Tire company management and workers sometimes seem to do everything right, but in the end things still don´t work out.
Take Bridgestone/Firestone´s tire plant in Oklahoma City for example, according to Steve Brooks, BFS vice president of manufacturing operations. The company invested tens of millions of dollars at that site to convert production to larger, higher-margin products, and management and the United Steelworkers local worked together to reduce injuries. The changes led to the facility consistently making its "ticket" and hitting other target goals.
Yet the passenger and light truck plant still got a pink slip.
BFS said the factory lost $40 million in 2005 and was on pace for a $60 million shortfall this year. The USW continues to hope it can save the plant and jobs of 1,400 people who work there.
"Some of that is the market is just going away," Brooks said. "With raw material prices rising, it´s impossible to recover those costs in the lower-end market."
The BFS operation in Oklahoma City hardly is the only tire plant in the U.S. and Canada to face such a fate, especially among factories making mass market tires that have been hurt by an influx of low-cost imports-including ones owned by Michelin, Continental Tire North America Inc., Goodyear and Cooper Tire & Rubber Co.
These reductions come against a backdrop of a tire market in the U.S. that is forecast to decline this year, according to a recently revised forecast by the Rubber Manufacturers Association. The RMA expects total tire shipments for auto and truck categories to drop 2.8 percent-or 8.9 million units-to about 312 million units for the year, before rebounding in 2007.
And while the U.S. market itself is now just starting to drop, a closer look at RMA data shows that tire production in this country has been falling for several years as imports continue to grow. From 2003-05, total tire production declined 5.4 percent in the U.S. to 223.2 million units, while imports jumped 24.3 percent to 136.2 million, the RMA reported. The production number will fall even more this year when the closings and planned cutbacks are fully implemented.
Ron Hoover, for one, isn´t shy about where to assess blame for the cutbacks. The United Steelworkers executive vice president and head of the union´s Rubber/Plastics Industry Conference said the "cutbacks are the result of the oil barons in the White House and gas over $3 a gallon."
Those factors, coupled with low-cost imports, have made it difficult for the companies and his union, which represents workers at nearly all the facilities hit by shutdowns or cutbacks.
"In my opinion, the Chinese are dumping here," Hoover said. "Even with the best relations, a company and union can´t compete against government subsidies and currency manipulation."
The USW leader said a "good start would be to enforce our existing trade laws."
Many of the cutback announcements came as the Steelworkers have been in master contract bargaining, but Hoover said that in itself hasn´t made these talks any tougher than usual. "We have not been in a set of negotiations in a long time that haven´t been difficult," he said.
A number of factors come into play when deciding where to produce tires, said BFS´ Brooks. Being part of a company like Bridgestone, with plants around the world, opens up a lot of options.
"We look at where it makes most sense for Bridgestone as a global company," he said.
That means looking at the competitiveness of each facility, seeing what products are made there and deciding-based on economies of scale-whether it makes sense to make all of a product at one plant or at several sites.
Bridgestone officials noted that not all of its recent cuts have come from the U.S. Its decision to shutter a tire facility in Chile by the end of this year came about for reasons similar to those in Oklahoma City.
Hank Eisenga, plant manager at Conti´s Mount Vernon tire facility, said a tire company must be able to compete in any region; service the original equipment and replacement side of the business; and be able to meet customer needs on a continuous basis.
"You have to look at all costs, and look at all the goods and services that are demanded in the marketplace, and ask yourself if you are putting yourself in a position to satisfy that," he said.
At Mount Vernon, Eisenga said Conti looked at the operation closely and saw that it had the necessary core competencies, a good level of efficiency and a dedicated work force. Early this year that led to a smaller capital investment followed by the increased $70 million to $100 million announcement this past month.
"They saw improvement over the years in this facility, and we´ve shown it is a strong operation we can expand upon," he said.
Goodyear officials wouldn´t comment directly because of its ongoing union negotiations, but Jonathan Rich, president of Goodyear North American Tire, made it clear in remarks to negotiators during the first day of contract talks that the ultimate goal was only to win with customers.
"They don´t care where a tire is made," Rich said. "Americans have no loyalty to American-made products just because they are manufactured here. That lesson has been learned in other industries."
Production flight not inevitable
The recent cutbacks notwithstanding, it´s not likely that the near future will see an exodus of the majority of tire manufacturing from the U.S. and Canada.
The low-end products will continue to come increasingly from low-cost countries, but domestic operations still have some inherent advantages, according to Don Cook, director of global direct materials for ICG Commerce, a leading procurement services provider.
For example, while China may boast state-of-the-art facilities, workers there still can´t match those in the U.S. "The craftsmanship is missing," said Cook, whose company boasts Goodyear as one of its largest clients. "They don´t know how to make these products."
Cook sees the current situation as the past repeating itself in some ways. "Stuff has been getting off-shored for years," he said. "At one time, everything was to be made in Japan, and it´s not."
Another way for manufacturing to prosper here is to continue concentrating on making top-line tires. "Companies like Goodyear and Firestone have been going up the value chain to higher-end products," he said.
By concentrating on offerings like the Assurance, Goodyear is "creating a demand for better tires," Cook said.
Bridgestone reported similar success with its Blizzak winter tire, which has seen high sales despite a steeper price tag. "You can in a sense build a better mousetrap and be successful," a BFS spokesman said.
The USW´s Hoover said the union has been emphasizing this point in its talks with tire makers, pushing for the investment to produce higher-margin tires. "People will buy tires they are comfortable with, that they get good service on and that their family is safe on," Hoover said.
Keeping factories competitive
But it is clear that any tire manufacturing that remains in the U.S. and Canada has to be competitive with operations around the globe.
That can be difficult when all the top players are suffering financially, as is the case in the tire industry, said Tony Clary, vice president and risk industry manager for Euler Hermes ACI, a global trade credit insurer. The firm just completed an industry risk analysis on the tire industry that doesn´t paint a rosy picture of the sector´s near-term prospects.
"If you look at the top five manufacturers, most are suffering from industry issues, rather than company-specific issues," Clary said. "So in a company like Goodyear´s case, where they have announced they are in a turnaround phase, it makes it difficult."
Cook said two items are vital in keeping tire operations viable: a competitive labor contract and a continued focus on cutting costs.
"What we see and why we are so confident in U.S. industry is the relentless drive to reduce costs," he said. "We don´t see that anywhere else in the world. It´s not just about jobs. It´s about higher efficiency and lower costs."