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September 05, 2006 02:00 AM

Slump hits imports, but not as much

Miles Moore
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    WASHINGTON—The slump in tire demand in the U.S. so far this year has affected even imports, although the significant cut in production capacity might change that.

    Shipments of passenger, light truck and medium truck tires from January through May fell 4.3 percent to 138.1 million units, according to the latest figures from the Rubber Manufacturers Association. Imports during the same period increased 1.5 percent to 58 million units, but that is a far cry from the double-digit growth recorded in each of the past several years.

    The slowing pace of imports affected most of the U.S.´s major trading partners. The exception is China, which continued its steady growth as a tire exporter to the U.S., especially in the truck tire categories, according to the U.S. Department of Commerce data.

    For the five-month period, imports of light truck tires from China jumped 46.4 percent to 2.3 million units and medium truck/bus tires 43.9 percent to 2.1 million.

    Passenger tire shipments from China rose 2.8 percent to 7.4 million units. Coupled with a decline in imports from Japan, China has become the U.S.´s No. 2 source of imported car tires after Canada.

    While imports overall plateaued during the period, foreign-made light truck tire shipments grew 13.3 percent and medium truck/bus 20.8 percent, while passenger tire imports fell 0.3 percent.

    In addition, the Commerce Department data show two emerging trading partners-Indonesia and Thailand. Imports of auto tires from Indonesia shot up 118.6 percent to 1.7 million units, and shipments of medium truck tires from Thailand grew 84.6 percent to 502,195 units.

    Imports from Canada and South Korea, on the other hand, fell in all three categories.

    Production by U.S. tire makers declined 3.2 percent during the five-month period, with passenger tire output off 3.6 percent and light truck tire 1.8 percent. Medium truck/bus tire output rose 0.4 percent.

    Exports-which represent about 15 percent of U.S. shipments-grew 11.3 percent during the period.

    The closing of Continental Tire North America Inc.´s Charlotte, N.C., plant in July will take about 3 million units of production out of the second half. Bridgestone/Firestone shutting its Oklahoma City plant probably won´t show up in the RMA data until next year.

    Michelin North America Inc.´s plan to trim output at its BFGoodrich Tire plant in Opelika, Ala., will have a more immediate effect.

    Why are imports up when shipments in general are down? For Dennis Virag, president of Automotive Consulting Group Inc. in Ann Arbor, Mich., it´s a simple matter: price.

    "In a global economy, it´s always the price," Virag said. "When you look at Asia, those are low-cost countries with relatively low-cost labor markets. They can produce things at a pretty substantial savings over the U.S. and Canada."

    As former low-cost countries improve their standards of living, they lose manufacturing to lower-cost countries, he said. "Japan used to be the low-cost producer. Then it was Korea, and now it´s China, Indonesia and Thailand."

    Steven Hutchinson, senior director of marketing at Toyo Tire (USA) Corp. in Cypress, Calif., said the increase in imports to the U.S. is related to low-cost radials and the need for low production costs. But the need for low costs may cause the trend to reverse, he said.

    "Look at what is happening to private label tire production," Hutchinson said. "Now, consider the recent increases in fuel and transportation costs. The shift to imports may be reversed soon due to higher transportation costs. We may evolve to ´just around the corner´ types of manufacturing as transportation costs become so much more a part of our expenses."

    Michelin North America said competition from imports was behind its decision earlier this year to close its BFGoodrich tire plant in Kitchener, Ontario, and reduce production 30 to 40 percent at the BFGoodrich facility in Opelika, Ala.

    While increases in passenger tire imports were larger than those of light truck tire imports, Michelin imports less than 15 percent of the tires it sells in North America.

    "All production is fundamentally driven by customer demand," the firm said. "Our global supply chain gives us flexibility to deal with the ebb and flow of customer demand."

    Hutchinson declined comment on how Toyo determines how many tires to import to the U.S.

    "There is pretty clear evidence that the higher prices consumers are paying for fuel are having a negative effect on other areas of consumer spending, tires included," Hutchinson said. "Since we are truly in a global economy, oil prices around the entire world are up."

    Michelin said it saw shipment declines in the U.S. and Canada only, contrasted by growth in Asia, Europe and Mexico.

    For demand to increase again, the growth of vehicle miles must return to historically normal levels, Michelin said.

    Hutchinson said that, in the current business and economic environment, he expects tire demand to remain depressed for another 12 to 18 months.

    "I do not see lower oil prices on the horizon as part of the fix," he said. "Consumers will have to adjust spending or earnings in order to overcome the fuel bills. Some luck would help too-a warm winter will soften winter demand for heating fuel."

    Bruce Davis, Rubber & Plastics News staff, contributed to this report.

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