China or bust: Tire companies race to source truck tires from China as technology improves
The volume of trade between the United States and China shows no sign of slowing.
China-U.S. trade totaled $285 billion in 2005, according to U.S. government data -- a staggering $277 billion more than 20 years ago.
China and the U.S. became bilateral trading partners in 1979. Today, China is the U.S.' third largest trade partner.
"The barriers of non-acceptance for foreign-made products (in America) are gone," says Dan Hunter, president of Sutong China Tire Resources, a U.S.-based firm that sources Chinese-made tires for American tire dealers. That applies to medium truck tires.
Some 4.5 million medium truck and bus tires were exported from China to the U.S. in 2005.
More tire companies are sourcing truck tires from China for the North American market than ever before.
Made in Hangzhou
No U.S.-based tire manufacturer has been more vocal about its truck tire manufacturing activities in China than Cooper Tire & Rubber Co.
In late 2003, Cooper announced that it would shift its medium truck tire production to China from its plant in Albany, Ga.
All Cooper truck tires are now made by Hangzhou (China) Rubber Co. Ltd.
Cooper is on track to source 250,000 to 300,000 truck tires from Hangzhou this year.
The transfer from the U.S. to China freed up capacity at the Albany plant for light truck tire production, says Cooper Chairman, CEO and President Tom Dattilo.
It also is saving Cooper an unspecified amount of money. "Truck tires are more often being produced in lower cost countries. It's a product that can be transferred to China with some ease."
The transfer wasn't without challenges, according to Dattilo.
"I would say that just about everything you do with China is more difficult than you anticipate. Cultures are still a little different and communication -- because of language barriers -- is problematic."
Hangzhou uses 100% Cooper technology, including many assets that were once used in Albany.
It's clear that Cooper is in China for the long-haul.
Four months ago, it finalized a 51% acquisition of Shandong Chengshan Tire Co. Ltd., one of China's largest tiremakers with some $500 million in annual sales.
Two new companies were formed out of the deal: Cooper (Shandong) Passenger Tire Co. Ltd. and Cooper Chengshan (Shandong) Truck Tire Co. Ltd.
Cooper plans to use the companies to establish the Cooper brand in China.
"The economy of China is exploding," says Dattilo. "You can't have your automotive sales grow 10% to 20% every year... without having an explosion in tires to go with it.
"And the infrastructure that's going up in China demands truck tires. Everything is aligned for that market to grow exponentially."
Chengshan also has a "thriving" export business. "Even before our ownership, (it) exported product to North America and Europe."
Other top 10 global tire manufacturers have turned to China for medium truck tires as well.
Hankook Tire Co. has been making truck tires in China and then exporting them for more than four years.
It costs less to build truck tires in China than in South Korea, Hankook's home country, according to Bill Bainbridge, marketing director for Hankook Tire America Corp.
But the technology and process that Hankook uses in China are the same, he says.
"Our Chinese plant was designed by our Korean people, it's managed by the Koreans and its equipment all comes from Korea."
Bainbridge won't reveal the number of Chinese-made tires that Hankook ships to North America, but says it changes almost on a monthly basis. "Manufacturing is forecasted 90 to 120 days out."
Hankook plans to add truck tire capacity in China "in order to move further up the ladder as a global manufacturer."
Pirelli & Cie SpA also is ramping up its truck tire manufacturing activities in China.
The Italian firm recently announced a $90 million truck and bus tire joint venture with a Chinese tire company called Roadone.
Pirelli -- which also makes truck tires in Italy, Egypt, Turkey and Brazil -- holds majority stake in the venture.
"Everybody who has a position (in China) has a partner of some kind," says Peter Tyson, vice president of communications for Pirelli Tire North America Inc.
The Pirelli-Roadone plant uses Pirelli technology and equipment. "This is not an existing, shoddily made Chinese factory that we have bought into. This is a custom-made, brand new factory with the most advanced production technologies."
Most of the medium truck tires that Pirelli makes in China stay there. "The only way to get into (the Chinese market) is to have a factory there. Without being part of that you lose global market share."
The Italian company does not sell truck tires in North America, but hasn't ruled out the possibility.
"In order to sell truck tires in America you need a service structure in place," says Tyson. "That's a major decision in its own right and one we haven't made yet.
"We could sell truck tires in North America by maybe selling container loads to someone who did have a service network."
Tyson doesn't believe that a "made in China" label would hurt sales of Pirelli brand truck tires in North America.
"At the end of the day, people who operate trucks don't so much buy brands as (they) buy technical performance. Nobody would take these tires on-board without trying them.
"Truck operators are experts on the performance of tires. They can judge very well whether the product is any good at all."
Kumho Tire U.S.A Inc. plans to start making truck tires in China next year.
Continental AG has an office in Shanghai to promote the Continental brand in China. However, the German company has no plans to build truck tires in China.
* Groupe Michelin, Goodyear Tire & Rubber Co. and Bridgestone Corp. also make medium truck tires in China.
* Michelin builds truck tires in China via an 11-year-old joint venture with Shenyang General Tire Factory, but keeps those units in Asian circulation. "It's Michelin's philosophy to build tires in the geographic zone in which they are sold," says a Michelin spokesperson.
* Goodyear imports Steelmark brand truck tires from China to help counter competitive pressures from low-cost Asian imports entering our markets, says a Goodyear spokesman. "It also has helped us free capacity at our North American tire plants for more branded commercial tire production."
* Bridgestone has one truck tire plant in China. A second one is scheduled to start production in January 2007. No Chinese-made Bridgestone truck tires are currently shipped to the U.S.
Yokohama Rubber Co. Ltd. does not build truck tires in China, but plans to start in October 2007 via a new company, Suzhou Yokohama Tire Co. Ltd.
Yokohama will invest $81 million in Suzhou. The plant’s annual production capacity will be 350,000 units.
John Cooney, director of commercial sales for Yokohama Tire Corp., has been told that the truck tires Yokohama will build in China will stay there. (Yokohama also produces truck tires in Japan, at a plant that opened last year in Thailand and at its GTY Mount Vernon, Ill., joint venture with Continental AG and Toyo Tire & Rubber Co.)
Cooney says globalization has leveled the playing field for truck tire manufacturing.
"I believe because of economic conditions there is pressure (to buy) price point tires... but with the astronomical price of raw materials it doesn't matter where tires are made anymore. Natural rubber is at a record high level globally. Synthetic rubber is at a record high level. It's global."
Jeff Kreitzman, CEO of American Pacific Industries Inc. (API) in Valencia, Calif., a long-time importer of Chinese tires, agrees.
Chinese tire manufacturers face the same raw material squeeze as companies in other parts of the world.
"China is not cheap," says Kreitzman. "Everybody thinks that you run to China to build tires for a cheap price. Well, raw materials in China are no different than they are in North America.
"Sure, there are price advantages. But at the end of the day, what (customers) are looking for is a quality product that's competitively priced and delivered on a consistent basis. That's all you need to build a brand."
API sells its Gladiator truck tire line in North America. It builds the tires at one Chinese plant via a joint venture, and supplies all of the factory's technology and management to ensure quality control.
"We just started our factory two-and-a-half years ago. Our platform is new. We use a different bead wire. We use a different bead angle. We have different compounds.
"We have millions of dollars of technology going into our products."
API ships truck tires to North America via container. "We have commercial dealers and wholesalers alike."
The company offers open accounts and doesn't require dealers to put cash in advance. "They can, and we'd offer them a certain discount, but for the most part we sell open accounts.
“Every (company) is different. It depends on their financial backing."
API may eventually buy a plant in China. "We're looking into it. We're not afraid to operate a plant in China."
The overall quality of Chinese-made truck tires is improving if for no other reason than to keep up with the rest of the world, says Larry Williams, CEO of China Manufacturers Alliance LLC (CMA). CMA is a wholly-owned subsidiary of Shanghai Tyre & Rubber Co., a Chinese manufacturer.
It sells its flagship Double Coin truck tire brand in North America, as well as its Warrior associate truck tire brand. (Shanghai Tyre dedicates a set percentage of its overall truck tire production for export to North America.)
"In general, most dealers and consumers will view the quality difference between a product made in China versus a product manufactured in another country as closer than before," says Williams.
"With the influx of major rubber manufacturers moving into China... the products will become even more technology-laden. We know that constantly developing improved components, compounds, patterns, etc., is important to the longevity of our program."
The tires, which will be marketed under the Sumo Cougar brand name, are produced by two Chinese companies, Shandong Wanda Tyre Co. Ltd. and Quindao Doublestar Tire Industrial Co. Ltd.
Officials from both companies “are investing in research and development and are going outside of China to bring in (people) to help them on the technical side,” says Stamford Tires & Wheels Vice President and COO Jim Seidel.
At first Stamford will only sell steer and drive tires in North America, focusing on the eastern part of the U.S. “But we’re expanding into a full line of trailer tires,” says Seidel. “In fact, I just signed off on the tread design of a trailer tire.”
Sutong's Hunter says Chinese truck tire technology is improving so rapidly that "it's difficult to quantify."
Sutong works with 15 to 20 Chinese tire manufacturers to source product for 30 to 35 tire dealers and wholesalers in the U.S. Chinese tires are shipped directly to Sutong's clients, most of whom are high-volume players.
"If you walked into a Chinese factory five years ago and walked into the same factory today, you wouldn't recognize it. In fact, chances are you wouldn't even be walking into the same factory."
Tireco Inc. says Chinese-made truck tires are getting better as well. The company's Chinese truck tires -- which include the Freestar, Nanco, Geostar and Milestar lines -- "go through exhaustive testing and not only meet but exceed U.S. DOT standards. In addition, we offer product liability and manufacturing warranties."
"More major manufacturers are sourcing product from China, so the stigma of 'made in China' has diminished, if not gone away," says Lyle Symonds, senior vice president of private brands for Treadways Corp.
Treadways introduced its Sailun medium truck tire line one year ago. The line -- which is built at a factory near Quingdao, China -- "is the only Chinese offering we have," he says. Treadways offers Sailun truck tires through all of its divisions, and is marketing it one tier beneath its Sumitomo truck tire line.
Wants versus needs
Differences between the Chinese and North American truck tire markets pose another set of challenges when sourcing truck tires from the Asian country, according to CMA's Williams.
"One of the largest issues for supplying tires in the North American market is the proliferation of sizes for specifically designed vehicles. In general, the Chinese market relies on sizes that are not used here.
"Fuel efficiency is not as important a factor to a Chinese trucking company as is durability.
"Retreadability of a casing is not a concern in the Chinese market, but is vital in ours."
The Chinese don't always understand what North American customers want, says Sutong's Hunter.
"If you go to China and ask a manufacturer for a tire line and you give them certain specifications -- whether it be a UTQG rating on a passenger tire or retreadability on a truck tire -- they understand that perfectly.
"Where I think the gap comes in is the logistics of working with China. In some cases, things that are very important to us... the Chinese don't understand why they're important.
"Let's say they are plating a tire and the cosmetic appearance of the tire is not what we would call standard in the U.S. Their attitude is, 'This meets all the specifications you asked for. It's a great tire, you can retread it 97 times -- so what if you have a little flashing around the name plate?'"
Any American company working with Chinese tire manufacturers would do well to install its own people in China, says Hunter.
"Flying into China once I was sitting next to the vice president of quality control for a major U.S. furniture manufacturer. We were talking about doing business with Chinese factories.
"He told me that they had ordered a very high-end dining room set to be manufactured for a customer; we're talking $15,000 to $20,000 for the set. It was supposed to be all mahogany.
"He said, 'We got the thing in and opened up the sideboard, and it was gorgeous. We opened up the china hutch and it was gorgeous. The chairs were done exactly the way we wanted them. But when we got to the table it had mahogany legs and an oak top!'
"We said they called the factory and said, 'We just got the dining room set that we ordered but you guys made the top out of oak, not mahogany.' And the plant said, 'We ran out of mahogany that day.' The Chinese were very proud that they improvised!"
Third tier: how long?
"Customers talk about Chinese tires much like they did Japanese tires 30 years ago," says Yokohama's Cooney.
Market acceptance will continue to increase as the tires become more commonplace.
"Historically, the technology of the product has not been as good as the technology of North America or Europe," says Cooper's Dattilo.
But great strides are being made.
For instance, CMA LLC recently engaged in original equipment manufacturer testing with several North American truck producers.
“A top priority for GITI Tire (USA) Ltd. is the education of the (North American) market as to the excellent quality of our products,” says GITI official Tom McNamara. GITI makes truck tires at five plants in China. It sells the GT Radial, Primewell and RoadPro truck tire lines in North America.
For the time being, Chinese-made truck tires will remain third tier products in the U.S., according to Sutong's Hunter.
Will they ever reach second tier status? "When you look at the Japanese first coming into the U.S... I was with a Japanese manufacturer a few years ago and I'd have (dealers) in the Midwest who'd say, 'I can't sell that name.' The tire is now one of the best known tires in the U.S. market.
"The Koreans then entered the market and had an easier time of it because the Japanese paved the way. The Chinese are skating into the market quicker than the Japanese or Koreans ever did."