SHANGHAI (Jan. 5, 2009) — Tire manufacturers active in China are surprisingly optimistic about 2009.
Why? “All cars need to change tires,” said Yuji Sakamoto, general manager, passenger tire product planning department, Yokohama Rubber (China) Co. Ltd.
Other tire makers echoed that sentiment, as well.
“While tire purchases can be delayed, they can't be postponed indefinitely,” said Robert Keegan, Goodyear's chairman and CEO in the company's third quarter earnings conference call.
Aside from what might be considered contrived optimism, post-Olympics China is not shining as brightly as it was a year ago.
“The segments results were negatively impacted by the effects of the Olympics that took place in Beijing, and resulted in decreased economic activity and production (curtailments) in China during that quarter,” Cooper Tire & Rubber Co. noted in its third quarter financial report.
Cooper makes passenger car tires at its Cooper Chengshan (Shandong) Tire Co. Ltd. and Cooper Kenda Tire (Kunshan) Co. Ltd. joint venture plants in China, the latter of which has ramped up production capacity to 10,000 tires per day.
Post-Olympic blues
The post-Olympic blues referred to in Cooper's report are shared by other tire makers.
“Growth was at a slower pace than earlier and particularly consumer OE in China were weaker post the Olympics,” said Goodyear's Darren Wells, executive vice president and chief financial officer.
So what are companies doing to combat the situation?
Goodyear is closing its plant in Australia and has bought out minority shareholders in its China business.
“The buyout of minority interests in our China manufacturing plant, along with the closure of our last remaining tire plant in Australia” will hopefully provide improved earning opportunities, Mr. Wells said.
Goodyear also disclosed plans to relocate its plant in Dalian, China, to a larger location nearby by 2012. The $500 million project includes plans to add truck tire capacity there.
Slow starters in China's local tire production arena—Pirelli & C. S.p.A. and Yokohama—are now glad they did not build huge plants.
Giuseppe Cattaneo, CEO of Pirelli Tyre Co. Ltd. (China) said: “Being not too involved, so far, in the OE business (in China), we are keeping to our original plan for 2009. No special actions.”
In 2008, Pirelli said it planned to invest $100 million to double capacity in China. By 2011 the Italian tire maker will have capacity to make 11 million tires annually.
The company's plant in Yanzhou, Shandong province, will have capacity to make 5.7 million commercial and light-vehicle tires as 2009 begins. By 2011, that number will jump to 10 million light-vehicle tires annually.
Pirelli also makes truck tires at its joint venture plant in Yanzhou, with annual production capacity at around 1 million radial tires.
“At the moment we have no plan to cut back on production in China,” Yokohama Tire's Mr. Sakamoto said.
He added that as car manufacturers change their production plans, Yokohama can use OE lines to increase production for aftermarket sales “because, basically, our production capacity is not enough for the demand (in China) for our brand tires,” he added.
Yokohama has just completed the third phase of development at its passenger tire plant in Hangzhou.
With the $25.4 million expansion completed, Hangzhou Yokohama Tire Co. Ltd. will make 300,000 passenger tires there.
The fourth phase expansion is expected to begin in 2009.
“Luckily our factory is not too big as (are) the other tire manufacturers” in China, Mr. Sakamoto said. “So we are not changing our plan now.”
In October, the company opened Suzhou Yokohama Tire Co. Ltd., a truck and bus tire plant in Suzhou City. The 843,000-sq.ft, plant has an annual capacity to make 340,000 truck tires.
Sizewise, the factory has the capability to be expanded up to six times, to a capacity of 2 million bus and truck tires annually, according to Keiichi Sekiya, president of Suzhou Yokohama.
But, he cautioned, “in this economy stage we cannot set exact timing for expansion.”
Local tire maker Shandong Linglong Rubber Co. Ltd. has production capacity of approximately 30 million tires annually.
Cutbacks in production during 2009 “depend on the market,” said Jiang Guibo, a senior executive at the tire maker.
“Now the market is bad,” he said. “We do (production) plans monthly.”