ORLANDO, Fla.Major improvements in product quality and organic changes in the tire market have sparked China's dramatic rise as a tire exporter to the U.S. and around the world, according to Walt Weller, vice president for strategic accounts at China Manufacturers Alliance L.L.C. (CMA).
Barring any government actions to block Chinese tire imports, China's position in the world tire market should only strengthen, Mr. Weller said at the International Tire Exhibition & Conference (ITEC) in Orlando Aug. 20-22.
With 110 operating tire plants in 2012, China produced 28 percent of the 1.32 billion tires manufactured around the world that year, according to Mr. Weller, quoting statistics from steel wire producer N.V. Bekaert S.A. This compared with 23 percent from the European Union, 17 percent from Japan/South Korea and 14 percent from North America, he said.
Chinese tire exports to the U.S. have more than doubled in the years since the expiration in September 2012 of Section 421 tariffs requested by the United Steelworkers (USW) union, according to Mr. Weller. Quoting figures from the U.S. Department of Commerce, he noted that Chinese tire exports to the U.S. doubled to 50.8 million in 2013 from 24.6 million in 2011
Why is the USW picking on China? Mr. Weller said. Union membership in the U.S. is at historic lows, and since the early 1990s no new tire factory has opened in a traditional union state.
However, it is incorrect to blame the Chinese government for its success in the U.S. market, he said. Instead, decisions made by U.S. tire manufacturers in the 1990s and early 2000s allowed China to enter the U.S., and the quality gains made by Chinese manufacturers did the rest, he said.
In previous years, U.S. manufacturers supplied private brand companies with tires for the lower-priced end of the market, according to Mr. Weller. But when the U.S. industry consolidated, tire manufacturers made the conscious decision to concentrate on producing only their flagship brands domestically.
U.S. manufacturers focused on Tier 1 and Tier 2 brands, and left Tier 3 to importers, he said. At the same time, a volatile relationship developed between the union and manufacturers, with absolutely no cooperation between the two sides. This created an environment in which new plants would only be built in non-union states.
The plants that were closed to rationalize production were mostly plants that produced private brand tires, Mr. Weller said. That philosophy continues today.
Mr. Weller declined to comment specifically on the current Department of Commerce/International Trade Commission countervailing and antidumping investigations, which are still in progress.
Meanwhile, Chinese tires, which had been variable in quality, became more consistently excellent over time, according to Mr. Weller.
The quality gap has narrowed dramatically, he said. The perception of Chinese tires is changing, just as it did for Japanese tires in the 1980s.
China now supplies 55 percent of the global demand for truck tires, and has the capacity to supply 85 percent, according to Mr. Weller.
The Tier 3 market now represents nearly a third of world truck tire demand, up from 10 percent 20 years ago, while the Tier 1 share has fallen to 45 percent from 65 percent, Mr. Weller said.
Tier 2 demand has remained consistent at 25 percent.
The increasingly better quality of Tier 3 tires, coupled with supply problems from Tier 1 producers, caused this shift in the market, according to Mr. Weller.
Major brand allocations have caused fleets to seek alternatives, he said. Major brands no longer offer the best cost-benefit package to end-users.
While Mr. Weller acknowledged that the renminbi is still somewhat undervalued compared with other world currencies, he said the Chinese government is trying to rectify that.
They are undertaking efforts to tighten their currency and exchange rates, he said.
Those efforts are paying off. When I started with Double Coin, the exchange rate was nine renminbi to the U.S. dollar. Now it's down to six.
Mr. Weller joined CMA in 2006 after stints with Goodyear and Bridgestone/Firestone. He has more than 30 years of industry experience. CMA is the U.S. import/distribution subsidiary of China's Double Coin Holdings.
Similar things are happening with the Japanese yen, but no one talks about that, Mr. Weller said.
If China changed its currency exchange overnight, there'd be turmoil, he said.
You have to remember that the renminbi is the currency Chinese people are paid in, and the currency in which their savings are denominated.
A few years ago, Mr. Weller predicted there would be major consolidation in the Chinese tire industry. That prediction, he said, did not prove to be accurate.
There's been a little consolidation among Chinese manufacturers, but not nearly as we thought, he said. It's got to happen at some point, because the market is too fractured with 110 plants.
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