AKRON—Reports that tire manufacturing in North America is on the decline appear premature. Although the four largest tire companies—Goodyear, Michelin North America Inc., Bridgestone/Firestone Inc. and Continental General Tire Inc.—often tout their ability to shift manufacturing to low-cost plants outside the U.S. and Canada, their investments in both countries reveal a commitment to expanding local capacity.
The four companies combined have announced almost $1.5 billion in capital investments in the U.S. and Canada from 1998 to 2004 to expand capacity for virtually every type of tire: passenger, light truck, commercial and off-the-road.
Still, imports continue to increase their share of the market.
In the U.S., the percentage of tire shipments supplied by imports has increased steadily in all categories since 1996, according to data gathered by the Rubber Manufacturers Association.
A quick look at U.S. Department of Commerce figures reveals the percentage increase in imports from key countries from 1997 to 1998:
Passenger tires: China—10-fold; South Korea—73.3 percent; Italy—55.8 percent; Indonesia—37.3 percent;
Light truck tires: Argentina—365 percent; France—168.4 percent; South Korea—46 percent; Japan—33.7 percent; and
Truck and bus tires: Germany—321 percent; United Kingdom—305 percent; Brazil—298 percent; South Korea—111 percent.
The influx is most striking in the commercial tire market, where imports increased to 42.9 percent of the U.S. replacement market in 1998 from 29.7 percent in 1996. Through the first five months of 1999, imports accounted for 53 percent of the U.S. replacement market.
Worth noting, however, is that 85 percent of passenger tire imports and eight out of 10 truck tires imported are brought in by members of the RMA—i.e., the major U.S. manufacturers and a few off-shore importers.
But these brisk import numbers indicate a temporary response to a bustling tire market and a booming economy, as well as sagging economies in Asia and Latin America. It's a trend toward major tire makers supplying the U.S. and Canada with greater numbers of tires manufactured outside the market, executives said.
``I don't see anything critical or a trend that manufacturers are going south of the border,'' Continental General CEO Bernd Frangenberg said. ``There is no golden rule that we will always go south.''
Tire companies generally try to produce tires in the markets where they're sold, executives said. In fact, the booming U.S. economy and tire market have made increasing capacity in the U.S. and Canada a priority, they said.
``The increase in importing is really because the market has grown so quickly, and we're really looking at ways to assess our U.S. capacity to address that problem,'' said Jim Zickos, director of planning for Michelin Americas Small Tires. ``We try to get production as close to the markets as possible.''
But there are exceptions to the rule of local sourcing.
First, when local capacity can't meet a market's demand, companies are forced temporarily to look outside the market for supply.
That has been the case with the booming U.S. commercial tire market in the past few years, which has grown 22.8 percent since 1996. Michelin, Bridgestone/Firestone and Conti General are importing large numbers of tires from overseas even as they are investing heavily in new truck tire capacity in North America.
Michelin, for example, dedicated production at a plant in Northern Ireland for export to North America, and Bridgestone added several hundred thousand units of truck tire capacity at a plant in Japan to help satisfy North American demand.
``Our strategy is to grow wherever we can get the business, and you don't always have manufacturing near there at first,'' Mr. Frangenberg said.
Capacity drops caused by strikes also can spur importing. Conti General imported about 2 million tires into the U.S. from Mexico in 1999 to make up for production lost because of the ongoing strike at its plant in Charlotte, N.C.
``In these types of emergency situations, I take tires from wherever I can,'' Mr. Frangenberg said. When the strike is resolved, the importing will end, he said.
Also, severely under-utilized international capacity can push companies to export tires to the U.S. and Canada simply to use standing capacity abroad.
That was the case with Goodyear when it recently canceled a planned $57 million expansion in Valleyfield, Quebec. Rather than increase capacity in Quebec, the company chose to redirect existing capacity in Latin America—where demand for its tires has collapsed—to fulfill demand in Canadian and U.S. markets.
While most importing is a temporary reaction to market conditions, some permanent import arrangements do exist, executives said.
Highly specialized, low-volume products—such as ultra-high-performance tires and aircraft tires—often are made at only one or two plants worldwide because it makes no sense to invest in the technology and expertise to manufacture them at all of a company's factories, said Kash Maki, executive director of supply chain management for Bridgestone/ Firestone.
The result is that the products are made in a few locations and exported to most of the markets in which they're sold, he said.
All the rules that apply to the U.S. and Canadian tire markets also apply to other markets, Mr. Frangenberg said. For instance, Conti General is exporting truck tires to Mexico from the U.S. until it can establish local capacity, he said.
The primary reason that tire manufacturers are expanding into Latin America and Asia is not because they want to use them as permanent sources for tires for the U.S. and Canada, but because car manufacturers are building plants in those regions, executives said.
You need to have plants close to your customers, Mr. Frangenberg said. ``Auto manufacturing is growing in Mexico, so you better be there also.''