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As exports grow, so does quality of Chinese tires, exec says

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Walt Weller, vice president for strategic accounts at CMA L.L.C./Double Coin.
Photo by RPN photo by Miles Moore Walt Weller, vice president for strategic accounts at CMA L.L.C./Double Coin.

ORLANDO, Fla.—Major improvements in product quality and organic changes in the tire market have sparked China's dramatic rise as a tire importer in the U.S. and around the world, according to Walt Weller, vice president for strategic accounts at CMA L.L.C./Double Coin.

Barring any government actions to block Chinese tire imports, China's position in the world tire market only should strengthen, Weller said at the International Tire Exhibition & Conference for tire dealers in Orlando, Fla.

With 110 operating tire plants in 2012, China produced 28 percent of the 1.32 billion tires manufactured around the world that year, he said, 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 end of Section 421 tariffs requested by the United Steelworkers union, Weller said. Quoting figures from the U.S. Department of Commerce, he noted that Chinese tire imports to the U.S. rose from 24.6 million in 2011 to 50.8 million in 2013.

Those numbers came from current antidumping and countervailing duty investigations before Commerce and the International Trade Commission, again instigated by the USW.

“Why is the USW picking on China?” 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 U.S. tire manufacturers made 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 Weller. But when the U.S. industry consolidated, tire manufacturers made the conscious decision to concentrate on producing only its 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,” Weller said. “That philosophy continues today.”

Meanwhile, Chinese tires, which had been variable in quality, became more consistently excellent over time, Weller said.

“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, he said. The Tier 3 market supplies 30 percent of world truck tire demand, up from 10 percent 20 years ago, while the Tier 1 share has fallen from 65 to 45 percent, 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, he said.

“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 Weller acknowledged the renminbi, the official currency of China, 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.

“If China changed its currency exchange overnight, there'd be turmoil ... The renminbi is the currency Chinese people are paid in, and the currency in which their savings are denominated.”

A few years ago, 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 some 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.”