Tire manufacturers are riding the auto boom to increase production but they continue to lose market share to imports they cannot compete with.
Last year tire shipments, which represent the amount of tires sent to customers, crossed 310 million units – the highest in a decade. But production increased only 4.2 percent in passenger vehicle tires and 1.4 percent in light truck, according to Rubber Manufacturers Association (RMA).
“We saw the economy come back, oil prices were low, people were driving more,” said Tony Fouladpour, spokesperson at Michelin.“2015 was especially good year.”
It was a good year for tire shipments mainly because people bought cars in record numbers, resulting in highest sales in the last 15 years. With low oil prices and improving job market, it was easier to buy cars compared to past few years when the economy was just starting to recover.
“Auto sales is a highly cyclical industry and after weak performance since the economic recovery began, we are now in the neighborhood of a peak in auto sales,” said Dr. Ken Mayland of Clearview Economics LLC.
But increase in auto sales does not mean a similar increase in tire production in the country.
The largest tire production post recession was in 2011, with almost 172 million units, while the shipments were at 284.4 million units. In 2015, the shipments increased by 29 million units compared to that year but the production actually reduced by a couple of millions.
That is because shipments not only include domestic production but also inventory and imports. And this discrepancy between the amount being shipped and that being produced can be explained partly by the increasing role of tire imports.
Over the past few years, the share of tire imports in the market grew so much that the government placed a tariff on tires coming in from China, as a part of the anti-dumping law. This prevented companies from easily bringing back tires cheaply made in china and driving down the prices here.
The increase in imports resulted in increased shipments without significant growth in domestic production. And even the tariffs, like the ones placed in 2009 and 2015, have not stopped people from importing.
“In 2009 when there was a tariff on China, people shifted to other countries. That’s what apparently has happened this time,” said Dan Zielinski of RMA. “And now companies get it manufactured in other countries and then have it shipped here.”
One such company is Whole Sale Tires USA. The owner, Emerald who has been selling tires since 2007, said he began importing tires from Malaysia and Thailand since the tariffs.
“A tire may be for $120 here but $41 in China after shipping and everything. United States manufactured tires are so overpriced,” said Emerald. “Chinese tires are 60-70 percent as good as Michelin and with such a difference people will buy tires that last two years rather than five.”
“Chinese put up manufacturing in Thailand and Malaysia, and now I’m buying so many tires from Malaysia and warehousing them before they put a tax on those,” he said.
Though imports from other countries have increased, tires from China decreased by total of 50 percent last year and it marked the first time in a while where domestic production took back at least a little of the import market share.
This could possibly be a start toward increasing dominance of domestic production in the market, which will be given a boost by the opening of three new tire-manufacturing plants over the next two years.
Kumho Tire are set to begin manufacturing in Georgia in the next few months. Hankook and Giti Tire are expected to begin operation sometime next year.
This comes at a time of declining employment in tire manufacturing. With 56,000 people working in the industry last year, it was the lowest number since 2008, according to Bureau of Labor Statistics.
Though with these additions in United States’ manufacturing capacity and signs of improving economy, the RMA is forecasting this year to be even better. Total U.S. tire shipments are projected to surpass last year’s record high.