UNION, N.J. — The August 2007 recall of defective Chinese light truck tires taught Foreign Tire Sales Inc. (FTS) — and the industry in general — a number of important lessons, particularly contractual ones.
"We now operate with every supplier, from China or elsewhere, with as comprehensive a contract as we can get them to agree to,” said Lawrence N. Lavigne, vice president of operations and general counsel for the Union-based distributor, in a conversation with Tire Business.
“We discuss the potential of a recall up front now, and we feel manufacturers out on what they feel their responsibilities will be.”
Unfortunately, FTS learned the hard way from Hangzhou Zhongce Rubber Co. Ltd. in the form of approximately 255,000 radial light truck tires sold in the U.S. under the Compass, Telluride, Westlake and YKS brand names. FTS, the importer of the tires, ended up being responsible for the recall.
The controversy began with an August 2006 rollover crash allegedly caused by a belt and tread separation in a tire made by Hangzhou Zhongce. Two men were killed in the crash, and a third suffered permanent brain damage.
The victims’ families filed suit in Philadelphia Circuit Court against Hangzhou, FTS, General Motors Corp. (now General Motors Co.) and other defendants. FTS subsequently sued Hangzhou in New Jersey federal district court, seeking unspecified damages and an injunction against further importation of Hangzhou tires.
Because Hangzhou had no corporate offices or representatives in the U.S., FTS was deemed the “manufacturer of record.”
It recalled the tires — originally estimated at 450,000 — after submitting to the National Highway Transportation Safety Administration (NHTSA) a report showing that the Hangzhou tires lacked sufficient gum strips between the belts to prevent tread separation.
FTS also estimated that the recall would cost $50 million to $80 million and told NHTSA it could only pay 10 to 15 percent of the cost.
A while later, FTS reduced the number of tires involved to 255,000, and estimated the recall cost at less than $20 million.
Mr. Lavigne, who was FTS’ attorney at the time of the recall, became a company executive at that time.
The final tally of tires returned in the recall was only a small percentage of the total, according to Mr. Lavigne, with 7,254 tires from dealer stock and 1,650 from consumers.
“We went way beyond the requirements NHTSA set forth,” he said. “We were one of the first companies to use YouTube to alert customers to a recall.”Mr. Lavigne, however, was less than pleased by NHTSA’s response to FTS.
“Because we are a small company, we asked NHTSA for help,” he said. “The response we got was, ‘Quit shirking your responsibility.’”
Since 2007, many new tire factories have opened in China, and the new owners seem to understand their legal responsibilities well, according to Mr. Lavigne.
“I like to say that the Great Wall is cracking,” he said. “There’s a lot more cooperation between manufacturers and importers, and manufacturers understand much better what will happen if there’s a recall.
“Chinese companies used to think that if you met NHTSA standards, that was enough,” Mr. Lavigne said. “They didn’t realize that was just what you had to do to get into the U.S. It didn’t mean your product was high-quality or safe.”
Besides attending to the fine print in the contracts, FTS also performs its own, extremely thorough testing of every tire it sells, according to Mr. Lavigne.
“We have a full-time engineer who goes to every factory for testing,” he said. “The factories say we’re a pain in the neck to deal with, but they’ve come to understand why we do it. They know they can’t stick their heads in the sand.”
Mr. Lavigne said FTS imports ProMeter car, light truck/SUV and medium truck tires from China, the Flagship brand, Otani truck, bus and OTR tires from Thailand, along with the Danzig and Brutus labels. He noted that “95 percent of our tires are sourced from China.”