Goodyear to Close Spartanburg

Goodyear has announced that it plans to close its plant in Spartanburg, South Carolina by the end of the year. The plant, which employs about 90 people, produces retread material for commercial truck and aircraft tires. According to a Goodyear statement, the production will be incorporated into other Goodyear facilities in the US.

Michelin Issues Cautious Outlook

From the Wall Street Journal (subscription required):

The recent world economic recovery is shaky and could soon fade, one of Michelin’s non-general managing partners said Wednesday.

Despite “the euphoria we have seen in the past weeks…we never had these signals [of recovery] and we still don’t have them,” Jean-Dominique Senard said in an interview. “The prospects in the coming weeks are not good.”

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The Cash for Clunkers programs in the US and Europe have undoubtably benefited third quarter tire demand, and with inventories so low, that has translated into stronger production levels. But the question of the hour is whether demand will hold after November. Without a more sustained recovery in consumer spending, the third quarter recovery will become a blip in a continuing downturn.

Toyo Moving Production from China to Japan Due to US Tariffs

Tire Business (subscription required) is reporting that Toyo Tire & Rubber Co. Ltd. will move production of consumer tires it makes in China for export to the U.S. to plants in Japan in response to the Obama administration’s decision to impose higher tariffs on Chinese-made passenger and light truck tires.

Toyo sources tires for the U.S. market from Cheng Shin-Toyo Tire & Rubber (China) Co. Ltd., its former joint venture plant in Kunshan, China. Toyo and Taiwan’s Cheng Shin Rubber Ind. Co. Ltd. set up the joint venture in 1995, but Toyo disclosed in early September it is selling its share in the venture and instead will build its own plant in China.

Cooper Breaks Ground on Tupelo Expansion

On Tuesday, September 22, Cooper Tire & Rubber held a groundbreaking ceremony for a $7 million expansion of its tire plant in Tupelo, Mississippi. The plant currently occupies more than 1.6 million square feet and employs more than 1,250 people. Construction is set to begin this month on a 32,000-square-foot addition, which will include a new mixer as well as a new mixing building. The project is expected to be complete by April 2010.

Pat Jodon, Plant Manager for the Cooper Tire Tupelo, Miss., facility, said, “This expansion will enable Cooper to produce more technologically advanced products and will enable the Company to improve the competitiveness of its operations.

Here is the press release.

ITC Rules that Chinese Tire Imports Have Harmed US Industry

According to Reuters, the US International Trade Commission announced on Thursday, June 18, that China was unfairly flooding the U.S. market with tires. In a 4-2 vote, the International Trade Commission found that a surge of low-cost tires from China had disrupted U.S. markets. Later this month, it will recommend a remedy to President Barack Obama.

The petition was filed by the United Steelworkers in response to a dramatic increase in imports of Chinese tires in recent years. It would limit imports of automobile tires from China to 21 million, the level in 2005. This is roughly half the current level. In a statement responding to the ruling, USW International President Leo W. Gerard said, “Our domestic industries cannot survive unless our government enforces the trade laws that are designed to curb and dissuade anti-competitive practices that cause market disruptions. We anticipate that the remedies that will be delivered to President Obama will allow the time necessary to rebuild the U.S. tire industry.”

Yesterday, the Tire Industry Association came out in opposition to the petition. “TIA would ask the ITC to continue to support a free-trade policy, and reject the USW’s effort to impose a protectionist policy,” the group said in a press release.

Michelin’s May Tire Data Show Declines in all Markets Outside China

Michelin has released its May 2009 and year-to-date figures for tire sales, revealing continued steep declines in the tire markets of North America, Europe, Brazil, and Japan. The Chinese market remains an exception, with both passenger and truck tires sales generally up.

In original equipment passenger car and light truck tire markets, European sales were down 28.2% in May (relative to May 2008), while North American sales were down 52.4%, and Chinese sales were down 9.6%. In replacement PC/LT tires, European sales were down 15.1% in May, North American sales were down 9.8%, and Chinese sales were up 2.0%.

In original equipment radial truck tires, very steep declines were registered in May in Europe (-72.9%, compared to May 2008), North America (-53.5%), Brazil (-24.1%), and Japan (-65.2%), while China saw growth of 2.6%. Replacement radial truck tire sales for May were also down nearly across the board, including Europe (-23.3%), North America (-12.8%), Brazil (-22.3%), and Japan (-17.4%), while China saw essentially flat growth of 0.1%.

Again, with the exception of China, year-to-date figures were down across the board. In China, PC/LT tires saw double digit YTD growth (January through May) in both OEM and replacement markets. Chinese truck tire markets saw weaker YTD growth, with OEM sales up 1.3% but replacement sales down 1.0%.

Details are here.

How Many New Cars Does the US Need?

The New York Times recently had an article that asked one of the key questions regarding the future of the US and global motor vehicle industries: how many new cars does the United States really need?

Automakers, along with the thousands of companies that supply them with parts and components, have become accustomed to a US market that supports light vehicle sales in the range of 17 million vehicles per year. But many of those purchases were based on home equity loans, easy credit, and lease agreements that put drivers into new cars every few years. The current economic downturn has pushed that number to below 10 million vehicles per year (9.3 million on an annualized basis as of April 2009, according to Autodata Incorporated).

The question, then, is what will the US auto market look like once the recession ends? Following the housing collapse, the credit crunch, and the oil shock of 2008, has there been a fundamental shift in vehicle ownership levels in the United States?

According to the New York Times,

The Treasury Department’s advisers, who initially expected auto sales to pick up late next year, now foresee no jump in demand this year or in 2010. And even five years out, they expect annual sales to be about 15 million, still well below the peaks of this decade.

The United States already has by far the highest per capita vehicle utilization rates in the world, an average of 2.28 vehicles per household.

Over at Reuters, Felix Salmon has grappled with these same issues (here and here) and has linked to several charts showing new car sales per capita. Here is a chart logging annualized vehicle sales in the United States from January 1994 through January 2008. Based on Bureau of Transportation Statistics data, it shows annualized vehicle sales, sales per 1,000 population, and registered vehicles per 100 population. Here is the same chart covering the period from January 1976 through January 2008.

As the charts demonstrate, there has been steady growth in the number of registered vehicles per 1,000 population over the last several decades. At the same time, the US auto market has dropped from selling about 60 cars per 1,000 population during peak years down to about 35 in recent months.

Felix Salmon concludes from this data:

If we’ve learned anything over the past decade, it’s that things can stay at unsustainable levels for much longer than anybody might imagine. And over the medium term, it’s far from obvious that auto sales in the 9-10 million range are really as unsustainable as all that. Not only don’t we need to get back to “a typical replacement rate”; it’s actually very unlikely we will ever again see the rates of car ownership that prevailed before the crash. That was a world of 3-car garages in exurban McMansions; we’re moving into a more sustainable way of living, which involves fewer cars and higher urban density. Those black squares in the graph above are going to start marching downwards for many years to come. Which means that the wiggly lines aren’t ever going to regain their prior peaks.

A few comments of my own. First, I’m dubious that Americans have moved en masse toward a more ’sustainable way of living,’ but I do think that Americans will buy fewer new cars and own them longer. A big part of this shift is related to the quality push among automakers over the last 25 years: there’s absolutely no reason consumers shouldn’t be able to hold onto their vehicles for 10 years or longer if they wish. Also, the shift in the US vehicle product mix toward smaller, more fuel-efficient vehicles, which was given a hard push by last year’s record-high gas prices, seems likely to continue given the Obama Administration’s proposals for tighter CAFE standards. That is not to say that I foresee SUVs disappearing any time soon, just that the trend toward ever larger vehicles (and the accompanying trend toward larger tires) seems to have peaked.

My second observation is that the new data provide confirmation, if any were needed, that the growth over the next few decades will come in developing countries. While on a tour in southern China last year, I drove for miles and miles on a new eight-lane highway that was eerily devoid of traffic (it was just completing construction). I suspect it will not be free of traffic for long. For emerging countries such as China and India to approach vehicle utilization rates that are even a quarter of those in most developed economies will require millions of new vehicles.

Raw Material Implications of Opelika Closure

On April 13, Michelin North America announced that it would close its BFGoodrich Tire Manufacturing plant in Opelika, Alabama by October 31, 2009, citing an unprecedented drop in market demand.

The decision comes in the wake of the continuing economic crisis as consumers are driving fewer miles, purchasing fewer vehicles and delaying tire replacement purchases. The dramatic drop in market demand has created significant overcapacity in the North American tire markets that Michelin does not expect to rebound in the near term. According to the Rubber Manufacturers Association, North American tire sales volume is expected to decline for the second year in a row in 2009.

Opened in 1963, Opelika produces BFGoodrich and Uniroyal brand passenger car tires with a capacity of 25,000 units/day. It currently employs approximately 1,000 wage and salaried workers. Michelin plans to consolidate production at BFGoodrich tire plants in Tuscaloosa, Alabama and Fort Wayne, Indiana.

According to Rubber & Plastics News (subscription required), Michelin cut production at the Opelika plant beginning of February 14, laying off fewer than 80 manufacturing-related employees.

Notch estimates that the Opelika plant at full capacity consumed roughly 80 million pounds (36 KT) of elastomers per year, 45 million pounds (20 KT) of carbon black, 8 million pounds (3.6 KT) of textile reinforcement, and 3.5 million pounds (1.6 KT) of rubber chemicals including antioxidants, accelerators, and processing aids. Not all of this demand will be removed from the market, as some of Opelika’s production capacity will be consolidated at Tuscaloosa and Fort Wayne. Michelin has not publicly stated how much capacity will be permanently removed.

It is worth noting that the Opelika plant used a material handling system called Sealdbins for receiving and consuming carbon black in the plant. Originally developed by Uniroyal, Sealdbins are portable, collapsible rubber containers that are designed to minimize dusting and ease processing of dry powders and pellets. However, the system is outdated, and the bins apparently are no longer manufactured. Also, only a few carbon black plants in the US are still configured to deal with loading these containers.

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Update: Since this post was published, I have heard more on some of these issues. Sealdbins were introduced in the 1950s and are similar to the fuel bladders widely used during the Vietnam war. Each one holds about 7,000 to 8,000 pounds of carbon black; they allow the carbon black to be shipped by flatbed truck. Onsite, the Sealdbins replace storage silos, which allows the plant to stock more grades without additional silos. This was important back in the 1960s, when plants were making both bias ply and radial tires, but less important today. People familiar with the system say that it worked well but just never caught on outside Uniroyal. I know of only one other tire plant in the US still using Sealdbins, but that plant has installed an on-site transfer station so that suppliers do not need to deal with the bins.

Rhein Chemie Announces Results, Details Recent Expansions

Rhein Chemie announced that it has ended FY 2008 with worldwide sales of EUR 281 million, down 5% compared to EUR 295 million in FY 2007. “Rhein Chemie performed very well in the first three quarters of 2008. This was marred by a significant fall in sales in the fourth quarter due to the general economic crisis,” said Dr. Anno Borkowsky, CEO and President of Rhein Chemie in a press release issued March 31, 2009. The marked downturn in the automotive industry had a particularly heavy impact on the company’s business.

Despite the difficult economic conditions, Rhein Chemie is pursuing expansion plans. At the end of 2008, new production facilities were started up as planned at the company’s Mannheim headquarters and in Qingdao, China. The investment for both projects amount to around EUR 12 million.

Rhein Chemie has been manufacturing its Rhenogran product line at its new production facility in Mannheim since the end of last year. This line consists of polymer-bound rubber chemicals that are used in the manufacture of tires and seals, for example, and improve the processing and quality of the end product.

At the end of 2008, the newly established company Rhein Chemie LOA (Qingdao) Ltd. began production of customized products and additive formulations for industrial lubricants in the eastern Chinese port of Qingdao. The new production facility includes a technical laboratory, where the company can perform a full range of key tests for its Asian customers. The company has been producing additives and service products for the rubber processing industry in Asia at its Rhein Chemie (Qingdao) Ltd. joint venture for the past ten years.

Chemtura Files for Chapter 11

Chemtura Corporation and its 26 US affiliates have filed for Chapter 11 bankruptcy protection. According to Craig A. Rogerson, president and CEO of Chemtura, the decline in order volumes due to the global economic recession significantly decreased Chemtura’s liquidity and cash flow, prompting the decision.

Chemtura, which filed in the U.S. Bankruptcy Court for the Southern District of New York, says the bankruptcy filing is designed to help the company complete a financial restructuring.

“Despite our efforts to increase liquidity, including through the potential sale of a business, our reduced liquidity position, combined with the anticipated expiration of our bank waiver, led us to determine that a court-supervised restructuring was the best course of action,” said Chemtura Chairman, President and Chief Executive Craig A. Rogerson in a statement.

The firm’s non-U.S. subsidiaries are not included in the filing, which was made in the U.S. Bankruptcy Court for the Southern District of New York.

The restructuring is being handled through Kurtzman Carson Consultants, which has details on the restructuring program here.