A confluence of opposing market forces is taking shape in the North American tire industry that could lead to some trying times for the business.
It's essentially the old law of supply and demand: Whenever there is too much supply, coupled with declining demand, there ends up being downward pressure on pricing.
This scenario seems to be shaping up once again in North America.
Tire demand has been sluggish for some time—especially in the replacement passenger segment. In 2012, shipments of aftermarket passenger tires in the U.S. declined 1.8 percent, or 3.5 million units, and are expected to increase this year by a modest 1 million units, according to the latest forecast by the Rubber Manufacturers Association (RMA).
But as this year's first quarter shipment numbers come in, even that meager increase may be optimistic. Cooper Tire & Rubber Co., in its first-quarter financials, highlighted a 6-percent decline in total light vehicle tire shipments in the U.S. for RMA member companies. It's a bit better when estimates for non-RMA members are included: a decline of only 1 percent, but still a decrease.
While demand is down, supply is increasing. This is coming from new plant capacity in the U.S. and rising imports.
Continental Tire the Americas L.L.C., Bridgestone Americas, Michelin North America Inc. and Yokohama Tire Corp. all are investing in car and light truck tire capacity at plants in the U.S. In addition, Pirelli Tire North America Inc. recently opened a consumer tire plant in Mexico—largely to supply customers in the U.S. and Canada—and Hankook Tire North America Inc. has declared its intention to build a consumer tire plant in the U.S. in the next couple of years.
At the same time, imports of passenger and light truck tires to the U.S. keep rising, especially since the three years of elevated tariffs on Chinese-made tires ended last September.
Passenger tire imports from China, for example, jumped 70 percent in this year's first quarter over the 2012 period, for an annualized rate of 36 million units.
A number of Chinese tire makers—including Aeolus Tyre Co. Ltd. and Double Coin Holdings Ltd.—are targeting the U.S. consumer tire market for the first time with their own branded passenger and light truck tire products.
In addition, as profiled in this issue of Tire Business, growing numbers of U.S. private branders are taking on proprietary Chinese consumer tire brands for their customers.
Something's got to give and, if history and the law of supply and demand hold true, the pressure value of tire pricing will be the first to feel the effect.