MEMPHIS, Tenn.— As the tariffs on Chinese-made consumer tires are set to expire in September, Del-Nat Tire Corp. President Jim Mayfield said the private brand tire marketer has spent the past two years getting ready for this event and any marketplace hiccups it creates.
“We're trying to manage our enterprise zone to be able to have product here when the tariff expires and not be out of inventory,” Mr. Mayfield said.
The pending end to the tariffs imposed by the Obama administration three years ago and a current “softness” in tire demand are issues Mr. Mayfield cited as challenges for Memphis-based Del-Nat and its inventory management.
The expiration of the Chinese tire tariffs, he said, will make a difference for the whole industry as the market has adjusted to a higher pricing level than what was in effect before the tariffs.
“There will be a better definition in the marketplace of entry-level product,” he explained. “We're not going to see the big price differences that we saw in 2009 on Chinese tires vs. other tires in the market. Chinese costs have gone up substantially since that time, and they've outpaced cost increases to other manufacturers in the world.”
Del-Nat adjusted to the tariffs like everyone else, he said, but the marketer continued to buy a “significant number” of tires from China, as well as sourcing its largest quantities of private brand tires from Cooper Tire & Rubber Co.
Besides the U.S. and China, the company buys product from tire makers in Japan, South Korea, Taiwan, Thailand, India and Turkey.
He declined to disclose the amount of tires supplied to Del-Nat by Chinese manufacturers. From the U.S. and Mexico, Del-Nat sources 30 and 10 percent of its tire supply, respectively.
“The assumption in 2009 that there were other tire manufacturers in the world waiting to start shipping tires to the U.S. did not come true for us,” he said. “We talked to a number of manufacturers, but they didn't have products that were tailored to the North American marketplace.”
Mr. Mayfield, who in 2009 was an outspoken opponent of the import duties and testified as such before the International Trade Commission, said that hindsight hasn't changed his view of their impact.
“All the tariff did was cost American consumers money,” he said. “Entry-level prices increased in price probably 50 percent between raw material price increases and the tariff, and when that happened it allowed every other segment of the market to go up in price as well. So the consumers have been the ones who have suffered.”
Meanwhile, most tire distributors and retailers adjusted their business plans to elevated tire prices and became more efficient, he said.
“Most all of us have figured out how to continue to run our businesses and do our work,” Mr. Mayfield said. “We had to take a look at our expense side and we had to make some adjustments there. And we did.”
Through the rest of 2012, the company's plan is to launch a tire line for crossover vehicles, probably at the time of the Specialty Equipment Market Association Show, and an entry-level tire by late summer, he said, declining to disclose brand names.
Del-Nat, he added, continues to grow and signed 15 dealers as stockholders in the past 15 months. It also lost five dealers who sold their businesses to larger chains, for a net gain of 10 stockholders.
The cooperative now has 88 stockholders and plans to continue to grow its membership “in the most efficient way possible,” according to Mr. Mayfield.
“We have several independent tire dealers around the country that we're talking to right now and anticipate that we're going to be successful in bringing them on board,” he said.
Although Mr. Mayfield said he believes more independent dealers will be acquired by large national retailers, he said there are still dealers who want to grow their businesses and could be attracted to a smaller company like Del-Nat.
“Consolidation is going to continue, no doubt, but I think our future is in the value of the program we offer and the speed with which we can implement decisions in the marketplace,” Mr. Mayfield said.
He added that Del-Nat's long-term goal is to sign dealers who value their independence and want to be part of a group, as well as eventually to have a Delta and a National retailer “in every area of the U.S.”
Del-Nat dealers sell in protected territories under one or more of the company's brands: Delta and National passenger, light truck and SUV tires; Chaparral light truck tires; and the recently introduced Chinese-sourced Akuret truck tire line.
Regarding tire fuel-efficiency labeling, Mr. Mayfield wouldn't speculate too much on how government-mandated labeling will impact the industry.
However, he said he believes the tire industry will adjust once again to a government edict, as tire makers already are producing a wide range of low rolling-resistance tires.
Ultimately, consumers again will pay more for tires, he said, adding that he isn't convinced tire fuel-efficiency labeling will be a useful buying tool for consumers who don't pay attention to tire pressure.
“I think that when you look at any surveys that are done, a large percentage of cars on the highway in the U.S. are running underinflated,” he said. “When you do that you lose fuel economy. So the manufacturers can put all the technology they can into tires and if they're not inflated properly, it's going to be negated.”
Vera Linsalata is a former Tire Business Staff Reporter who continues to freelance for the publication.