America – the New Found Land for the Tire Industry?
Ever since the days of Henry Ford and Harvey Firestone, North America has been the world’s biggest market for tires. As a result it was also the world’s biggest manufacturer of tires for many years, but no longer. The automobile might have been invented in Europe but it was in the USA that large-scale production and sales first took hold. In the first half of the twentieth century three quarters of all vehicles were located in the USA. And if three quarters of all vehicles were there it is a reasonable assumption that three quarters of all tires were there too. Even as late as 1980 the US accounted for almost half of the world vehicle parc. In those circumstances it was little wonder that the US tire manufacturers grew quickly and dominated the world industry. Goodyear was the largest tire manufacturer in the world by the 1920s and Firestone, US Rubber (Uniroyal) and BF Goodrich were not far behind. Even lesser brands such as General Tire and Mohawk Tire were significant tire manufacturers. It was little wonder that Akron was known as “Rubber Capital of the World”.
However, times change and these once dominant American tire companies lost their edge. First they lost their technical supremacy and then many of them lost their independence. By 1990 all except Goodyear were owned by foreign tire companies and incorporated into global tire manufacturing networks. The US still represented the biggest market for tires but it was also a very expensive place to make tires. Gradually some of the largest tire plants were closed. In 1997 the Big Three tire manufacturers operated 35 plants in Canada and the USA. By 2012 that was down to 28 tire factories. It was not all doom and gloom. Some mid-ranking foreign tire manufacturers were investing in factories or planning tire production. Labour might be expensive but productivity is high in America. Also, they wanted to be near their market. But, even taking these new ventures into account, it looked as though the usual industrial pattern was being followed – develop, dominate, decline. As the country prospers and gets richer it pays its people more and the goods it makes become more expensive. Tire making will inevitably leave America for cheaper climes.
Or will it?
New prospects for tire making?
Perhaps not. A lot has been heard about fracking in the last couple of years and it is a remarkably new phenomenon. Gas output has risen by a third since 2005 and the price in the USA has fallen by two thirds to $4 per million btu. The consensus now is that unconventional oil and gas will provide a strong lift to American business. At first most of the growth will be in energy and related businesses but it will gradually spread to other industries. The biggest beneficiaries will be industries which consume a lot of energy or which use raw materials derived from hydrocarbons. Tire making fits in both categories so it should really benefit in the near future. European tire makers pay three times as much for gas as their American counterparts and Japanese tire manufacturers four times as much. The International Energy Agency, a think tank, predicts that by 2015 America’s energy intensive firms such as tire manufacturers will have a cost advantage of 5–20% over rivals in other developed countries.
Of course, this won’t all happen immediately. First, gas prices will come down and this is already being felt. Then energy prices for electricity will fall and finally raw material prices for synthetic rubbers will come down. At this stage, the financial models for new investment will be giving out positive signals. Existing plants will develop plans for expansion and, soon after, overseas operators will begin to negotiate for greenfield sites. Assuming there are not any major changes in oil and gas supply, America should be seeing substantial new investment within the next five years. Rather than seeing a long and gradual exodus of tire manufacturing, North America and the USA in particular, will see expansion and foreign direct investment in the tire industry. A pleasant change, particularly for those who have seen many years of decline.