World’s Most Lucrative Tire Bazaar : Foreign Tire Makers Rolling Into U.S. in Force

Foreign tire manufacturers, following the lead of foreign auto makers, are landing in force in the United States.

The primary target is America’s $13.6-billion-a-year replacement tire market, the world’s single most lucrative new-tire bazaar.

Foreign tire makers also are going after the original-equipment market--firms manufacturing passenger cars and trucks on U.S. soil--which bought or received new tires valued at about $6.4 billion in 1986.

With price the most important factor in the sale of replacement tires, foreign firms have been holding down prices on their products, so consumers are benefiting from the import invasion.

“There is not as much product differentiation among tires as there is among cars. Most people who go out to buy tires are not as concerned about styles as they are about prices,” said Harvey E. Heinbach, a tire and auto industry analyst with Merrill Lynch Capital Markets in New York. “The domestic tire companies are going to have to meet those lower prices” on many imports “to remain competitive,” Heinbach said.

The average price of a radial tire fell from $65 in 1982 to $53.80 in 1986, a 17.2% decline, according to the 1987 edition of Modern Tire Dealer Facts-Directory, an industry trade journal. Radials constitute 88% of new replacement tires sold in this country.

Prices for conventional bias ply tires fell from an average $39 per tire in 1982 to $35 in 1986, a 10.2% decline.

“Competition is the primary cause for that price decline,” though other factors, such as smaller tire sizes for today’s smaller cars and declining oil prices, which cut raw material costs, also affect tire prices, said James R. Smith Jr., MTD’s senior editor.

The competitive climate is such, Heinbach believes, that average new tire prices will slide further, or at least hold steady, for the next few years.

The foreign invasion comes at a time when producers here and abroad are turning out more versatile, durable tires. No longer, for example, is it necessary to change tires with the change of seasons. Domestic and foreign tire makers are offering a variety of all-weather radial tires, which now account for 53.8% of new replacement radials sold in this country.

Increased versatility and durability are resulting in fewer replacement sales. The Washington-based Rubber Manufacturers Assn. estimates that 140 million replacement tires were shipped from manufacturers to dealers in 1986. That figure will edge up to 141 million in 1991, according to RMA statisticians.

Domestic tire makers, as a result, are “getting hit with a double whammy,” Heinbach said. “The import share is growing at a time when the domestic tire market is contracting.”

Tires from France, Japan, South Korea and other nations now account for about 23.7% of the U.S. replacement market. By comparison, foreign manufacturers held 10.8% of the U.S. replacement tire market in 1980, according to MTD figures.

Imported tires could make up 27% of the domestic replacement tire market by 1990, U.S. tire industry analysts and officials say.

Foreign manufacturers also supply domestic auto makers with an estimated 12% of their original-equipment tires. Ten years ago, imported tires were virtually unknown as original equipment on American-made cars and trucks.

The developments raise anew questions about the competitiveness of American industries. Can U.S. companies hold on to their home ground in the absence of trade barriers? Can they win in the battle for global market dominance?

Foreign firms already have routed their U.S. rivals in the personal electronics field and have booted many American companies out of business in shoe and apparel manufacturing.

Then there are the U.S. auto makers, who have have given up 28% of their once solid home market, mostly to Japanese manufacturers. The consensus among domestic auto industry analysts is that U.S. car companies would have lost even more of their home market without the quotas that have limited the shipment of Japanese cars to the United States since April, 1981.

What is happening in the tire industry is similar to what has occurred in other U.S. businesses pressured by foreign competition. But there are differences, and so far, while they have been hurt, U.S. manufacturers are still very much in the game.

For example, American tire companies did not suffer from the same low-quality image that made U.S. car makers vulnerable to imports in the early 1970s. And according to tire industry analysts and institutional customers, U.S. tire makers have responded quickly to product challenges, such as the 1970s introduction of radial tires into the American market by France’s Groupe Michelin.

This has stood the American firms in good stead with car makers.

“U.S. tire manufacturers have made tremendous strides. They have very good quality, and they are competitively priced,” said Gary Goodenow, manager of the tire and wheel systems group at General Motors Corp.

GM, the nation’s largest auto maker, also is the country’s largest consumer of original-equipment tires. That is important, because car owners tend to replace tires with the same brand originally installed on their new cars.

Goodenow said that “100%” of the tires on domestically produced GM cars and trucks “are U.S.-made tires.”

GM frequently is solicited by foreign-tire manufacturers, Goodenow said. But because domestic tire makers have been able to compete in terms of quality and price, “We have had no reason to switch,” he said.

Officials at Ford Motor Co., the nation’s second largest auto maker in terms of production, said most of their U.S.-produced cars and trucks are fitted with original-equipment tires from domestic manufacturers.

But in its long running campaign to attain “world-class quality” in its cars and trucks, Ford is looking at foreign tire manufacturers as well, company officials said. The development of Ford’s popular Taurus and Sable passenger cars, originally introduced in December, 1985, as 1986 models, is instructive.

Nearly four years before the first Taurus or Sable rolled off assembly lines, Ford was huddling with an international group of tire manufacturers, working on tire designs that would match the specific handling and performance characteristics of its proposed new cars, said Joseph Sparks, Ford’s supervisor of passenger tire engineering.

“We had a performance image of the kind of tire we wanted. We were looking at things like rolling resistance (important for fuel efficiency), traction, vibration, noise levels” and other performance criteria, Sparks said.

The Ford exercise--repeated in one form or another by all other domestic manufacturers planning new vehicles--resulted in the selection of Taurus-Sable tires from Firestone Tire & Rubber Co., Goodyear Tire & Rubber Co., GenCorp (General Tire) and Michelin.

Pricing, the manufacturers’ ability to supply the tires on time and overall tire quality were key factors in Ford’s choices, Sparks said.

The same selection criteria, applied by foreign auto makers, have also helped U.S. tire makers score some major hits. Goodyear performance tires, for example, are used on the Nissan 300ZX sports car, as well as on cars produced by BMW and Mercedes.

But in the replacement marketplace, where price still reigns over brand in buyer considerations, the verdict is still out on the ability of domestic tire makers to defend their turf.

The big tire dealerships buy a wide variety of tires in huge volumes. Most buyers going into those stores are looking for good deals first, according to MTD and other tire-industry analysts.

Foreign tire makers are trying to piggyback on the success of foreign auto makers in the United States to win consumer recognition.

Japan’s Bridgestone Tire Corp., for example, rolled into the American psyche on the wheels of cars and light trucks--pickups, vans, and sports utility vehicles--produced by Toyota Motor Corp., Honda Motor Co. Ltd. and other Japanese auto makers.

Bridgestone has been joined by Yokohama Tire Corp. and Sumitomo Rubber Industries Ltd., among the major Japanese companies competing for the U.S. new-tire business. Sumitomo in 1985 strengthened itself in that contest, as well as in the larger global struggle, by acquiring the European tire-making assets of Great Britain’s Dunlop Holdings PLC.

Besides Groupe Michelin, European tire makers in the United States largely are represented by West Germany’s Continental Gummi-Werke A.G., Italy’s Pirelli S.p.A., and Dunlop, the Sumitomo subsidiary. More foreign tires are coming from countries such as Brazil and South Korea.

“The marketing plans of Japan, South Korea, Brazil and the rest of the world are aimed at the United States,” said Goodyear Chairman Robert E. Mercer, whose company is the world’s largest tire manufacturer.

“The American marketplace is being flooded with tire imports,” Mercer said, emphasizing that his words at a recent Goodyear plant ceremony in Lawton, Okla., were not to be taken as a plea for protectionism.

American tire manufacturers, like U.S. manufacturers of other products, must accept the reality that they are combatants in a global economy, Mercer said. Domestic tire manufacturers, as a result, have jettisoned marginal operations and rewritten labor contracts in the last six years in their bid to remain competitive.

U.S. tire companies have closed eight of their 49 plants since January, 1981, and they plan to close two more, including an aging Kelly Springfield Tire Co. plant in Cumberland, Md., later this year.

Automation also has played a major role in lowering production costs, as demonstrated by the success of the Goodyear radial tire plant in Lawton, Okla., the first of Goodyear’s nine U.S. tire plants to fly the company’s “world competitiveness” flag. Since its opening in 1979, Lawton has increased its tire making capacity 81%--with only a 3% addition to its original floor space.