The Mexican tire industry is in a state of flux, with most of the major players closing plants or instituting other cost-cutting measures and imports playing a larger role.
Goodyear and Michelin North America Inc. closed their Mexican factories within the past year, citing slowing economic factors and rising costs in various areas including labor, raw materials and energy. In addition, both Bridgestone/Firestone Inc. and Continental A.G. are negotiating changes at their operations to trim costs.
One factor affecting all industry has been the Mexican economy. A strong peso makes it difficult to export and attractive to import, said Francisco Martha, president of the Mexican National Rubber Chamber (MNRC), which compiles information about the country's rubber and tire industries.
``In the case of tires, our productivity is low when comparing it with high-technology producers in other countries or with countries like Brazil where the labor force is not subject to obsolete regulations like the ones we have in Mexico,'' he said.
Goodyear closed its Compania Hulera Good- year-Oxo S.A. de C.V. Mexico City facility in April, while Michelin shut its Uniroyal S.A. de C.V. subsidiary plants in Tacuba and Quertaro in August 2000. Both companies now export tires to Mexico, while three manufacturers remain in the nation: Continental Tire de Mexico (General Tire), Bridgestone/Firestone de Mexico S.A. de C.V., and local producer Compania Hulera Tornel.
Tornel, which has two tire plants-one in Mexico City and one in the state of Mexico-struck a deal with Michelin late last year to lease the Uniroyal plant in Tacuba. The facility now produces Uniroyal-brand bias-ply light and medium truck tires for sale by the Uniroyal sales organization in Mexico.
At Conti, factories in Guadalajara and San Luis Potosi increased their sales volume by 4 percent last year. But in its 2000 annual report, the company said it couldn't raise prices to compensate for cost increases.
In light of this sub-par performance, the German-owned company plans to revamp its North American manufacturing to reflect the European model, where cheaper, entry-level auto tires are made in low-cost Eastern European countries. The Conti spokesman said the company doesn't plan any plant closings or employee cutbacks, but is reviewing its manufacturing network to utilize the assets more effectively.
Jorge Gonzalez, president of Bridgestone/Firestone de Mexico, said the peso's strong value is placing high pressure on tire pricing in the nation.
``Imported tires from all over the world are being sold in Mexico,'' he said. ``Imports are being primarily motivated by the stability and high valuation of the Mexican peso, which make imports very cheap in comparison with locally produced tires.''
Importers are selling tires at very low prices and have captured a large portion of the Mexican replacement tire market, said Mr. Gonzalez, whose company has a radial tire plant in Cuernavaca and a bias-ply facility in Mexico City.
Tires imported from Europe, the U.S., Canada and other Latin American countries aren't a problem for tire producers in Mexico, the MNRC's Mr. Martha said, because of the reasonable price level. ``Imports from China and South Korea are the real problem because of the price and, consequently, the increase of volumes received from those two countries.''
About 70 percent of passenger tires imported into Mexico originate from the U.S. and Canada. South Korea and China exports comprise about 13 percent of auto tires, according to MNRC numbers, and about 9 percent of light truck and truck tire shipments.
Slowed economic growth in Mexico in the early part of 2001 coupled with the current U.S. economic slowdown have affected business, Mr. Gonzalez said. ``The Mexican manufacturing industry is suffering the effect of the current fiscal and economic policies which promote the import of goods from other countries at very low prices.
``This being the case, the transportation industry has been affected very strongly, thus directly affecting the tire business.''
Michelin's decision to close its plants was based on the plants' inability to be cost competitive, not on external factors, a Michelin spokeswoman said. ``Michelin continues to have a strong commercial presence in Mexico, and that business is profitable.''
Though economic factors have slowed growth for tire makers, Mr. Martha said production of tires reached 19.9 million units in 2000, a 5-percent increase from 1999. However, local producer tire sales should fall by 5 percent this year, while imports will rise about 20 percent.
The closing of the Goodyear and Uniroyal factories will reduce Mexican production by about 5 million units-or nearly 25 percent-based on given capacities.
The Goodyear shutdown cost 2,000 jobs, and Michelin's closings another 800, although Tornel rehired 300 of the workers.
Another factor affecting the highly competitive state of the industry is the implementation of the North American Free Trade Agreement (NAFTA) in 1994 because it provides the same opportunities for U.S. manufacturers, Mr. Gonzalez said.
NAFTA, as well as other agreements signed by Mexico, give an opportunity for tire producers to rationalize their production, Mr. Martha said. ``By producing less numbers of codes they gain productivity and they can export some of the sizes produced locally and import other sizes to complete the line in the market.''
He also said NAFTA has had a positive effect in general for the companies with support in the regions, as Tornel is the only company that is not related to any other producer in the U.S. or in Canada.
The objective of NAFTA was to produce parity, and ``we believe it's done just that,'' the Michelin spokeswoman said. ``The issues that led to closing the two plants existed before the passage of NAFTA, and the plants would have been closed whether or not NAFTA existed.''