The tire and auto industries are finding themselves in rapidly changing environments, but their overall outlook is not as dire as some would have it.
That was the viewpoint of some speakers at the 20th annual Clemson Tire Industry Conference March 10-12 in Hilton Head.
China, they added, is a burgeoning world economic force affecting all industries.
Conventional wisdom states the U.S. economy is weak, according to Dennis M. Byrne, professor emeritus of economics at the University of Akron. The data, however, don't bear this out, he said.
``The auto industry is expecting a record year, though that's hard to believe,'' Mr. Byrne said. ``The economy doesn't seem to have put a damper on auto sales.'' Also, the 2003 growth rate of the Gross Domestic Product-3.1 percent-wasn't at all bad, he noted, and the average 2003 interest rate on 90-day Treasury bills, 1.13 percent, was unbelievably low.
In all, the U.S. economy is poised to pick up notably this year, Mr. Byrne said. Combined with the strength in the auto sector, ``this is one of the few good times to be in the tire industry.'' However, there is a big ``but'' to this, he said, and that is the job market isn't expanding.
``In general, the economy is not creating jobs but making a change in where people are working, from manufacturing to services,'' he said. ``Blue-collar manufacturing jobs are becoming increasingly scarce and may be going the way of the dinosaur.''
Nevertheless, he predicted that employment in general should show a steady rise in the coming quarters.
There are other factors in the U.S. economy that have yet to be fully felt, Mr. Byrne noted. For instance, 9/11 is continuing to affect the economy in ways people don't realize. ``For example, people now have to get to the airport two hours early,'' he said. ``The cost to the economy is tremendous.''
Another factor is that the average family is finding a new car less and less affordable. ``Data show that the average new car takes approximately 10 percent of a family's budget every month for five years,'' Mr. Byrne said. ``Most people can't afford a $25,000 loan.'' Because of this, he added, the sport-utility vehicle market will become saturated and auto makers will have to turn to manufacturing smaller, cheaper models.
Original equipment markets for tires will continue to grow slowly-a mixed blessing for the industry, according to Mr. Byrne: ``There will be little growth in sales (but) OE sales generate little profit.''
Replacement sales, which have stagnated the last few years, should grow with the economy, but niche markets will become more apparent, he said. Premium and ``boutique'' tires will be advertised heavily in the replacement market, Mr. Byrne said, but ``plain vanilla'' tires for smaller, cheaper and second-hand cars also will enjoy strong sales.
``Long-term competition will be brutal, just as it has been, and unfortunately that means tire prices will remain extremely low,'' he said.
The car-besotted, General Motors Corp.-dominated auto market of 30 years ago is long gone, noted Michael S. Flynn, director of the Office for the Study of Automotive Transportation at the University of Michigan.
``Thirty years ago, if people won the lottery, a new car or accessories for a car were their number one purchases,'' Mr. Flynn said. ``Now, a new car is barely in the top 10, with computers, kitchens and houses competing for consumer attention.''
In the old days, he added, ``people bought the vehicle because our cars meant a lot to us. People now buy the deal...Pressure is driving the industry away from where it wants to be.''
Competitive survival in the auto industry now means ``lean'' manufacturing, according to Mr. Flynn. This in turn means not only reducing cost, cycle time and response time while improving quality, but also integrating internal processes, coordinating external activities, increasing technology and becoming more flexible to manage variability.
These changes, he said, favor assemblers and suppliers with more capital and technical resources, more experienced management, more consistent and integrated internal processes, focused cost reduction initiatives and ongoing quality improvements. It also favors suppliers with customers that are growing market share, emphasize long-term relationships, have congruent e-business demands, are geographically diverse and cover various vehicle segments.
Mr. Flynn noted that China, which had only 600 miles of paved roads in 1987, has seen ``a phenomenal increase, not only in the length but the quality of its roads.'' Mr. Byrne added that China ``is becoming the low-cost manufacturing paradise.''
Donald L. Brown, technical marketing manager for Honeywell Performance Fibers, expanded on these comments. China, he said, is ``an explosive country,'' as signified by its plans to host the 2008 Olympics, the 2010 Shanghai Expo and a Formula One Grand Prix event also in Shanghai.
China produced 2 million vehicles in 2003, and new car sales were up 86 percent in 2003 from the previous year, according to Mr. Brown. ``There are huge, huge profits to be made there,'' he said. ``Within the next eight years, China could overtake Japan; within 15, it will catch up with the U.S.''
There are significant economic factors, however, that companies seeking to do business in China must take into account, Mr. Brown said. One is the fierce price competition going on between auto makers there. While new car prices in China are still much higher than those in the U.S.-$38,000 currently for a Buick Regal, $28,000 for a Honda Accord-prices are coming down sharply, dropping 10 percent last year and 9 percent so far this year.
Another factor is the uneven distribution of wealth in China. While the per capita annual income in China is about $4,000, Mr. Brown noted, in the countryside and the western provinces per capita income is only about $200.
China currently has about 300 tire manufacturing facilities, most of them very small by Western standards, according to Mr. Brown. Foreign interests have ownership in about 40 of these plants, he added, which account for about 70 percent of total production.
``Shanghai as a tire producer is a lot like Akron used to be,'' he said. ``It's also the Detroit of China.''