SHANGHAI, China—Goodyear will boost procurement from China tenfold in the next five years, buying equipment and materials for U.S. and European plants as well as more tires from third parties to sell in those markets.
"China is capable of producing high quality products in large quantities to meet our global requirements," Goodyear CEO Robert Keegan said in an interview in Shanghai. "We need to educate Chinese companies to bring them up to global standards, but we think we can do it."
Goodyear purchases about 1 percent, or $80 million, of its total procurement needs from China. That should rise to 10 percent by 2010, said Keegan, who was in China to announce the establishment of an Asia-Pacific headquarters in Shanghai.
In a break from its traditional practice, Goodyear is buying tires from other companies in China for export. This third-party sourcing will grow, Keegan said, without identifying from which company or companies Goodyear is outsourcing.
"That is a dramatic shift for our company," he said. "We are going to export more third-party tires. They are making opening price point tires."
Last year, Goodyear indicated it was contemplating outsourcing its Steelmark truck tire line to Triangle Tire Co. Ltd. in Qingdao, China.
Goodyear also is stepping up exports from its Goodyear Dalian Tire Co. Ltd. subsidiary where capacity will reach 5.3 million passenger car tires annually by the first quarter of 2007, up from 1 million, thanks to a five-year, $120 million investment project.
By year-end, 30 percent of the output from the plant in the north China coastal city of Dalian will be exported to the U.S. and Europe. As the China market expands, though, "there will come a time when 100 percent of Dalian´s output will be for the domestic market," Keegan said.
According to Goodyear´s agreement with the United Steelworkers of America, there are no limits on its imports as long as U.S. plants are operating at a "significantly full level," Keegan said.
Exports played a key role for Goodyear´s China operations in 2004, when sales in China´s passenger car market rose 15 percent compared with 70 percent in 2003.
"When business slowed last year, we were able to export product to Europe and the United States," Keegan said.
Goodyear forecasts that China´s passenger car sales will rise by 12 percent this year. In 2004, 2.4 million cars were sold in China, according to Automotive Resources Asia, a consultancy in Shanghai.
Car makers have been Goodyear´s primary customers in China, but replacement tire sales are on the rise along with private car ownership. Currently, 60 percent of cars are privately owned in China, up from 43 percent five years ago, Keegan said. "We are moving our focus from original equipment sales to passenger car replacement sales."
Goodyear is moving its Asia-Pacific headquarters to Shanghai from Akron in the second quarter, a sign of China´s growing importance to the Akron-based firm.
Pierre E. Cohade, president of Goodyear´s Asia-Pacific region, is taking up residence in Shanghai in advance of the firm opening its office.