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Published on July 17, 2006

Cost squeeze creates new players

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Opinion

AKRON (July 17, 2006) — Tire dealers could be seeing even more of an in-flux of new tire suppliers from foreign countries over the next few years as the world's largest tire makers reduce their emphasis on the mass market tire segment in North America.


That trend is already happening, highlighted by Goodyear's recent decision to cut its private brand tire production by a third—8 million units—to focus on more profitable segments of the business.


Goodyear's move reflects a reality in North America: The market for broadline tires, while still huge, is shrinking. At the same time, it also is experiencing intense cost pressure from competitors in lower cost countries.


To compete, tire companies are either getting out of certain segments of the business and/or shifting capacity for these lower- end tires to factories in other countries where they can make them more economically, even with the higher transportation costs.


Goodyear is not alone. Continental Tire North America Inc., Bridgestone/Firestone (BFS) and Michelin North America Inc. are all closing plants, citing the need to reduce capacity for mass market tires.


Michelin is closing its Kitchener, Ontario, tire plant and reducing capacity at its Opelika, Ala., facility by 30-40 percent in the fourth quarter.


Continental is ending tire production at its Charlotte, N.C., factory and BFS is closing its tire plant in Oklahoma City.


No longer are these companies willing to operate a plant or produce lines of tires in North America that don't present an acceptable profit margin. Not when raw material costs keep mounting and these same tires can be made elsewhere more economically.


The same holds true for original equipment tires, where these same companies are taking a hard look at their agreements with auto makers and in some cases walking away from any unprofitable business.


In its place, they are turning their focus to the larger size tires, especially those for high performance and for sport-utility vehicles, segments that are gaining in market share and that generate greater profit margins.


A Bridgestone Corp, spokeswoman described it best when discussing the firm's plan to invest $50 million over the next fives years at its plant in Costa Rica. “Just as the rest of the Bridgestone Group is doing, the Costa Rica facility is focusing on the higher margin/higher performance tires and is intending to allow the lower end part of the market to devolve to other manufacturers, including those in the Far East,” she said.


Whether or not some dealers have embraced off shore brands, these are the very companies they could be seeing on their doorsteps looking for business.

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