“I think it's going to be some time before they're able to compete head-to-head throughout the product portfolio of a Tier II manufacturer,” he said. “They might be able to compete with the value price product from a Tier II manufacturer, but I don't think it's going to be anytime soon that they'll compete on through that product portfolio.”
The best advantage Chinese-made tires have to offer is still price, Mr. Mayfield said, and with that advantage comes the ability to impact that market as a whole through price fluctuation.
Following the expiration of the elevated tariffs on Chinese-made consumer tires in September 2012, prices of Chinese tires decreased substantially, contributing — along with reduced raw material prices — to devaluation on tires across the board.
As the tariffs were about to expire, for example, Del-Nat took steps to ease the transition. It got its warehouse in Memphis qualified as a Foreign Trade Zone (FTZ), which allowed the company to import tires duty free and hold them until after the tariff rate changes, Mr. Mayfield explained in a 2012 Tire Business story, noting that obtaining FTZ status was a process that took more than a year.
Longer term, he added, having FTZ status for the Memphis facility would give Del-Nat a financial advantage of being able to warehouse imported tires duty-free.
Companies with FTZ warehouses pay duties on goods only when they leave the storage facility, he said at the time, which can help improve cash flow.
Addressing consumer acceptance of lower-priced tires, Mr. Mayfield said he thinks “that different brands in the market have a position that consumers accept them at, and so when you had the entry level position drop significantly when the tariff expired it forced everybody else to react to that.”
Del-Nat leases a portion of its Memphis warehouse to China's Qingdao Doublestar Industrial Co. Ltd. to store and distribute its Doublestar medium-size steel radial heavy-duty truck tires.
Rather than a blurring of the lines, there has simply been a repositioning of the tiers, Mr. Mayfield said. Prices of Chinese tires have stabilized and remain predominantly at the entry level.
“I think there is better delineation,” he said. “It's just that other manufacturers had to adjust their pricing. The pricing on the Chinese tires is certainly a strong factor in the market, and (for) the tier two brands that offer value price lines it's made it more difficult for them to be able to compete against those Chinese brands.”
While a growing middle class in China means that the long-term plan of most Chinese tire makers is to convert production to the domestic replacement market, those levels are still modest.
“I think it's going to be some time before they can consume a substantial percentage of the tires that they're producing today,” he said.
