AKRON (Sept. 19, 2014) — Like most of life, the tire industry tends to run in cycles.
Economic conditions in the business ebb and flow and along with it the need to add or subtract capacity.
The tire industry currently is in the middle of a boom cycle. During the past two years, tire makers around the globe have announced more than $16 billion to build new tire factories and to expand or modernize existing ones.
In the past 12 months, the firms announced plans for 11 new plants that will represent annual capacity of up to 46 million units of new consumer tires and 4 million to 5 million commercial tires. That's on top of more than a dozen factories opened in the past year that account for more than 50 million units of passenger/light truck (PLT) tires and 5 million commercial/OTR units a year.
On the flip side, just six factories are to be closed by the end of 2015, taking just 10 million units of PLT and 4 million units of truck/bus tires out of the market each year.
Activity in the U.S. tire industry has been especially brisk. During the 1990s, just three tire plants opened in the nation: Bridgestone Americas facilities in Warren County, Tenn., and Aiken, S.C., and the GTY Tire Co. joint venture that was located adjacent to the Continental Tire the Americas L.L.C. factory in Mount Vernon, Ill.
But just since the beginning of 2012, no fewer than four tire facilities have opened in the U.S., and four others have broken ground or been announced. And that doesn't take into account numerous other tire factories set for expansions costing hundreds of millions of dollars.
The problem with cycles, though, is that the pendulum eventually will shift the other way.
No doubt each of the tire makers can cite data justifying every one of these projects and show why their new capacity is needed. And many of the investments are geared toward producing nearer where the tires will be consumed, saving millions in logistics costs.
Likewise, margins are strong in the tire business these days—approaching 13 percent—and governments are eager to pony up with incentives.
But sales and unit growth projections in the tire industry just don't back up the need for all this capacity. Down the road will come the inevitable overcapacity situation, and there will be plants that need to be shut down to bring capacity back in line with demand.
Then the cycles will start all over again.
This editorial recently appeared in a print edition and on the website of Rubber & Plastics News, an Akron-based sister publication of Tire Business.