Recently a colleague emailed me to ask: “Have you seen the latest list of SmartWay-approved low-rolling-resistance commercial vehicle tires? The number has doubled since the previous version!
“Judging by some of the photos of these tires, I simply can't accept that they offer any fuel economy benefit. Did this cause the Commerce Department to levy the tariffs on Chinese tires?”
Since I hadn't visited the SmartWay website in awhile, I did go online and found that there are indeed 210 tire brands on the list now and almost all of them have two or more tires verified. This number of verified tires has indeed exploded, thanks in a large part to the presence of a profuse number of Chinese brands.
You may not have heard of many of these companies and their tires. Some of these tires can only be purchased on e-Bay while others are being offered in 20-foot container lots direct from a manufacturer in China. Are they really fuel efficient? The answer is, “Compared with what?”
You have to understand how the SmartWay tire program works. In the overall scheme of things, it is relatively easy for lesser-quality tires to become SmartWay verified. All that tire manufacturers have to do is provide proof that their fuel efficient tire saves at least 3 percent or more in fuel consumption relative to their own best-selling new tires for line haul tractors when used on all three axles.
Since they may be comparing a slightly better tire to a really bad, inefficient one they produce, they can get on the SmartWay list. The fuel economy tests are conducted by the manufacturer itself and since the U.S. Environmental Pro-tection Agency (EPA), which runs the SmartWay program, does not have the capability to check the test results, it must trust the manufacturer to honestly report fuel economy numbers.
So, since they are comparing their own tires and conducting the fuel economy verification tests themselves, you can see how they can get on the list with tires that look like they would operate well in mud and sand. You can also see that these tires probably are not close at all when it comes to fuel efficiency when compared to other tires on the list produced by Tier 1 and Tier 2 manufacturers. But they are fuel efficient when compared to other tires these manufacturers produce.
Although the tariffs levied on Chinese tires were placed on passenger tires and not truck tires, they did have an impact on the commercial truck tire market as well. Since the Chinese could not sell passenger tires as cheaply in the U.S. anymore, they turned to truck tires to export to the U.S.
Getting these tires on the SmartWay list also helped to sell these tires as more and more fleets are demanding that their tires be fuel-efficient—not only to save fuel but to operate in California, which requires all over-the-road commercial vehicles to be SmartWay approved.
In 2014 all tire imports to the U.S. rose about 3 percent to nearly 150 million units, which is a record. U.S. tire manufacturers increased their output of medium truck and bus tires by 7.6 percent to 14.9 million units but still lost ground to medium truck tire imports, which increased 30.1 percent to 13.3 million units.
More than 30 percent of the new tires entering the U.S. replacement market in 2014 came from producers in China.
This year the Rubber Manufacturers' Association (RMA) expects that 17.8 million replacement commercial truck tires will be required for the U.S. market. This segment is expected to increase by 400,000 units or 2.3 percent over 2014. If the Chinese have anything to say about this, expect them to try to move more truck and bus tires into this market and capitalize on this market growth.
So what's so bad—and good—about these Chinese tires? How are they impacting the U.S. commercial tire market?
Well, most of these third-tier tires are priced very low and promise first-tier tire performance. Many look like well-known tires since their tread designs are very similar. Tire production in China is not very consistent, so tread performance and tire durability may vary from one batch to the next. Many fleets buy them only to find out later that their retreaders won't retread them, or the tires fail long before they wear out.
The scary thing is how these tires may affect the medium truck and bus retread market.
If you're old like me, you may remember when passenger tires were still being retreaded in the 1960s and early 1970s. The reason this retread industry segment was almost wiped clean from the face of America was the invasion of cheap imports. When U.S. consumers compared the price of a new, inexpensive, off-shore-made tire to that of a retreaded premium tire, they almost always chose the new import. As a result, the demand for retreaded passenger tires faded away along with the retread shops that produced them.
Today there are only a few plants that produce passenger retreads primarily for taxi fleets and, of course, for Harvey Brodsky, managing director of the Retread Tire Association. Could this happen to the truck and bus retread tire industry?
Today there are approximately 700 retread facilities in the U.S. that produced around 14.6 million retreaded truck tires in 2014. The number of retreads produced has held pretty steady over the last 15 years. However, sales of new medium truck tires have increased sharply, especially in recent years, due to increased new truck and trailer sales.
In 2014, retread production grew about 5 percent, but it is expected that 2015 will be a pretty flat production year. Retreads comprised about 55 percent of the total replacement medium truck tire market in 2000. Ten years later, the Rubber Manufacturers Association (RMA) estimated that retreads made up only 45 percent of the replacement market—and it may be less than that today.
There are reasons to be concerned about that development. A big driver of this decline is the trend to purchase low-price imported tires rather than retreads, as the industry suffered for a while with relatively high casing prices. The resurgence in new truck, tractor and trailer sales also reduced the availability of casings, and that has taken about 18-24 months to bounce back.
Also, some larger fleets I'm familiar with are buying premium tires for steer and some drive positions and Chinese tires for trailer and also some drive positions. They do not want to retread the Chinese casings as they recognize that they are really disposable.
However, for the price they are paying for them, they feel that the cost per mile is better in their operations if they do this.
If more and more fleets decide to take this route, there will be fewer quality casings funneling into retread shops. The Law of Supply and Demand will kick in—and that will put a lot of upward price pressure on scarcer, quality casings available for retreading and, therefore, increase the price of retreads. This will make it harder for retreads to compete price-wise against Chinese brands being sold at prices below retreads.
Even today, prices for some Chinese brands are well below the price of a quality retread. And as more and more Tier 4 tires enter the market, the harder it is becoming to find Tier 1 and 2 casings to retread.
With low cost imports squeezing the price on retreads, there will be pressure on raw materials prices and retread manufacturers will have to lower their prices on tread rubber in order for the industry to remain competitive against this foreign threat.
I should note that not all Chinese-made tires are of poor quality. There are a handful of reputable manufacturers that make fairly good-performing tires that are retreadable.
But there are literally hundreds of other manufacturers in China that don't produce good tires, and you and your fleet customers should be aware of this. Even if you evaluate some today and find them acceptable, the next shipment may be different.
Variances in quality from one batch to another are a chronic problem with Chinese manufacturing in general—and not something limited to just tires.
What should be pointed out is that the current state of Chinese tire production will not be like this forever. Right now there are literally hundreds of tire manufacturers in China, but very few of them make advanced-technology products.
However, the Chinese government is taking steps to consolidate the country's tire industry, reduce the number of tire manufacturers and move away from low-value tire product lines to more advanced and higher-quality tires.
This will have a significant impact on the North American commercial truck tire market when this happens, especially if these manufacturers can continue to price their products well under Tier 1 and 2 manufacturers and quality retreaders.
Now that Chinese tires have gotten not just their foot—but perhaps their entire leg—in the U.S. commercial truck tire market door, commercial fleets will continue to gain more knowledge and acceptance of Chinese tires as their quality and performance improves.
And when more Chinese tire firms actually begin making and marketing products that have advanced technology, look out.
I can imagine that this scenario will be very similar to the evolution of Japanese-made products after World War II. Through the 1950s and 1960s the quality of products produced by Japanese manufacturers was terrible, but they flooded the American market since our nation was committed to rebuilding the country after dropping the Atom Bomb on Hiroshima and ending the war. As a result, all Japanese products got a reputation for being of very poor quality.
However, with the help of William Edwards Deming, Japan turned its manufacturing quality around by adopting his quality principles, which included Statistical Product Quality Administration. In fact the Japanese actually had what has become known as the Japanese post-war economic miracle between the years of 1950 and 1960, when Japan rose from the ashes of World War II to become the second most powerful economy in the world in less than a decade. This quality revolution was founded on the ideas Mr. Deming taught which were:
1. Better design of products to improve service.
2. Higher level of uniform product quality.
3. Improvement of product testing in the workplace and in research centers.
4. Greater sales through global markets.
Do you think his books have been translated into Chinese?