MEMPHIS, Tenn. (April 28, 2014) — Del-Nat Tire Corp. is no stranger to working with Chinese tire manufacturers.
For years the dealer co-operative, which is celebrating its 25th anniversary this year, has been sourcing tires from China. According to Del-Nat President Jim Mayfield, that country accounts for about 65 percent of the firm’s product offerings in North America—and that number is on the rise as Del-Nat expands its product lineup.
In 2012, the company expanded its Akuret private brand to include truck tires — in addition to the industrial, OTR, farm, skid steer, ST trailer and backhoe tires under the brand — making Akuret a full-line of commercial product offerings. In January 2013, the company switched its focus to the retail market, debuting the Sentinel brand of entry-level car and light truck tires.
Both brands are 100-percent sourced from China, Mr. Mayfield told Tire Business. With new Sentinel-brand product offerings slated to launch this year — a sport truck line in the second quarter and a mud-terrain line in the third — Del-Nat is growing its supplier base.
“We currently source from, I think, eight different Chinese factories. The majority of what we source comes in our Sentinel brand,” he said. “…Within that Sentinel brand we have three different factories providing product today. We’ll be expanding that to four factories with some of the new product coming online.”
Mr. Mayfield declined to disclose the names of its “strategic suppliers” for the Sentinel and Akuret brands.
Del-Nat wasn’t always an importer of Chinese tires, but a shift in U.S. manufacturing away from private brands in the 1990s forced the company to look elsewhere for exclusive products.
“As the U.S. manufacturers got out of private brand production, we were forced to go overseas to find factories to build our product for us,” Mr. Mayfield said. “And the majority of the independent manufacturing today exists in China, and they’re willing and able to provide a good quality product in our brands.”
Mr. Mayfield emphasized his belief that China’s current product offerings are of good quality.
Chinese tire makers have invested significantly in infrastructure, production capacity and improving the quality of their products, he noted. With no sign of U.S. manufacturers' getting back into the private label business, he said China likely will remain a “substantial supplier to the global tire market for many years to come.”
“I think today the quality of the product is very strong. The factories that we do business with have invested a significant amount of money in the last five to seven years in building their factories and putting equipment in there,” he said. “They have state-of-the-art equipment that rivals anyone in the world.”
Despite this, the perception and recognition of Chinese brands is still lacking in the marketplace, he said.
“I think it’s going to be some time before they’re able to compete head-to-head throughout the product portfolio of a Tier II manufacturer,” he said. “They might be able to compete with the value price product from a Tier II manufacturer, but I don’t think it’s going to be anytime soon that they’ll compete on through that product portfolio.”
The best advantage Chinese-made tires have to offer is still price, Mr. Mayfield said, and with that advantage comes the ability to impact that market as a whole through price fluctuation.
Following the expiration of the elevated tariffs on Chinese-made consumer tires in September 2012, prices of Chinese tires decreased substantially, contributing — along with reduced raw material prices — to devaluation on tires across the board.
As the tariffs were about to expire, for example, Del-Nat took steps to ease the transition. It got its warehouse in Memphis qualified as a Foreign Trade Zone (FTZ), which allowed the company to import tires duty free and hold them until after the tariff rate changes, Mr. Mayfield explained in a 2012 Tire Business story, noting that obtaining FTZ status was a process that took more than a year.
Longer term, he added, having FTZ status for the Memphis facility would give Del-Nat a financial advantage of being able to warehouse imported tires duty-free.
Companies with FTZ warehouses pay duties on goods only when they leave the storage facility, he said at the time, which can help improve cash flow.
Addressing consumer acceptance of lower-priced tires, Mr. Mayfield said he thinks “that different brands in the market have a position that consumers accept them at, and so when you had the entry level position drop significantly when the tariff expired it forced everybody else to react to that.”
Del-Nat leases a portion of its Memphis warehouse to China's Qingdao Doublestar Industrial Co. Ltd. to store and distribute its Doublestar medium-size steel radial heavy-duty truck tires.
Rather than a blurring of the lines, there has simply been a repositioning of the tiers, Mr. Mayfield said. Prices of Chinese tires have stabilized and remain predominantly at the entry level.
“I think there is better delineation,” he said. “It’s just that other manufacturers had to adjust their pricing. The pricing on the Chinese tires is certainly a strong factor in the market, and (for) the tier two brands that offer value price lines it’s made it more difficult for them to be able to compete against those Chinese brands.”
While a growing middle class in China means that the long-term plan of most Chinese tire makers is to convert production to the domestic replacement market, those levels are still modest.
“I think it’s going to be some time before they can consume a substantial percentage of the tires that they’re producing today,” he said.
How have tire prices been in the last few months?
|They've gone up 1-5%||
|They've increased 6-10%||
|They've stayed flat||
|They've gone down between 1 and 5%||
|They've gone down 6-10%||
|They've dropped more than 10%||