U.S. importers of Chinese tires are riding a roller coaster of market ups and downs these days.
Demand for their products is booming, and they say the quality of those products-at least from the larger, more modern tire factories in China-bears comparison with that of tires from anywhere in the world. Most of them report good relationships with their suppliers and with Chinese authorities, although some profess a healthy caution regarding the intricacies of doing business in China.
However, rising costs of raw materials and tightened credit for Chinese manufacturers, they said, are putting the squeeze on both supplies and prices of Chinese tires. They hastened to add that higher raw material costs also plague tire makers elsewhere, but the pressure on Chinese manufacturers is greater given the unique character of the Chinese tire manufacturing industry.
U.S. regulations also can be a factor in whether to import Chinese tires to the U.S. at all.
Despite being based in Miami, Stephanie Tires Corp.-which has been a sales agent for several Chinese tire companies since 1994-sells not a single one of those tires in the U.S. Instead, according to Stephanie President Isaac Dargoltz, the firm ships Chinese tires all across Latin America and the Caribbean, from Mexico to Argentina, and also added Europe to its sales territory in 2003. The company's annual shipments total between 350,000 and 400,000, 75 percent of which are Sunstone bias light truck and medium truck tires, he told Tire Business.
The Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act makes it very difficult to sell Chinese tires profitably in the U.S., according to Mr. Dargoltz. The quality of the tires is not the issue, he said, but rather the cost of insurance to those who import them.
``The TREAD Act requirements don't add to the quality of a tire, but they certainly add to the costs,'' he said. ``It costs $40,000 to $60,000 per brand to insure a tire sold in the U.S. You have to sell an awful lot of tires just to pay the insurance.''
For those willing to pay the insurance costs, however, Chinese tire sales are booming in the U.S.
Shanghai Tyre & Rubber Co. Ltd. (STRC), maker of the Double Coin tire as well as private brands for Del-Nat Tire Corp., American Tire Distributors Inc. and others, has just completed a new plant in Rugao, China. That plant has a capacity of 2.5 million medium truck tires annually, said Larry Williams, CEO of China Manufacturers Alliance L.L.C. in Monrovia, Calif.
``This will make us one of the biggest tire producers in Asia,'' said Mr. Williams, whose company is a subsidiary of STRC. Further capacity increases through 2007 will be larger than anything the Chinese tire maker has experienced to date, he added.
Business also is good for American Pacific Industries Inc. (API) of Santa Clarita, Calif. API-which split off from China Manufacturers Alliance L.L.C. last year-sells between 2.5 million and 3 million Chinese tires per year in the U.S., according to API General Manager Tom Burkhardt. ``It would always be nice to sell more, but we're doing pretty well,'' he said.
API represents several Chinese and Indian tire makers in the U.S., the largest of which are Guiyang Tyre and Qingdao Yellow Sea Tire, according to Mr. Burkhardt.
Batesville, Miss.-based Dunlap & Kyle Co. Inc. also reports strong business, especially with the Wanli line of medium radial truck tires. Dunlap & Kyle sells about 90,000 of the Wanli tires in the U.S. every year, according to Account Manager Dennis King. The company also imports Deestone brand lawn and garden tires and Nutech bias truck tires, but Mr. King had no offhand annual sales figures for those tires.
All four importers-which tend to deal with the larger, more modern Chinese tire makers-reported no trouble whatsoever with the quality of the tires they handle and little trouble with supply.
``Supply seems to be going very well for us,'' Mr. King said. ``We have tires in stock, and our shipments are on time.''
Besides having among the most modern, state-of-the-art tire manufacturing facilities in China, Shanghai has a distribution network that is second to none, Mr. Williams claimed. Shanghai distributes tires to just about every continent, with concentrations in North and South America, Australia/New Zealand and Europe.
Most Chinese tire companies are relatively new to the import business, and there are different levels of producers and facilities in China, Mr. Burkhardt noted. But many are modernizing quickly, he added, citing in particular Guiyang's rapid radialization of its product segments.
However, the importers noted, the rising cost of raw materials is a major problem for Chinese tire manufacturers. All producers are raising the prices of their products-much as all tire manufacturers are-but the smaller, less technologically advanced factories are having real trouble coping with the rapid increases in the price of oil and rubber.
Natural rubber suppliers from Thailand, Malaysia and Indonesia have not only raised their prices to Chinese tire makers, but also cut their credit lines so that they must pay for their rubber in advance, Mr. Dargoltz noted.
``At about the same time, the banks in China were trying to stop the Chinese economy from overheating, so they also cut credit to most factories,'' he said. ``Fifty or 60 tire plants have already closed their doors.''
In addition, the remaining Chinese bias tire manufacturers already sell most of the tires they produce in the domestic market and have no desire to export, further tightening supplies for U.S. importers, Mr. Dargoltz said.
Despite price increases, all the importers interviewed said their tires are at least competitive in price with other tires in the markets they serve.
``Our tires will be cheaper than nameplate brands,'' Mr. Burkhardt said. ``You can't compare a Chinese private brand in the market with a Goodyear or Michelin brand tire. There's not as much brand name recognition, or the perks of a brand name customer program.''
While all the importers said they generally can get all the kinds of tires they want from China-including specified sizes to satisfy demand from specific customers or regions-they agreed that off-the-road and construction tires are in short supply from Chinese tire makers. However, that's also the case for tire makers in other parts of the world as well.
If anything, China suffers a more acute shortage of OTR tires than anywhere else except perhaps India, according to Mr. Dargoltz. ``China and India are building thousands of kilometers of roads to build up their infrastructure,'' he said.
``Not only are they using all the tires they produce, they are looking to buy tires from overseas markets. I receive 15 or 20 e-mails per day from customers in those countries who are looking to buy more OTR tires, including people I've never heard from before.''
However, Mr. King-although acknowledging the tight supply of OTR tires from the region-said that hasn't affected Dunlap & Kyle up to now. ``Supplies are a little tighter, meaning we have to order them a little further ahead of time,'' he said. ``But we still are able to get the product.''
All of the importers say they visit China fairly frequently-ranging anywhere from once every couple of years to once every few months-and keep close watch on the quality control in the factories they represent. In most cases, they reported little or no trouble in dealing with the Chinese government and labor force, largely because they've been doing business in the country for several years and are known to Chinese authorities.
``The Chinese operate a little differently than people would think,'' Mr. Burkhardt said. ``While it's still a Communist political system, it's moving toward a more capitalistic economic system, and it has a growing middle class.''
But Mr. Dargoltz, who visits China several times a year, said caution is a must when doing business in China.
``Dealing with the Chinese is not a very easy thing to do,'' he said. ``To your face they'll tell you what you want to hear, then change their minds after you've left. It's not only the small guys who have gotten burned, but also Microsoft, GM, people like that.''
Mr. Dargoltz recommended two books by author Carolyn Blackman-``Negotiating with China'' and ``China Business: The Rules of the Game.''
``Anyone who wants to conduct business in China must read these books,'' he said.