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.
Ditto. Got Bridgestones on my cars.
I blame both.
I've seen how they make their electronics. NFW am I buying tires from China.
Statist = Patriots who look after Americans and America fisrt.
Simple solution. Buy US made tires. I have three vehicles, all have US made tires. Always will.
"Single-handedly (so far) keeping this thread from being overrun by statists."
And we Americans really appreciate it. What do they do with statists in your home country?
Elect them as Democrats.
No doubt. They'll probably get free lunches at McDonalds.
Everyone works at McDonalds now, silly. They already get a free meal.
Seems like defeatist thinking. Maybe that should look for ways to cut costs so our domestic product isn't priced such that China can send a tire half way around the world for less than we can make one in a unionized plant.
One thing that is having an impact here is the rapid increase in new tire sizes. I recently put 20" rims on my pickup and the width and profile I needed narrowed my choices down to GoodYear, Falken and Nitto. The latter are Japanese companies I believe. I went with the Falken and have been pleased. They were $25 less for each tire. I didn't base my decision entirely on that, but it certainly influenced it.
Sure...The economy is doing so well, the Federal Reserve decided to freeze interest rates to stave off a a recession (their language)...
Might do well not to believe everything the gov't tells you...Open the window, stick your head outside and take a look around every once in a while...
That's funny! I don't suppose you could cut and paste that part of their statement? I didn't think so.
Nope...Watched it on Fox News yesterday, along with a few million other people...
I have a German car, but keep going back to U.S.-made Goodyear tires. I just like them better.
I know a little bit about business and agree. We need to make some changes in America so that we can compete with China.
1. Close all EPA's in all states and at the Federal level.
2. No lawsuits.
3. No unemployment taxes/fees/charges to business.
4. No FICA.
5. No disabilty insurance.
6. No workers comp.
7. No land use restrictions or zoning.
8. Massive duties and restrictions on imports to our markets.
Bush and the Free Traitors have utterly and permanently sold us out.
Learn to speak Mandarin.
Release Date: August 8, 2006The Federal Open Market Committee decided today to keep its target for the federal funds rate at 5-1/4 percent.
Economic growth has moderated from its quite strong pace earlier this year, partly reflecting a gradual cooling of the housing market and the lagged effects of increases in interest rates and energy prices.
Readings on core inflation have been elevated in recent months, and the high levels of resource utilization and of the prices of energy and other commodities have the potential to sustain inflation pressures. However, inflation pressures seem likely to moderate over time, reflecting contained inflation expectations and the cumulative effects of monetary policy actions and other factors restraining aggregate demand.
Nonetheless, the Committee judges that some inflation risks remain. The extent and timing of any additional firming that may be needed to address these risks will depend on the evolution of the outlook for both inflation and economic growth, as implied by incoming information.
Voting for the FOMC monetary policy action were: Ben S. Bernanke, Chairman; Timothy F. Geithner, Vice Chairman; Susan S. Bies; Jack Guynn; Donald L. Kohn; Randall S. Kroszner; Sandra Pianalto; Kevin M. Warsh; and Janet L. Yellen. Voting against was Jeffrey M. Lacker, who preferred an increase of 25 basis points in the federal funds rate target at this meeting.
Just look at what that selfishness and greed has done to our middle class! These trends prove we're becoming a Chinese sweatshop. We need government to do something to stop all this freedom!
And before anyone else says it; let me add that the trade deficit is just killing this country.
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