Tires: Global Imports Begin to Slow

By Amy Zuckerman, Special to Transport Topics

This story appears in the Dec. 1 print edition of Transport Topics.

There are signs that the rise of global tire imports to the United States is beginning to slow as the economy weakens and costs increase.

“With the market flat, due to the economy and trucking companies not running so many miles, a lot of major manufacturers have moved manufacturing back to the United States for the time being,” said Aaron Murphy, vice president of China Manufacturers Alliance, Monrovia, Calif.

Murphy attributed this shift to higher costs for raw materials and transportation costs that are “at an all-time high.” These factors have “leveled the playing field” for U.S.-based tire manufacturers.

“Now, foreign manufacturers don’t have the same price advantages and have to [sell based on] the process, quality and technology that will lower a fleet’s cost per mile,” he said.

Marc Leferriere, vice president of marketing at Michelin Americas Truck Tires in Greenville, S.C., agreed that foreign manufacturers — particularly those from China — have lost the advantage of cheap transportation and “attractive” manufacturing costs.

“The results,” he said, “is that we’ve seen some imports coming from China reduced.

“We’re returned to more normal conditions,” Leferriere said.

At the same time, he said, Michelin was expanding two tire plants and two tread pressing plants in North America to create greater manufacturing capacity.

“Local production makes sense. If we can avoid shipping products across the world, that’s what we’re doing,” said Leferriere.

This expansion would not displace Michelin tire production elsewhere in the world, Leferriere explained. Instead, it represented “additional capacity being added to the overall operation to meet the demand here in North America.”

Despite the trends of boosting domestic production, tire makers did not predict a return to the days when the overwhelming majority of tires sold in this country were manufactured here.

“What we’re seeing now is a true global economy, where more than ever, people are able to sell goods all over the world,” said Kurt Danielson, vice president of sales and marketing at Bridgestone Bandag Tire Solutions in Muscatine, Iowa.

Saul Ludwig, managing director, equity research at KeyBanc Capital Markets Inc. in Cleveland, cited Commerce Department figures indicating that roughly half of all tires being supplied to the U.S. market were imported in 2007 and 2008, with a slight decline projected for this year. He had no projections for 2009 imports.

The Commerce Department, which combines truck and bus tires, said about 35 million tires were imported during 2007. Through the third quarter of this year, that number remained nearly flat at 23 million truck and bus tires imported.

Data showed that 12.1 million of the tires in 2007 came from China, compared with 8 million thus far in 2008. Japan and South Korea were among the other nation’s topping the list.

“Since 2004, general tire imports into the U.S. market have increased 30% to 40%, with the majority of those imports coming from China. When [Chinese imports] came, they exploded into the market. They have actually taken market share from other manufacturers,” said Rick Phillips, manager of commercial sales for CMA.

Michelin’s Leferriere said the huge influx of Asian imports was spurred, in part, by the enormous demand that domestic manufacturers could not meet ahead of the federal engine emissions rules mandated for 2007.

“When product supply is tight, as it was during the 2004-06 period, there is more importing of tires,” said Donn Kramer, director of customer and strategic marketing for Goodyear Commercial Tire Systems, Akron, Ohio. “This occurs, due to offshore companies seeking to bring in additional supply to meet the recognized needs in the high-demand market.”

Kramer said Goodyear is constantly balancing onshore and offshore sourcing of tires, though the company “overwhelmingly makes its truck tires domestically for the North American market.”

A Goodyear spokesman explained that the company did not maintain overseas manufacturing facilities, but when needed, Goodyear will import foreign-made tires from a third-party manufacturer.

Danielson said Bridgestone Bandag relies less on imports during a period of soft demand but does not currently have plans to ramp up domestic truck tire production.

A similar trend is unfolding with Japanese tire manufacturer Yokohama, whose U.S. operations are based in Fullerton, Calif.

Overall, the company produces about half its tires in the United States and half in Japan, but U.S.-based production “offered more flexibility,” Phillips said. “Being closer to home means being able to react and deal with production [demands] more quickly.”

He added: “It’s possible in future that we could manufacture more in the U.S.”

CMA’s Murphy said imports of Chinese-manufactured tires slowed because the market was down and not because of the quality of the tires. But he agreed the U.S. commercial tire market was far more competitive today, particularly because China is “no longer the bare-bones, low-cost production base it was only five years ago.”

Chinese products, Murphy said, “have to compete with product manufactured everywhere. The more-evolved companies will be able to compete, but smaller Chinese manufacturers and importers of Chinese truck tires will find it more difficult as they’ve lost their price advantage.”

Michelin’s Leferriere said he wasn’t witnessing the same pre-buy for trucks ahead of the new 2010 engine rules. Experts “seem to believe that fleet owners would rather go with the unknown of 2010 than buy more equipment in 2009,” he said.

Laferriere noted this trend might not be a bad thing for tire manufacturers.

“It’s hard to deal with a fluctuating market,” he said. For all the increases in sales, he said, the pre-buy market of 2006 “was difficult to deal with.”

In the meantime, Phillips said he expected a lot of mergers among global tire manufacturers. If there was any place to watch for a resurgence if demand escalates, it is India, which he said he believes will become a larger player.

And Ludwig said he is also watching the growth rate in Latin America and Asia, “both of which have been strong but will moderate” as demand slackens from the United States and Europe.

“It’s not a pretty picture,” Ludwig said.