It’s been quite awhile folks, and American Tire Corp., Washington Tire Corp./Colorado Tire Corp. are in the news yet again. Since my last post, people have inundated our office with calls and emails, asking numerous questions:

   1. Are these guys for real?
   2. What do you know about them?
   3. Should my business/family/neighbors make future plans based on Washington Tire Corp.?

Most of those calls have been from residents, whose suspicions have been raised by the erratic behavior of Abraham Hengyucius and company. Many of these people are worried about expressing questions, due to the fact that their friends and neighbors would blame them for opposing job growth.

It’s been a rough year for the people of Grant County, as nearby plant closings have cost them 1500 jobs or more. If you look at Ephrata (where the proposed tire plant will be built, it is a small town. 2000 jobs would substantially improve the economy, bringing much needed growth and revenue.

I’ve learned the most about Ephrata (pronounced “ef-RATE-ah” not “ef-RAHT-uh”) while talking with its residents. The main attraction that it holds for industry is the abundant supply of cheap power in the area. While I haven’t been able to confirm this, one of the residents claimed that Ephrata has the cheapest cost per electrical kilowatt hour in the world (Ed. This has now been confirmed, via another resident.). This is because Ephrata is close to the Grand Coulee Dam, an abundant source of hydroelectric power.

Moving here would be a grand way to save operational costs, if you were in any industry that needed large amounts of electrical power. Which brings me to Washington Tire and their latest announcement. On Jan. 13, Abraham Hengyucius decided to make a presentation before the residents of Ephrata. He pulled a large audience.

During the presentation, he made mention of the fact that they had decided to expand production to both passenger and truck tires, in addition to OTR. It seems that the current tire tariffs have given him the idea to expand tire offerings. This portion of information is not available in any online resources, but is available in the hard copy edition of the Grant County Journal, in an article by Joe Dennis.

One of the residents was kind enough to send me a copy, and it contains a great deal more information than other online editions. Mr. Dennis evidently has an eye for detail. One of the more interesting revelations is that Abraham Hengyucius has no clue yet as to whether or not the labor force will be unionized. In almost the next breath, he states that he has investors lined up to provide $400 million for the first stage of construction.

Which begs the question: “Who are the investors?” The line that many residents are hearing is that the investors are Chinese. It is a convenient line, as it makes tracking the validity of the answer rather difficult. Do any of you have friends in China that you could call to check references? It’s doubtful. Given the fact that Hengyucius is likely to bring people in from China to manage the plant, this makes a little more sense. (Ed. Thanks to a very kind, anonymous source for bringing that bit of info to my attention. You know who you are.)

Back to the question at hand: What kind of investor doesn’t find out whether or not Labor (the Union kind) will be involved before they commit the resources to build a plant? As many tire manufacturers can tell you, unionized labor will increase your expenses, and will cause your margins to shrink. That should be in your calculations up front.

Secondly, what are the sales projections for the plant? Again, I refer to Mr. Dennis’ article. The $1 billion total investment will be spread out over three years. They aren’t putting all the money up front. If the first phase isn’t successful, nobody is going to drop another $600 million in the hope that it will be.

Third, and most important, Colorado Tire still hasn’t put forth independent testing data to prove its tires get the life they say they do. There is no guarantee that the tires built in the U.S. will be any better than the ones built in China. The molds will be from China, and so will the rest of the equipment in the factory.

Manufacturing a tire in the U.S., using the same processes available in China does not mean the tire will be of any higher quality. How will they overcome any non-disclosure agreements currently in place with engineers they presume to hire? Last, but not least, when did Washington Tire gain the experience necessary to manufacture car and truck tires? Or the sales force to sell such products?

These are questions that have to be answered eventually, to the satisfaction of the community, and any would-be investors.

Hurdles

After the FAA and Department of Energy give Dr. Hengyucius the “all-clear,” a major milestone awaits. The power is cheap in Ephrata, but nobody said it was free. In order to “buy-in” to the grid, Washington Tire will have to make an investment of $8 million. This covers equipment and the labor that would allow Washington Tire Corp. to access the power supply. I’m not in the electricity business, but the resident who called me is in a related industry, and that’s how I understand things work.

This, of course, is in addition to full payment for the remainder of the land. Let’s not forget that the total investment that Washington Tire currently has is $40,000. I’ll repeat: $40,000. I know people who have more than $40k invested in their luxury car, but that doesn’t mean they have the cash to buy Audi.

They are saying that construction could begin in April, as long as there aren’t any holdups in issuing the permits. That’s fine. The question is “Will Washington Tire be able to fulfill its obligations?” At this point, no proof of its ability to pay has been publicly offered. How will the contractors be paid? What are the assurances being made to potential vendors?

So far, the mum is the word. A big question mark in all this is Mark Wren, manager for the Port of Ephrata (Ed. Changed from city manager for the Town of Ephrata). His statements have been minimal at best. This is probably because he is between a rock and a tire factory. If he were to publicly question a legitimate operation, and drive away a source of jobs and revenue, then he can kiss his job goodbye come next election. If this is a pipe dream, and the tire factory ends up dashing the hopes of thousands in Grant County, he’ll be nailed to the wall for not protecting the interests of it’s citizens.

Conclusions

There aren’t many to be made, at present. The last thing I want to do is send a legitimate company down the road and be unwelcome in Northern Washington. It’s a place I’d like to visit at some point in the future.

Will it eventually build a portion of the plant? Maybe. Will it complete construction of the plant? I wouldn’t put my money or livelihood at stake. Will it employ 2,000 workers? I wouldn’t quit my day job, especially since Mr. Hengyucius puts the average wage of a worker at his plant near $10-$11 an hour (Washington State’s minimum wage is $8.55 an hour.). I guess you have your answer as to whether or not he plans on the workers being unionized.