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.
What we are doing is selling our stored wealth, intellectual property, factory, realstate, corporate stocks, etc. So we can buy cheap imports. We are cashing in on generations of stored wealth, we are also going deep into debt, and of course the worst part of this so call "free trade" that is not free trade, is that we are selling our means of producing wealth, making it much more difficult to generate the wealth needed to pay for the cheap imports. In earlier days our leaders knew that cheap imports were in fact a bad deal for the nation. "Build it here and we get the product and the money too". Sadly, our current leaders are more interested in giving the mob bread (cheap imports) then they are in doing what is best for the nation. This can easily be seen by looking at the growth of government spending of late.
So the great give away of wealth, job, and security continues. "Let the Good Times Roll", "Party Like It's 1999". There is zero chance that someday, perhaps someday soon, the world will decide that it is time the USA lives within it's means, and demands payment of goods and services provided with something other then US dollars. Euro's maybe? Corn, wheat, 787's, military action against a threat? Whatever, what is crystal clear is that the USA is being played for a sucker and one day will be presented with the bill.
But hey, you get cheap stuff so screw those lazy American workers that won't work for 75 cents an hour. The hell with them seems to be the creo of the "free trade", (that is not free trade) fools.
"Free" trade bump
That's the first thing you've gotten right on the thread. Just look at this chart. When our trade deficit is increasing our GDP, manufacturing output and employment also increase. Maybe you and Hydroshock should learn about the Capital Account surplus and why it's good for our economy.
I knew you will come to save the day!
I've been here for hours. What are you going on about?
At some point it would seem to me, that we could begin to grasp the idea that some products should not be farmed out. I guess it couldn't cause us any harm if our tire manufacturing all moved to China. I mean, if relations soured between China and the U.S. it wouldn't take ten minutes before we'd have a fully functioning tire manufacturing industry in place again.
And during that ten minutes, we could just wait for placement tires...
The lights are on. I just don't think anybody is home...
Well I'll have to give Shep a call and see if he was mistaken...
Interest rates have risen steadily for over 2 years...Yesterday they stopped...
Nonetheless, the Committee judges that some inflation risks remain
An astute fella such as yourself would recognize, it would seem, that by that statement one could deduce that an inflation risk has been there for some time...And that risk hasn't stopped the interest rate from climbing...
Now however, the same inflation risk has become an issue...Maybe the Fed is trying to sugar coat it for you...
I understand now, you were listening to a talking head while I was listening to the Federal Reserve.
...And that risk hasn't stopped the interest rate from climbing...
The risk of inflation causes interest rates to rise, silly.
My grandfather said back in the 1950's that the unions would be the death of this country. I tend to agree.
However, I fail to see how the wholesale exportation of heavy industry, manufacturing and tech jobs and facilities strengthens the US. We have a finite amount of capital, resources, employment and the like here, and because it is finite there is an endpoint. Likewise, I fail to see how the replacement of high-paying jobs with lower-paying ones is helpful as well. We have some room to maneuver and can keep it going for a while, but what happens when the music stops?
I am all for technological advancement. When the tire plant closes, all the people must find new jobs, and that is just the free market forcing healthy competition. However, when the employees move to another company and that closes, a cycle has begun. After this cycle has continued through hundreds of closings a year for years on end, what do you end up with... especially when more and more of the available jobs are being exported? When the advancement, growth and job creation are taking place outside the US? When more and more of the jobs that disappear have fewer and fewer jobs offering lateral movement to replace them?
Also, Mase, why aren't all the years represented in your figures above? I'd be interested to see the data once they were; until then, I don't think that an argument based upon partial numbers is a valid one.
I do not have an answer for those thousand (in my example) jobs automated out of existence. It stands to reason that the potential exists for more jobs to evaporate than are truly needed. What, and if, then? Who knows?
Oh, like Housing, Snidely Whiplash? You gloated when it was the lone sector in the economy performing well as the Administration puffed and puffed to inflate the economy with its low Federal rates. Which your band trumpeted as a sure-fire salvation for the economy? A sign that the "middle class was doing great" despite the industrial-sector layoffs.
And the Piper is now being paid on the long-denied inflation consequences of the policies applied:
June Wholesale Inflation Up For The 4th Consecutive Month . . . The Producer Price Index (PPI), which measures the cost of a basket of goods and services from the perspective of the seller, rose for the 4th consecutive month, up 0.5% in June to 161.6 (1982 = 100). Food prices surged 1.4%, the largest gain since October 2004. The main contributors to this month’s increase were eggs (+27.7%), fresh fruits and melons (+15.0%), and chicken (+12.1%). Pharmaceutical prices rose for the 9 th consecutive month, up 0.3%. Energy prices rose 0.7%. Gasoline prices climbed 6.3% to a level 44.3% higher than a year ago. Home heating oil prices climbed 6.5% to a level 32.2% higher than a year ago. Steel is up 1.9%Specialty metals and materials associated with aviation industry, such as Titanium and Carbon Fiber are also up substantially...albeit our U.S. defense productions are at historically extremely modest levels compared to the relevant period of the Reagan years, and may not even permit the U.S. to sustain its existing force levels as old equipment ages and is retired without adequate force numbers replacements...fighter jets, ships, etc.
But now that housing construction is in full reverse, with no soft landing in sight despite the Feds anti-Panic bland assurances to the contrary, you change the subject.
Anyways, as usual with your crowd, your "consumer-centric" mantra also neglects the defense implications of losing the domestic tire industry.
Fianlly, I note you also are heedless of actual gross consumer costs which eventuate when the U.S. loses an industry altogether and becomes totally foreign-dependent...at the mercy of their monopoly/oligopoly behavior.
And our losing the industry is almost inevitable, when you consider that our manufacturers industrial economies of scale are lost when the industry goes in reverse, as it is lost to this subsidized foreign "competition".
But you don't care about foreign subsidies. And Chi-Comm state-manipulation of the wage differentials. It's all just great for our "consuuuuuuuuumers." Rooooight.
So, let me see if I understand your position... Support the exodus of jobs, manufacturing capability and the like from the United States, because even though the endpoint of the equation (assuming things do not change) points to eventual collapse, things are o.k. right now?
That is a problem. As you can see, our industrial production shrinks every year.
Only $3 trillion this year.
Awesome! Did you like my "ship EVERY job overseas" idea, too?
I did? When was housing the lone sector of the economy doing well? I ask because I'm curious to see when I actually did what you think.
We simply murder any non-government union or workers group leaders in my business model.
Then co-opt their followers.
Worked for Lenin and Mao!
That's fine.
I am all for efficiency and improvement.
But there will come a day when we need some tires.
Maybe for Humvee's. Or for fighters. Or tanker trucks.
And there will not be any way to make them in the United States.
And then the folly of the Republican's will be laid bare and we will all pay for it with blood.
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