Looking strictly at the rising import penetration of passenger and light truck tires in the U.S. replacement business, it might be easy to get the impression that tire manufacturing in the U.S. is a dying industry.
But that impression couldn't be further from the truth. Looking outside the low-cost radial and entry level tire markets—the majority of which are imported—new plants and expansion projects are popping up in various parts of the U.S., with South Carolina getting a large piece of the investment pie.
For the year ended August 2012, tire makers earmarked $2.75 billion for expansion projects in North America, and in the following 12 months announced planned expenditures of $1.8 billion. Some recent projects have included:
• Continental Tire the Americas L.L.C. opened its $500 million passenger and light truck tire facility late last year in Sumter, S.C., and has spent heavily at its other U.S. factory in Mount Vernon, Ill.;
• Bridgestone Americas Inc. is spending roughly $1.2 billion just in Aiken, S.C., building a new off-the-road tire plant and expanding capacity at its existing passenger/LT tire facility. It also has projects ongoing at a number of its other U.S. factories;
• Yokohama Tire Corp. broke ground on its $300 million truck and bus tire plant in Mississippi, as the Japanese-owned company will add its first greenfield site in the U.S. to join the tire plant it acquired in the U.S. about a quarter-century ago;
• Michelin North America Inc. christened its new OTR plant in Starr, S.C., saying the facility was built with expansion in mind, and is boosting capacity at its compounding facility on adjacent land;
• Toyo Tire North America Manufacturing Inc. continued to expand its tire production site in White, Ga.; and
• Two South Korean-owned firms are looking to add their first U.S. tire manufacturing sites, with Hankook Tire Co. Ltd. expecting to break ground this year on a PLT plant in Tennessee and Kumho Tire USA Inc. restarting a long-stalled project in Georgia.
“If you look at the tire market in North America, it's very competitive,” said Steve Shelton, Bridgestone Americas senior vice president of technology, manufacturing and procurement. “But I also think we look at tire manufacturing here in a very positive light. If you look at the last couple of years, we've probably spent $1.5 billion in capital improvements. I think that speaks well for how positive we look at tire manufacturing, especially in the U.S.”
Conti is proud of its new plant in Sumter as well as the Mount Vernon facility, according to David Johnson, the firm's manufacturing coordinator in the Americas. “We have Sumter on track for this year to produce 800,000 tires and to continue growth along the next decade or so until we get it up to 8 million tires,” he said. “At Mount Vernon, we just completed our cornfield expansion. We're ramping that up to get the tires out of there. I think it's very clear that Conti has a commitment to the two U.S. tire plants to continue growth in this area.”
The exodus subsides
Many tire makers believe it's important to have production near the region where the tires will be sold, thus saving heavily on logistics, shipping costs and inventory needs.
“Yokohama's strategy is to employ local production for local consumption as much as possible,” said Alan Easome, senior director, new plant development, for Yokohama Tire Manufacturing Mississippi. “With growing demand in the U.S. for our products, it only makes sense for us to look toward production in the U.S.”
Others echoed those sentiments. “We have a corporate philosophy of being close to the market,” Conti's Johnson said. “It doesn't make too much sense with shipping costs to produce our tires too far afield and then bring them in here.”
Said Shelton: “It's easier to ship raw materials than it is to ship tires.”
That wasn't always the case for tire manufacturers. James Hawk, president and general manager of Toyo's manufacturing site in Georgia, remembers not too many years ago when there was a mass exodus of firms looking to locate in low-labor sites such as China, Indonesia or the Czech Republic.
“What they were chasing was labor costs,” Hawk said. “They were trying to mitigate or eliminate the legacy part of the labor costs.”
While labor and other costs may have been cheaper overseas, it forced those tire firms to carry more inventory, deal with currency fluctuations and ship products halfway around the world, he said, noting logistics costs aren't getting any cheaper.
“It recently turned around,” he said. “You see people wanting to expand and grow in the U.S. And people deep down inside still like "Made in America,' or at least "Made in North America.' They view that as higher quality.”
For Toyo's product line, it was important to establish a U.S. manufacturing presence, Hawk said. “We make lots of heavy truck tires, and they don't ship very well. Weight, density, containers and costs. It makes a whole lot of sense for us to be in America.”
Where to locate
It's no surprise to Hawk that much of the domestic tire manufacturing is located in the Midwest and upper Southeast. Even if you could get a permit to build a plant in California, it's not a central location from which to ship, he said.
Yokohama weighed many factors when it decided to build in Mississippi, said Tex Murakami, president of Yokohama Tire Manufacturing Virginia.
“At the forefront of our decision process is our social responsibility to the communities that we locate in,” he said. “We don't want to just be a new neighbor. We want to be a new neighbor that makes a positive impact on and enhances the lives of those around us.”
Shelton said Bridgestone looks at capital structure, infrastructure, good road systems and rail spurs, access to shipping lanes, the environment of labor and having a good available work force.
“We've had huge success in South Carolina with our Aiken plant,” he said. “The environment of South Carolina is good to have a manufacturing plant.”
The cost of labor is going to be a consideration when talking about manufacturing, Shelton said. “One of the things we've been able to overcome here recently is we're doing a lot of automation work. So with the automation, the efficiency just continues to improve, and as those efficiencies improve, the amount of cost relative to labor continues to go down some from what it was in years past.”
Johnson said labor costs impact production anywhere in the world—not just in the U.S. “If you talk about comparatively,” the Conti official said, “I would say the U.S. has become very competitive in recent years. It's not so much because anything has happened to reduce labor costs here, but the efficiencies in the U.S. are very high, and I think we see labor costs in other areas—particularly the more competitive areas of Asia—are climbing, and they're catching up to where we are here in the U.S.”
What challenges remain
One thing the passenger/light truck numbers don't lie about is how difficult it is—if not impossible—to make entry and low-cost lines competitively in the U.S.
“Most products can be successfully manufactured in America given the right environment,” said Yokohama's Easome. “However, higher-end product—or the "better and best' categories—are an easier fit because companies can cover their capital costs and expenses easier.”
Hawk said much of the sales for smaller tires are for older vehicles, where customers are looking for safe, but more economical products. And while the labor cost to produce the smaller tires isn't a lot different than some larger lines, the price points are significantly different. “You just can't get enough money to make those in the U.S.,” he said.
Shelton sees several challenges to manufacturing in the U.S. One of the most important, he said, is attracting skilled trades, electricians, mechanics and engineers to a grueling environment that operates continuously throughout the year. Bridgestone has ramped up its recruiting, especially at its technical center in Akron and its manufacturing locations, to get a broader spectrum of people looking to work at Bridgestone. It also is working closely with community colleges to help groom future talent.
“We have a lot of people working on making Bridgestone in the Americas a premier place to work,” he said.
Johnson doesn't see many challenges producing in the U.S., but he said the market still can't be considered a low-cost manufacturing country. Besides efficiencies, though, producing locally also brings benefits in response time, the Conti official said.
“If we're bringing tires in from overseas anywhere, there are always lead times to consider, and that means we can't often be as agile as we'd like. The bottom line is when you get ready to put the tires in the market, it makes economic sense to produce them as close as possible to that market,” Johnson said.