The commercial truck tire market has certainly changed in the last 20 years as China, “The Sleeping Giant,” awoke from its nap, crawled out of bed, yawned, put on its running shoes and then took off.
The impact of such a large and dynamic force has been sizeable on the global tire market, not to mention the North American commercial truck tire market. To understand what its impact has been on the commercial tire segment of the industry, it's important to first understand China.
China now has the world's largest population, probably will have the world's largest economy soon and is the world's largest car maker and tire producer. In fact, there are 110 tire plants in China with a capacity to produce 120 million radial truck tires annually, according to information about China's commercial truck tire industry supplied by Walt Weller, vice president of sales for China Manufacturers Alliance L.L.C. (Mr. Weller presented the data in 2013 in a speech at the Latin American & Carribbean Tyre Expo in Panama City, Panama.)
This is just 24 million tires shy of the estimated global demand for radial truck tires, which stands at 144 million.
In 2012, China manufacturers produced about 88 million tires, or about 55 percent of the global radial truck tire production. Of these tires about 58 million were sold for domestic use in the Chinese market—which accounts for 80 percent of the worldwide demand—leaving 30 million for export.
One reason for the huge capacity for new truck tires is that retreading is non-existent in China and it will not be ready for retreading any time soon.
In China, most trucks are owned by owner-operators, rather than fleets, who frequently overload their tires and run them until they are worn out and not suitable for retreading. A significant portion of China has poor roads that are treacherous for radial tires, making bias-ply tires the tires of choice in these areas.
Radialization of the truck tire market is almost complete in China, but it will plateau at 70-75 percent of the market due to road conditions and will not grow to 90-100 percent any time soon.
Over the last two decades Chinese truck tires have made significant market inroads on North America. In the 1990s the Tier I truck tire brands of Bridgestone, Goodyear and Michelin held 60-65 percent of the radial truck tire market while Tier II tire brands—including BF Goodrich. Continental, Dunlop, Firestone, General, Kelly and Toyo—accounted for 25-30 percent of the market.
Tier III tire manufacturers—comprising brands such as Cooper, Dayton, Hankook, Kumho, and a few Chinese brands—took up the remaining 10-15 percent of the market.
Today the truck tire market is greatly changed. The Big 3 tire brands' market share has eroded to 45 to 50 percent. While the Tier II brands have retained their share at 25-30 percent, this is primarily due to Hankook's and Kumho's moving into the second tier. Now Tier III is made up almost exclusively of Chinese-made tires that have grabbed 30-35 percent of the market. This tier includes Aeolus, Cooper Roadmaster, Double Coin, GT Radial, Hercules, Road One, Sailun and Samson, in addition to another 20 to 30 Chinese brands.
A closer look at imports in 2013 reveals that they accounted for about 65 percent of the U.S. aftermarket, with more than 60 percent of these tires coming from China, which is approximately 40 percent of the U.S. aftermarket.
So what happened in the last 20 years?
Well to begin with, the quality of Chinese tires has improved greatly. When I visited China in 1985 and 1987, truck tire production was almost entirely bias. You could get on almost any overcrowded bus in Beijing and see at least one or more tires with bulging sidewall separations and had to pray that they would hold until you arrived at your destination.
The Chinese government was installing 1975 or earlier technology at that time. It was not interested in newer, more efficient technology since its primary concern was to create jobs for its population of 1 billion and provide the “iron rice bowl” of guaranteed lifetime employment in state enterprises for everyone.
While foreign companies were seeking to build manufacturing facilities inside China to tap the potentially huge Chinese market, almost all production from joint venture operations was exported overseas. This was required in order for China to obtain U.S. dollars, which it needed in order to trade globally since the Chinese Yuan was not a traded currency at that time. It was during the next decade that Chinese products earned the label of “cheap and of poor quality.”
However, since then that country's philosophy has changed. The Chinese now realize they have to compete in the global market and must produce products that satisfy their customers' quality requirements. So today Chinese-made truck tires have improved substantially and the quality gap between the major brands and many of the Tier III-brand products has narrowed.
Another factor that aided in their market growth is that Chinese-produced truck tires provide tire dealers with better margins and profitability than tires produced by major tire manufacturers. The average customs value of a medium truck tire imported from China in 2013 was $141.27, according to U.S. Department of Commerce data.
This leaves a whole lot of room for mark-up when competing with major brands whose average retail price is $393. As a result, almost every commercial tire dealer today carries at least four major brands of tires, two and a half associate brands and at least two private brands, which for the most part are produced in China.
These brands include: Aeolus, Double Coin, Linglong, Triangle, Primewell, GT Radial, Roadmaster, Sampson, Westlake, Runway and Long March in addition to a plethora of others.
However, the eroding value of Tier III truck tires is of great concern to retreaders since the price difference between a Chinese-made new tire and a premium retreaded tire ($205 average retail price) is shrinking. Owner-operators and small fleets that are strained financially are increasingly favoring these new tires over retreads. (Seems that a similar situation occurred in the retail tire market in the U.S. years ago—and where is passenger tire retreading today?)
Chinese truck tires are becoming more and more accepted now just as Japanese tire company-made truck tires in the early 1980s began to shed their image of being “cheap and of poor quality.”
There are at least three major reasons for this. The first is that during 2010 and 2011 when tires were in short supply, some fleets were forced to purchase whatever tires they could get their hands on just to keep their trucks rolling.
If you recall, after the bottom fell out of the economy in late 2008 and 2009, all tire manufacturers shut plants and laid off workers in droves in attempts to stem their financial hemorrhaging. Shipments of commercial truck tires dropped a whopping 41 percent in 2009.
But by 2011, sales of new trucks and trailers skyrocketed, pushing sales of OE medium truck tire shipments up 47 percent, while replacement truck tire sales rose 18 percent. No one was ready for this instant market increase and shortages were widespread. This forced many fleets to try Chinese-produced tires.
This introduction enabled many brands of Chinese tires to get a foothold in the North American market.
A second reason is acceptance by some OEMs, which now offer some brands of Chinese tires as standard equipment or as options on their vehicles. Frequently fleets measure quality by looking to truck and trailer manufacturers, so if a tire is accepted by an OEM they think it must be pretty good.
A third factor for their acceptance is the technological advancements that many Chinese manufacturers have made in the last few years. Right now there are around 40 Chinese brands listed on the SmartWay-verified list of low rolling-resistance tires. In addition several Chinese tire companies have started offering wide-base single tires, which are perceived by many truckers as a technological advancement.
Also, the quality of most Chinese casings has improved to the extent that they now have an acceptable retread rating rather than being considered “disposable tires” after the original tread wears off.
Another reason for the acceptance of Chinese-made truck tires is that many Chinese manufacturers have also adapted to the North American marketplace. Instead of just pushing their tires into new markets by dropping the prices, they have become more sensitive to the specific needs and desires of each market they target, and they promote their products specifically for that market.
Examples of this are the websites that several Chinese manufacturers have that promote their truck and bus radial tires in North America and help commercial tire shoppers find the right tires for their applications. This change in marketing strategy may have started in 2010 when, due to high tariffs imposed on Chinese-made passenger and light truck tires, Chinese manufacturers focused on shipping medium-duty truck and bus tires to the U.S.
Another impact that Chinese tires have made on the North American truck tire market is on truck tire pricing. Over the past decade we have seen tire prices continually escalate, with the result that they are now more than double what they used to be.
This has not only been due to increases in the cost of raw materials such as petroleum and natural rubber, but also to growing global demand for these materials—especially from China.
China's growing production of millions of tires over this time period put a strain on raw-material supplies, which drove up prices in keeping with the Law of Supply and Demand. It's only been since 2012, and this demand has leveled off due to a serious downturn in the Chinese economy that still continues.
So what can we expect in the future? First off, we will see continued consolidation of the Chinese tire industry. The Chinese government, as well as the rest of the global tire industry, does not feel that it needs so many tire companies.
Therefore some manufacturers, plants and brands will disappear. They will be bought by foreign companies as well as by other Chinese companies.
And they will focus on brand development and on exports to support domestic production.
As a result, low-cost Chinese radial truck tires will continue to gain market share in North America.
Chinese tire manufacturers have gotten more than just a toe-hold in the U.S. commercial market, and their significant presence will continue to put downward pressure on pricing until their production costs finally escalate to the level of the rest of the world's tire producers.
I would expect that market share for Tier III brands will continue to grow.
As the quality and acceptance of these tires improves over the next decade or two, we will probably see a significant adjustment in the rankings of the brands in Tier I, II and III.
Source: tirebusiness.com
