AKRON-Imports of tires into the U.S. from offshore sources have doubled in the past five years and continue to grow at double-digit rates.
Simultaneous with soaring "offshore" imports-from countries where North American-based tire makers have little if any manufacturing presence-employment by U.S. tire makers has fallen six straight years, and the U.S. tire trade deficit has grown to more than $3 billion.
An analysis of data from the U.S. Department of Commerce and the Rubber Manufacturers Association clearly indicates the changing face of the American tire industry. The figures show:
—Imports from offshore sources-from countries such as China, South Korea, Taiwan or India-accounted for more than 35 percent of the U.S. replacement market last year.
—U.S. tire makers and distributors imported 89.2 million tires from overseas, valued at $3.68 billion in 2004. At the same time, American tire makers exported about 10 million tires to nations outside of NAFTA, worth $483.5 million and representing about 4.5 percent of production.
—Employment in the tire industry fell to 68,700 in March 2004, according to the latest Department of Labor statistics. It stood at 87,100 in 1997, RMA data show, compared with a peak of 120,000 in the mid-1970s.
Imports of tires are on pace this year for another double-digit increase, according to Saul Ludwig of KeyBanc Capital Markets´ Equity Research. Demand is particularly keen for tires from Asia, especially China, he said, because of the cost differential.
"If a production worker makes $25 an hour in the U.S. and that same worker in China makes 25 cents, it´s not hard to see why imports are growing," Ludwig said
Every 100,000 tires imported represents about 15 hourly jobs at a U.S. tire factory, according to available industry data.
Made in America
Preserving U.S. jobs was a top priority in the United Steelworkers 2003 labor contract talks with Goodyear, a union spokesman said.
That contract gave 12 of Goodyear´s 14 USW-organized plants in North America precedence for tires designed for sale in North America, while allowing Goodyear to source those same tires overseas if the North American factories are operating at or above their August 2003 capacity levels.
Michelin North America Inc. made similar pledges in a contract signed last year with workers at its BFGoodrich plants in the U.S. and Canada. Committing to North American production has been a point of contention in the long-running Bridgestone/Firestone-USW con- tract talks, for which a tentative agreement was reached June 9.
Goodyear won´t say what percentage of tires it sells in North America are made on the continent. The company had declared its intention to double the number of tires it sources from overseas to 10 million units annually.
Michelin said 80 to 85 percent of the tires it sells in North America are made on this continent. "Michelin´s approach is to manufacture the majority of our tires in the geographic zone where they are sold," the firm said.
Among the major U.S.-based producers, Cooper traditionally has had the highest domestic content, importing less than 1 percent of its tire needs. The company, however, has made major commitments to source tires from China, while converting an increasing share of its U.S. capacity to higher-margin performance tires.
The China factor
China has grown the past few years to become a power in the U.S. tire trade venue. Its rise has been aided by the relative strength of the yuan, which has traded at a fixed exchange rate of about 8.28 yuan per U.S. dollar for the past 11 years.
China has benefited from this currency policy, Ludwig said, keeping the value of its products affordable and consistent. The issue is about to take on political implications, with a bill pending in the U.S. Senate calling for action against China if its doesn´t revise its policy.
Raising tariffs on tires is not really part of the equation, several industry sources said, since all of the domestic companies import tires from their overseas subsidiaries as part of their business model.
The U.S. import duty on most passenger and commercial tires is 4 percent of the declared value.
On the tire export side, the U.S. tire industry never has been particularly strong. Instead, most U.S. companies interested in selling internationally went into those markets with investments. Throughout most of the 20th century import tariffs in most countries were significant enough to compel foreign companies to invest there.
Today the industry´s exports are relatively specialized. Several companies said they ship specific size tires to Europe or Japan for OE fitment on vehicles to be exported to the U.S. or Canada.
Hurting the U.S.?
One concern about the growing use of offshore production is it represents an exporting of technology and know-how, said Alan Tonelson, research fellow at the U.S. Business & Industry Council, a non-profit business association.
He said the tire industry´s pattern of investment the past several years reflects the "product cycle theory" of business development. That theory maintains a company´s decision to supply foreign markets with manufacturing in those regions eventually leads the firm to supply its home markets with goods made overseas.
Such a strategy is tied to increased overseas investment and transfer of technology, he said.
This trend is one that could lead to the bankruptcy of U.S. manufacturing, Tonelson said, as companies here lose their best customers-their own employees.
To suggest that companies not invest overseas or use their overseas assets is naive, according to Frank Vargo, vice president for international economic affairs for the National Association of Manufacturers.
Instead, the future of manufacturing in the U.S. will depend on the country´s ability to develop a highly skilled work force and put more emphasis on technology, investment and innovation, Vargo said.
Government must help with incentives, and it must work to reduce the rising non-wage costs that concern all manufacturer, he said.