a rest will ya. You are a protectionist and an opportunist.

I believe in the American System. You, I take are anti-American. As for being opportunist, you are the one who is cavalier and opportunist. Completely ignoring your being busted on Jefferson and Madison.

Regardless of what Hamilton, Jefferson and Madison thought about the freedom to trade,

Really, that is what you claim stand on, these two guys ...and you run away when you are busted on the War of 1812's impact on the daydreams of Jefferson and Madison...they came around to Hamilton. Self-sufficiency is vital. And you blather on on and on about how we can "get by" without it. Wrong. And let's see your further misrepresentations thereto:

I'm sure they'd all want to run from you for advocating higher import tariffs after seeing that modern day government takes about half our income just in payroll taxes. Somehow I don't think that's what they had in mind.

I oppose the income tax entirely. So your B.S., is simply pathetic. It is clear that they indeed would abhor the Income Taxes you and your apologists have afflicted on U.S. citizens. All so that you can have your Big Government. Socialist.

Suffice it to say that the only form of fair trade is free trade.

Reversed. The only free trade is fair trade. China disproves the capacity of a totally blind laissez faire approach in the face of a totalitarian regime such as theirs to do anything other than strengthen the enemy. As for your repeated concerns about the incompetence of government...it is not rocket science to simply counter a foreign government's own tilting of the playing field. You continuously neglect the empirical record of success of the U.S. in this regard.

As for being revisionist about Reagan, clearly it is you and your side, you have no clue what Reagan systemmatically did to ensure that we retained industrial supremacy. Your understanding is frankly shallow. Reagan's overarching strategy was truly monumental. It went far beyond tariffs (which he avoided so it didn't contradict his rhetoric)...or his free use of trade quotas (which did). It could not be described as "little". He didn't just engage in protections of electronics, software, automotive, aerospace and maritime technologies... for purely or even primarily economic reasons of course...all while preaching "free trade" to our allies. He knew he needed to restore American industrial supremacy to "transcend" the Soviets. He further knew that an integral necessity to his strategy of strangling the Soviet Union economically was if we could keep our technology from falling into their hands. Not just military technology, but crtical commercial technology as well.

Peter Schweitzer lays out a couple good illustrations (albeit they were just the tip of the iceberg) in his books, Victory, and Reagan's War and John Gaddis's Strategies of Containment: A Critical Appraisal of American National Security Policy during the Cold War

"When action is required to preserve our national security, we will act. We must act today in order to preserve tomorrow, and let there be no misunderstanding we are going to begin to act, beginning today."
- Ronald Reagan - First Inaugural Address

[Paul Ross]

Too bad that unlike Mase and Toddster and expat and I, you can't post a single thing to refute anything we post, unless you go GOOGLE, CCP things which, for the most part, you don't understand/haven't read in full/ doesn't help your position one bit.

Sounds like more of Todd's projections. You guys are lame. I note there is no substance in your post here, just a personal attack. So you're better than me..precisely how? And as for Google, Wiki, etc., they are the tools to hand on the internet. Even Lexis-Nexis really affords little research advantage over them. As for whether I read them, a'hem. Speak for yourself. You are the side which boasts of "not reading."

Luddites.

[HiTech RedNeck]

The guy or gal who picks out a tire in a hurry in a discount showroom is not likely to see the little "Made in China" among the 200 or so words embossed on the tire.

[Paul Ross]

What's the last four years showing in that chart Todd? You are dense, aren't you?

No. You are. The Dollar Declines from approximately $120 to $85 dollars.

You mean when the trade deficit more than doubled from $230 billion to $468 billion while the dollar rose by 25%? If that's not proof that you're right, I don't know what is. LOL!!

LOL right back at you. The state interventions in currency of the Chinese, the Japanese, the Pacific Rim, etc "pegging" or ...worse. Example, when the PRC first set their peg...they did a massive depreciation of their currency to establish their price advantages. And then kept it locked tight since...with only some lip-service about floating it in the last year. A number of Pacific Rim competitors to China, felt forced to follow similarly, albeit far less aggressively, since they are in trade for rather different reasons.

So sometimes factors make the dollar go up and sometimes factors make the dollar go down.

NOt just sometimes. Sometimes fundamentals of supply-demand are pure economic, overwhelming the factors of state intervention.

While the deficit constantly increases.

And the Dollar is more or less constantly decreasing the last five years now...not just four...

Makes me wonder, "Where Is the Dollar-Deficit Relationship?"

See above... Fool.

Talking about yourself again Todd.

Like I said before, you just like to hear yourself talk, don't you? You never add any information to the discussion. At least no correct information.

In fact, I am the only source for accurate information in your dark world. You just can't handle the truth.

[Toddsterpatriot]

The Dollar Declines from approximately $120 to $85 dollars.

You're funny. But you can't read a chart. How does the dollar decrease from 120 dollars to 85 dollars?

The state interventions in currency of the Chinese, the Japanese, the Pacific Rim, etc "pegging" or ...worse.

So interventions can break the "relationship" between the deficit and the dollar? Thanks for admitting your error.

And the Dollar is more or less constantly decreasing the last five years now...not just four...

If there was a relationship, the dollar would constantly weaken, every year, not just half of the time.

In fact, I am the only source for accurate information

You're a source of humor. An object of ridicule.

Tell me again how the Fed sets the interest rate on Treasury Bills. That was funny.

The interest rate set on the T-Bills by the Feds is climbing steadily...likely at least 3 more increases planned

Priceless!!