Adding insult to injury, those mixed May results came only after a slew of automakers employed big discounts and other marketing tactics to spur demand. Nissan had very positive sales numbers, for example, but it had to cut the list price of seven models and pay dealers up to $500 for each vehicle moved to realize them. Honda and Chrysler were also among those boosting incentives to levels not typically seen until manufacturers try to clear out old models much later in the year.
The slowdown even seems to have hit the used car market, where prices have begun to drop. This gives prospective new car buyers less value on their trade-ins — and potentially less reason to trade up — and could further hamper replacement, as well as original equipment, tire sales.
On top of that, more tires from China are available here
In recent years, Chinese passenger and light truck tires haven’t been much of a factor in the United States because a stiff import tariff kept their prices too high to be attractive in the very competitive aftermarket segment. (Chinese tires are not a factor in the original equipment market outside their own country.)
The tariff expired last September, however, and the impact has already been staggering. A surge during the fourth-quarter pushed 2012 China tire imports to nearly 30 million units, 32% higher than the year before. And the trend has only accelerated in 2013, with first-quarter imports up around 70% year over year.
The trade publication, Tire Business, estimates that of the 350 or so tire brands currently available to U.S. consumers, 50 are owned or controlled by Chinese tire makers and another 100-plus are private brands produced entirely or predominantly in that country. It further projects that if the pace of growth exhibited in the past year continues, Chinese tires will represent 18% of the U.S. aftermarket this year — up from 15% last year, even though overall aftermarket shipments have declined.
The publication also notes that 50 of 120 tire exhibitors at the most recent Specialty Equipment Market Association Show in Las Vegas were from China, and counts nearly a dozen major introductions and distribution deals announced since that show.
The bottom line
Europe remains the biggest drag on the global tire industry. The Goodyear Tire & Rubber Company (NASDAQ:GT), for example, has said it expects 2013 tire unit volumes to be unchanged from last year, largely as a result of weak conditions there. A slowdown in the U.S., still the world’s largest auto market, would hurt even more. Among those who could be nipped by that is Cooper, which realizes 70% of its sales domestically.
While rubber prices have been the saving grace for tire manufacturers so far this year, the three countries controlling 70% of the market — Indonesia, Thailand and Malaysia — have initiated plans to reduce supplies and boost prices. If they succeed, there will no longer be a safety to help tire manufacturers get past demand that looks to be waning.
Howard Rothman has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article Are Tire Makers in for a Big Deflation? originally appeared on Fool.com.
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