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Pretty soon, if this keeps up, we won't be makin' nothin' or earnin' nothin' here no mo!
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.
Gross VALUE of production rises because production costs to the companies in charge of bringing the product to market fall... a'la actual production and jobs being sent overseas.
This is an 800 lb. gorilla. But not the way you think. It is a gorilla that smacks you phoney free traders in the head most devastatingly. Because you ignore that China wasn't and still isn't productive in its use of labor. Even when we ship over entire plants and teach them how to make cutting edge-products...they are grossly labor inefficient...typically using ten times the amount of employees we use. But they can easily afford to be with their collossal wage differentials...artificially set and controlled by a communist government intent on further predation of the West. Further abetted by outright state subsidies...and domestic market protections in direct scofflawing of the WTO.
Your side ignores the numerous subsidy/and communist coerced trade unlevelled playing fields...and you have the gall to try and defame those who bust you on it as being "unfree" traders.
Shame on you.
Since the Western plants are hugely more productive than the Chinese...it is we who should be exporting to China...and them closing their wasteful and uncompetitive plants. But you ignore all that, and whistle past the contradiction of the comparative productivity levels.
Walk me thru how that works. We ship production overseas and so domestic production increases because costs fall? That sounds like some Willie (HWSNBN) logic!
Now it you had two working brain cells you would realize you just made one of my arguments for me (thanks). I like automation, I think automation is great. Automation requires skiiled engineers to design the factory, skilled workers to build the factory machines/robots. Skilled construction hands to build the factory and skilled labor to operate it. All skilled, all high paid, all American. win-win. But cheap labor is the enemy of automation, this is a fact jack. Why invest in automation when you can simply use cheap labor? Now if you think this is not the case, then just look at all the factories being shipped to China to take advantage of cheap labor. There are other factors at work too, but the cost of labor is one of the main drivers.
We are not doing a very good job of shipping our manufacturing jobs to China, seeing that it is losing them at a rate three or four times greater than the U.S.
Every year from 1980-2003 is included in the chart. A 23-year time period represents a solid sample. If you don't buy into the clear message this information sends, then please feel free to post any stats that disprove my numbers.
Exportation and earnings will rise as long as there is a market for the products produced... and the growth is based upon a myriad of factors, from inflation to cheap credit to the purchasing power of the baby boomers to natural progression.
Likewise, ownership has as much to do with borrowing power than actual prosperity. Do you have any idea how much debtor spending has increased in the past decade? And how much it will impact the economy when THAT particular merry-go-round breaks down? Much of the borrowing and credit extension is related to lower personal earnings. It is already starting to happen in the RE markets, and it's going to be one hell of a headache.
Employment is a double-ended argument, because national employment numbers mean little as far as the actual health of the average family economy is concerned... If I lose my $100,000/year-plus-benefits job as a quality control manager in a plant, and find a job as a (fill in the blank) at $90,000, or $60,000, or $40,000, how is that a benefit? Particularly if the job pool for lateral movement or advancement is shrinking every year? If I become self-employed and earn $100,000 a year with no insurance or 401K, how is that a benefit? If I graduate from school and take a $30,000/yr job, that does wonders for the net employment numbers but very little in terms of the actual cost of job exportation to the average American.
"Kumho tires get consistently good reviews and are about half the price of tires of comparable quality. I believe they are South Korean."
Agree. I replaced the Bridgestone Teranza's on my MBZ with Kumho's. $230 vs. $500. I've got 10,000 miles on them..so far so good. Tirerack.com is a great place to shop/compare tires.
This noted, I would draw the line purchasing Tires from China. The trade deficit with this country is only arming the Peoples Liberation Army. I fear we will oneday regret buying rope from them.
Important point.
An idea requires thought. Your idea is nothing more than a feeling.
We've created almost 23.5 million new jobs since NAFTA passed. See the chart here for proof.
How do we do that, along with rising real incomes, if we're shipping EVERY job overseas?
We won't need rising incomes, because we'll have lots of CHEAP STUFF to buy with our credit cards! Count me in!
Pretty soon, if this keeps up, we won't be makin' nothin' or earnin' nothin' here no mo!
Sorry for the size of the graph below, but I've never learned to shrink it.
I am at the point where I do not believe anything the government tells me any longer. I believe my lying eyes and empty wallet instead.
Sure... The value of production is gross profit made by the US (industries, companies, etc.). American companies have increased their profit margin by shipping production overseas, thus lowering their production costs... Domestic production value is the value of the goods produced for domestic companies, not the value of goods produced domestically.
Who's Willie?
If you can't handle having a credit card, don't use one.
Black is white, not black. LOL
I'm not against lower prices. Why are you? If our personal debt is rising so much faster than our assets, I'm sure you can prove it. Meanwhile, our household net worth (that's assets less debt) just keeps on climbing. It's now about $54 trillion.
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