Court of opinion: One small company's recall of hundreds of thousands of Chinese tires may change the way imported tires are regulated
An imminent recall of hundreds of thousands of allegedly defective, Chinese-manufactured light truck tires is raising questions about how recalls of foreign-made products should be handled.
The situation also may prompt U.S.-based tire importers to think twice about how they structure their sourcing contracts with offshore manufacturers.
One importer, Union, N.J.-based Foreign Tire Sales Inc. (FTS), certainly is re-evaluating.
FTS has been ordered by the National Highway Traffic Safety Administration (NHTSA) to recall around 250,000 light truck tires made by Hangzhou Zhongce Rubber Co. Ltd.
The Chinese company manufactured the tires between mid-2002 and mid-2006 under the Westlake, Compass and YKS labels.
FTS President Richard Kuskin, who has been buying tires from Hangzhou since 2001, says independent testing confirmed that the tires were not built with a rubber gum strip between their belts.
What's worse, he says, is that Hangzhou never bothered to tell him.
The radials in question are part of a bigger batch of up to 450,000 tires that FTS sourced from Hangzhou over the years.
These tires, according to the Chinese company, were produced in three separate phases. Tires made during the first phase of production contained a rubber gum strip.
During the second phase of manufacturing, Hangzhou officials made the call not to include a gum strip. They claim that due to construction elements already inherent in their tires, sufficient belt adhesion could be obtained "without reliance on gum strips." (Tires made during phase three contain "belt gum wedges" between belts and nylon edge strips on the tires' shoulders, which are "completely different than the (gum strip) used in phase one," says Hangzhou.) Kuskin claims he didn't even know about the three separate production phases until last month, when Hangzhou mentioned them to NHTSA.
And he says he's only going to recall phase two tires since they do not include rubber gum strips.
Hangzhou maintains it never concealed any information "about the design history" of the phase-two tires or tires built during the other phases.
In fact, the Chinese company says the tires "met or exceeded all U.S. safety and quality standards," including Federal Motor Vehicle Safety Standard No. 119, which will be replaced by a more stringent standard on Sept. 1.
Meanwhile, while NHTSA continues to hear both sides of the story, FTS is gearing up for a recall that could cost up to $20 million. Hangzhou claims it has done nothing wrong.
While the FTS-Hangzhou recall has turned into the tire industry's biggest "he said-she said" situation since the Ford-Firestone recalls earlier this decade, NHTSA says FTS is ultimately responsible for the clean-up.
"Importers are financially liable under the law to recall a defective or non-compliant product they import," NHTSA Administrator Nicole Nason told the Senate Committee on Commerce, Science and Transportation on July 18.
When it was originally reported that the recall could encompass up to 450,000 units, the projected cost had a ceiling of $80 million, a figure Kuskin said would bankrupt his company.
Recalling 250,000 tires will cost less than $20 million, according to his estimates.
The new amount may not bankrupt FTS, according to Kuskin, especially if the recall stretched out over a long period of time, perhaps years.
But the goal is to round up the tires in question as soon as possible. And that certainly will have a harmful economic impact on the company, a direct-ship distributor with fewer than 15 employees.
NHTSA remains unmoved. "There is no 'hardship exemption' in the law," said Nason.
Meanwhile, FTS claims that Hangzhou is ducking responsibility. "They made the tires without the gum strip, without our knowledge. The problem is of their own creation."
Hangzhou says it has been sharing information with NHTSA.
The tire recall and other recent recalls of defective Chinese-made products like dog food and toothpaste are forcing legislators to re-examine how recalls of foreign products should be handled, says Dan Zielinksi, a spokesman for the Rubber Manufacturers Association (RMA).
"During the July 18 NHTSA hearing, Sen. Sherrod Brown (D-Ohio) said he would introduce legislation that would require importers to post a safety recall bond."
Requiring importers to establish contracts with offshore suppliers spelling out specific recall duties also has been discussed, he adds.
Kuskin would like the feds to go even further. "They should make it a condition of selling tires in the U.S. that the (offshore manufacturer) has to accept court judgments" that are rendered in the U.S.
NHTSA is still reviewing FTS' recall plan, which was submitted in early July. The recall process could begin this month.
How it fell apart
FTS began sourcing light truck radials from Hangzhou six years ago.
Prior to that, FTS' engineer "conducted numerous tests with Hangzhou engineers to ensure the tires were designed and manufactured correctly," said an FTS report sent to NHTSA.
Hangzhou knew it had to include some mechanism for preventing belt edge separations, says Kuskin.
Options included "a belt edge gum strip, a nylon belt edge strip, a cap ply or some combination of the three. Hangzhou chose -- and it was their choice -- to prevent belt edge separations by using a rubber belt edge gum strip."
According to FTS documents, testing was left up to Hangzhou, which told FTS that the tires passed FMVSS No. 119 criteria.
Kuskin says FTS conducted a 40,000-mile accelerated tire endurance test on some sample tires, plus a shearographic inspection.
"The purpose was to see if there were any anomalies in the tire; there were not."
FTS then sent the tires to an independent lab. "They cut the tires and in all four tires, there were no separations. Based on that test, we decided we had a robust tire and we started to buy the product."
In October 2005, FTS says it began to see "a sharp increase" in adjustments of those tires and became suspicious that Hangzhou had been manufacturing the tires without gum strips or with "insufficient belt edge strips."
FTS sent out some tires for independent testing. "Visual analysis was not conclusive, but seemed to indicate that there were no gum strips" in them. In May 2006, FTS was advised of the crash of an ambulance in New Mexico due to an alleged belt separation in a Hangzhou-built tire.
FTS tested Hangzhou-made tires used by other ambulances in the fleet and found belt edge separations and lack of gum strips.
FTS brought the problem to Hangzhou's attention. "In December 2006, they said that, indeed, some of the tires do not have gum strips."
Representatives from the importer met with Hangzhou in an attempt to find out when the strips were omitted, the number of affected tires, and other factors. "They pretty much told us they had decided to make the changes because they thought there was no difference in the safety and quality of their products," gum strip or no gum strip, according to Kuskin.
"We asked them to send us test reports to verify this and they didn't." Kuskin says FTS decided to run its own tests and in March 2007 found some tires that had been made in October 2005.
"We sent one of the tires to a lab for a cut-out. It had no gum strip. We sent four tires to Texas to repeat the test we had done before we approved the tires. After 20,000 miles, we pulled the tires off and put them into shearography. Those tires all appeared to have separations.
"We ran those tires for 5,000 more miles and sent all four to a lab. They cut those tires and verified that every single tire had separations; there were no gum strips.
"We got the results of those tests in May. We analyzed those results and wrote a letter to NHTSA saying the tires had a defect... we were very specific and said the tires did not have gum strips."
Around the same time, FTS was served with court papers concerning a case in which two men were killed and another seriously injured when their van -- which was shod with Hangzhou-produced tires -- rolled over.
Kuskin says FTS officials and the company's lawyers traveled to Pennsylvania to examine the tires. "We looked at the tires and noticed that three of them -- which were our tires -- were not the approved size for the van.
"One of our tires, it appears, had separated, but we didn't have a chance to take it off the rim and send it to a lab, so we don't know the history of that tire and what happened to that tire."
On May 30, FTS sued Hangzhou in the U.S. District Court for the District of New Jersey. "The suit covers quite a few things, but the main issue is the recall," says Kuskin.
On June 11, the importer filed a Defect and Non-Compliance Report with NHTSA. NHTSA told FTS it had to recall the tires. At that time, it was estimated that up to 450,000 tires needed to be pulled in. FTS told NHTSA it didn't have enough money to stage a recall of that magnitude.
NHTSA was unfazed. Federal law requires vehicle importers to demonstrate their ability to conduct recalls by providing evidence of being insured for that purpose. There are no such requirements for importers of motor vehicle equipment.
FTS was forced to assemble a recall plan, which it submitted to NHTSA. "It's a very complicated plan," says Kuskin, who explains that the gum strip-less tires could have been sold to as many as 200 of his customers.
Hangzhou fires back
On July 11, Hangzhou, communicating through a Washington, D.C., law firm, sent its own letter to NHTSA.
Hangzhou pledged to provide information "directly to NHTSA. As you know, FTS is not a tire manufacturer or a tire designer. FTS is an importer and marketer, and predictably does not have the in-house expertise or technical capability of a major international tire manufacturer like Hangzhou."
Hangzhou also told NHTSA that "the collection and presentation of accurate information related to the subject tires" by FTS may have been "complicated by the fact that FTS is engaged in an unrelated -- but perhaps underlying -- business dispute with Hangzhou regarding the termination of FTS' previously exclusive right to import certain Hangzhou tires and other purely commercial matters."
(In a statement to NHTSA, FTS said Hangzhou had revoked the importer's exclusive distribution rights and sold some of the tires in question to other parties.)
Hangzhou explained the three production phases to NHTSA.
The tires, they said, were built to "three different and progressively enhanced design specifications" over time.
Phase one tires were built between January 2002 and the fourth week of 2004. They contained c-shaped gum strips wrapped around the edge of the steel belt on each edge of the belt package.
However, Hangzhou believed that the use of the strips made "the release of air between the steel belts difficult during construction."
It was determined that gum strips weren't needed during phase two, which took place between the fifth week of 2004 and the second week of 2006.
Phase three began during the third week of January 2006, spurred by "the need to certify tires to NHTSA's new FMVSS No. 139," which will replace FMVSS No. 119.
Hangzhou told NHTSA that tires made during all three phases met or exceeded existing U.S. government standards.
"If FTS was unaware of the design history (of the tires in question), it would be due to failure to seek information from Hangzhou."
FTS, for its part, says it stopped buying radial light truck tires from Hangzhou in June 2006. Kuskin admits FTS continued to source product from Hangzhou after that date, including medium truck radials, which "have performed well."
But FTS stopped buying those tires last month. "We said, 'We don't want any more tires from you. That's it.'"
FTS and Hangzhou aren't talking to one another directly. But their attorneys are communicating.
Kuskin believes the Chinese tire manufacturer is being let off the hook thanks to inadequacies in the U.S. government's recall policy.
NHTSA says it has no jurisdiction over foreign companies. FTS is proceeding with its lawsuit, but it will be a long, arduous process, says Kuskin.
"In order for Hangzhou to be properly served, you have to go to the Haight Convention and translate the suit into Chinese," he sighs. "Then you have to serve the Ministry of Justice in China, and the ministry has to serve the factory...."
Questions remain about FTS' financial wherewithal to round up, transport and destroy all the tires under recall.
In her testimony before the Senate Committee on Commerce, Science and Transportation, NHTSA's Nason said that with "the growing tide of imported motor vehicle equipment, the prospect of an importer actually being financially unable to conduct a recall may some day pose a risk to American consumers."
Nason said NHTSA is studying the problem.
The controversy underscores the need for importers to know the offshore suppliers from whom they're sourcing tires, say other importers.
Jeff Kreitzmen, CEO of American Pacific Industries Inc., one of the country's largest importers of Chinese tires, says he's not in a position to judge the quality of the tires under recall "because I haven't tested them. Everybody is going to have bad product from time to time. What distinguishes companies is how they handle these problems."
Kuskin says his company is handling the situation to the best of its ability. Looking ahead, Kuskin has come up with new contracts for offshore suppliers that clearly outline their financial responsibilities in the event of a recall.
The agreements will be useful if his company is around to employ them.
What's being recalled? FTS lists sizes, DOT codes
The Hangzhou Zhongce Rubber Co. Ltd.-built radial light truck tires being recalled by Foreign Tire Sales Inc. (FTS) were sold under the Westlake, Compass and YKS labels. Sizes include:
LT235/75R15 (CR861 and CR857);
LT235/85R16 (CR860, CR861 and CR857);
LT245/75R16 (CR861 and CR857);
LT265/75R16 (CR860, CR861 and CR857); and
LT31x10.5-15 (CR857 and CR861).
They were manufactured between early-2004 and early-2006 (date codes 0404-0206), say FTS officials. The affected tires have DOT numbers that start with "7D" and end in either "04," "05" or "06."
Guilt by association? Goodyear, Cooper, others deny Hangzhou link
In early July, the National Highway Traffic Safety Administration (NHTSA) identified 14 companies that "may have imported tires of similar construction" as the Hangzhou Zhongce Rubber Co. Ltd.-produced tires under recall.
A document NHTSA sent to Modern Tire Dealer listed the companies as Victor Morales & Associates Inc. (San Juan, Puerto Rico); Acquisition 362 LLC dba Strategic Import Supply (Wayzata, Minn.); Air Land Seaways Inc. (San Juan, Puerto Rico); Alfredo Gonzalez/Gomera Govi (San Juan, Puerto Rico); Cambridge Trading Ltd. (Jackson, Miss.); Cooper Tire & Rubber Co. (Findlay, Ohio); Eben Inc. (Alabaster, Ala.); Goodyear Tire & Rubber Co. (Akron, Ohio); Omni-United USA Inc. (Jacksonville, Fla.); Orteck International Inc. (Gaithersburg, Md.); Tireco Inc. (Compton, Calif.); Tyres International Inc. (Stow, Ohio); Dunlap & Kyle Co. Inc. (Batesville, Miss.); and Universal Tire International Corp. (Miami, Fla.).
MTD made efforts to contact all of the companies on the list. Several responded.
Goodyear says it never bought tires made at the Hangzhou factory that built the tires under recall. (However, it has sourced unidentified light truck tires from Hangzhou.)
Cooper says it has never bought light truck radials from Hangzhou. In the past, Cooper sourced passenger and medium truck tires from the Chinese company, "but we stopped buying last year. We have capacity for passenger tires in our U.S. plants." And Cooper's Chinese subsidiary, Cooper Chengshan (Shandong) Truck Tire Co. Ltd., is taking care of its truck tire needs.
Robert Dunlap, CEO of Dunlap & Kyle, told MTD "we never imported any tires from Hangzhou. A lot of our Chinese products have been boat trailer, off-road tires, farm tires -- that kind of thing, but made by other companies."
Tom Babb, president of Tyres International, says it has never bought tires from Hangzhou.