Magazine for the professional tire industry
Issue link: https://mtd.epubxp.com/i/394657
MTD October 2014 B y the time the last tarif on Chinese con- sumer tire imports ran its course, the aver- age price of a tire had risen 28.4% in four years. Tose lingering 4 for $99 specials suddenly became 4 for $127.11. Te tarif ran from September 2009 to September 2012, decreasing from 35% to 25% along the way. Last year, without the tarif (also referred to as a duty or tax), prices started to drop. In 2013, the frst full year without the tarif, consumer prices decreased 3.8% compared to 2012. And they have quietly dropped again this year, helped tremendously by low raw material costs. So recent history tells us tire prices will rise dramatically if a new tarif is implemented. Tat is my fear, because I think another tarif is a foregone conclusion. Te United States International Trade Commission (ITC) is deciding that as you read this. Te due date for a preliminary determination by the U.S. Department of Commerce has been moved to Nov. 21 because it needs more time to study the nature and extent of the subsidy programs under investigation. Te United Steelworkers International union, which alleges Chinese consumer tire imports are being sold in the U.S. at less than fair value, is pushing for a determination as soon as possible. Regard- less of whether it is successful or not, the implementation, of any additional tarif will probably not go into efect until 2015. (Remember, a 4% tarif on Chinese consumer tire imports already exists.) Assuming the ITC determines an additional tarif of some kind is necessary for passenger and light truck tires imported from China (ST tires are not included in the review), there are two important, time-sensitive details that need to be addressed. First, how long will the tariff last? Unlike the 2009 tarif, which was deemed necessary based on World Trade Organization guidelines, government tarifs are generally put into place for a minimum of fve years. Robert Higginbotham, an automotive industry analyst with SunTrust Robinson Humphrey Inc., thinks it will last longer than that. "Afer studying statistics for current tarif orders in place and canceled orders over the past eight years, we fnd that these kinds of tarifs typically last at least 10 years," he says. Note that he says "at least" 10 years. "Permanent" is at least 10 years. Second — and this is perhaps even more important to tire importers — can the new tarif be implemented retroactively? According to Nick Mitchell, senior vice president of research for Northcoast Research Holdings LLC, the answer is yes. One tire distributor with whom I talked said Chinese consumer tire producers are coming out of the woodwork, and are constantly driving down the price. "I buy a Chinese-made 225/40R18 tire for $27 and can't even sell it for $30 because the retailer says it is too high!" he says. "Tirty dollars for an 18-inch tire! I have to make at least 15 points on the tire to survive. Two years ago, I was selling the same tire for $70." Like many tire manufacturers, he wants an additional tarif. I am against it if it increases consumer tire prices another 28.4%. Yes, government subsidies are giving some Chinese manufacturers a big advantage, and that is something the ITC has to closely investigate. I also know that the price hikes the frst time around were afected by skyrocketing raw material costs. But a nearly 30% price hike is too hard on the consumer and, by association, tire dealers. Perhaps market pressures and the tire production ca- pacity added in low-cost countries since 2009 will of- set a new tarif. It all depends on how large the tarif is. At least one tire manufacturer believes the tarif will be much higher this time around. And he may be right. According to a report by Exane BNP Paribas, an investment frm based in Paris, France, a 60% tarif is possible — as is an additional 26% punitive tarif. Tat would total 86%! Before you think the report is mere speculation, the fact sheet published by the ITC lists the alleged dumping margin at between 45.8% to 88%! As you can see from the previous tarif, the tarif per- centage was almost ofset by the increase in prices. So, if there is a maximum 88% additional tarif on Chinese consumer tire imports, think of how much pricing will rise this time around. W hen the full efect of the tarif is felt, that low-cost 195/60R15 Fuzion Touring tire the Tire Rack sells for $49 might suddenly sell for $88. And, as it did in 2009, pricing on the "beter" and "best" tires will follow suit. ■ If you have any questions or comments, please email me at bob.ulrich@bobit.com. Editorial Price fxation With a new tarif likely, will the playing feld be leveled? By Bob Ulrich Government subsidies are giving some Chinese manu- facturers a big advantage. 4