There's a “perfect storm” brewing in North America that could lead to unprecedented competitiveness heading into the second half of the decade.
Recent announcements by South Korea's Hankook Tire Co. Ltd. and Kumho Tire Co. Inc. that they are committed to building car and LT tire plants in the U.S. in the coming years could add 7 million units or more of new annual capacity.
This new capacity would be on top of a handful of other expansion projects begun in the past couple of years that collectively are adding at least 17 million units of annual consumer tire capacity in North America.
Factor in stead-ily increasing im-ports from Asia—representing as many as 110 million car and LT tires this year—the prevailing mood of harmony between the United Steeworkers (USW) union and U.S.-based tire makers, and U.S. aftermarket demand that continues to defy all growth forecasts, and you have a recipe for overcapacity that traditionally leads to price competition.
Hankook and Kumho both alluded to the need to produce locally in key markets as their motivation to build capacity in the U.S. as well as growing OE expectations.
Hankook is targeting three southeastern states for its new plant, which would start at 5 million units a year.
Kumho's announcement is the revival of a project begun in May 2008 but put on hold shortly there-after. The plant in Macon, Ga., was pitched then as a 2-million-unit-a-year facility.
Others in the mix include:
c Continental Tire the Americas L.L.C., with a new plant under construction in Sumter, S.C., (5 million units by 2017) and an expansion of its Mt. Vernon, Ill., plant (4 million units);
c Bridgestone Americas, with an expansion under way at its Aiken, S.C., plant (4 million units by next year);
c Toyo Tire & Rubber Co. Ltd., adding 2 million units a year at its White, Ga., plant;
c Pirelli Tyre S.p.A., adding 2 million units of capacity at its Silao, Mexico, plant by 2017, primarily to serve U.S. demand;
c Michelin North America Inc., expanding capacity at its factory in Lexington, S.C., by an undisclosed amount; and
c Goodyear pledging to invest $700 million over four years to upgrade the plants covered by its master contract with the USW.
Balance this against no planned plant closings and a meager growth forecast for the foreseeable future.
One positive to cling to: New car and light truck sales have been trending upward for the past few years, which theoretically should lead to that elusive beast known as “pent-up demand” being unleashed.
For tire dealers, this could be positive news, as fill rates improve and prices dip, making tire sales easier on consumers' wallets. But the good times likely will last only so long before the trend shifts the other way.