AKRON—Overproduction of truck and bus tires in China and other countries has put the U.S. tire market in flux, especially the retread market, according to Aaron Murphy, vice president, commercial tire sales, for TBC Corp.
“Retreads became less competitive against new tires as manufacturers reduced new tire pricing,” said Murphy, a former vice president of CMA L.L.C. (Double Coin) who has made nearly 60 trips to China for sourcing and product development.
He spoke at the International Tire Exhibition & Conference, held Sept. 13-15 in Akron.
In 2002, there were approximately 20 truck and bus tire factories in China, producing about 10 percent of world supply, he said.
By 2015, China had more than 120 truck and bus tire factories, some with multiple brands, and boasted 14 of the top 40 tire manufacturers in the world, he said.
“Fueled by economic policies and a downturn in domestic demand, (Chinese) factories exported more and more,” Murphy said.
Sharp decreases in the price of natural rubber, oil, steel and carbon black combined with burgeoning supply to cause the price of truck tires to drop, he said.
Chinese truck and bus tires became more competitive against other brands, especially during the production shortages of 2010-12, he said.
The cost per mile for higher-technology tires improved, and Cost Plus marketing also played a role, he said.
By 2013, tire makers around the world were cutting prices because of lower material costs, according to Murphy.
The market sector that suffered the most from this was retreads. In the 2013-16 period, he said an LP22.5 retread and an LP22.5 new truck tire both cost about $175.
“As low-cost TBR products began to sell below retreaded products, adjustments were made to retread rubber to overcome price discrepancies, right?” Murphy said.
“Incorrect. With the limited number of retread companies—the Big Three hold a market share of approximately 80 percent—they held pricing steady.”
In reaction to this, retread companies started offering lower-technology retread rubber at about 20 percent less than standard rubber, mostly for non-National Fleet customers, Murphy said.
“New tire prices were reduced by a much greater percentage,” he said.
Dealers feeling the effects of a softer retread market embraced Opening Price Point new tires, according to Murphy.
The 2008-10 downturn and 2010-12 shortage also pushed fleets toward OPP new tires, he said.
Small fleets started buying OPP new tires to save money, and larger fleets bought them at trade-in or in trailer positions, he said.
Meanwhile, dealers still struggled with profitability because manufacturers controlled National Fleet delivery commissions, according to the TBC executive.
“All (these factors) created a market for inexpensive TBR products,” he said. “The more it (the TBR market) grew, the more it became a focal point.”
With the coming of new duties in 2016, market disruption is here and will continue, Murphy said.
The Chinese government continues to pay subsidies to even the most inefficient tire facilities, largely because it doesn't want to lay off workers, he said.
“I know of one plant that had 3,500 employees and produced 2,000 tires a day when it should have been producing 20,000,” he said. “But the government doesn't want to close it,”
Murphy added that “we have a trade war going on, whether we like it or not. Will it drive any OPP tire production to the U.S.?
“Recent history says no—high-technology tires are produced here, but entry-level production seems to be moving offshore.”