Everyone wants to know what the impact will be of the Obama Administration’s decision to slap a three-year tiered additional duty on passenger tires imported from China.
And, as many have said, it is too early to tell. Way, way too early.
The main fear, of course, is that the higher tariffs – 35% the first year, 30% the second and 25% the third – will bring the tire world to an end. Private branders will be forced out of business. Companies like Cooper, Goodyear, Michelin, Bridgestone and others will have to find other sources for low-cost production for their low-margin tires. The Chinese will stop buying our chicken feet and Buicks.
But let’s consider some simple math, and I say simple because this exercise is not at all based on anyone’s price book. Let’s pretend that a P195/70R15 costs $50 to import from a Chinese tire plant – regardless of the producer. Adding 35% to that amount brings the price to total to $67.50.
Now, a $17.50 up-charge is nothing to sneeze at, but is it really a deal breaker?
It has been suggested by some industry watchers that such an increase can be absorbed into the market as tire companies reshuffle prices in an effort to maintain clear pricing separation between the upper and lower ends of the market. In other words, tire companies could boost pricing on the higher end of the product screen – and other than peeing off consumers, who will complain? That strategy, of course, is fraught with danger. Driving buyers away from top name brands and lines isn’t smart business, but as we will discuss shortly, higher prices are really a matter of perception.
Certainly, too, Chinese producers – independents or those tied to major tiremakers – could tighten their production costs, and at least take some of the sting out of the new duty. Just because they are known as “low cost producers” doesn’t mean they are running entirely lean operations, so there may be some cost slack that can be taken up. So that $17.50 differential could end up being half that.
So, will there be a sharp exodus from China-produced passenger tires? I guess that is still up for grabs.
As for American consumers facing higher tire prices, a “fact” bemoaned by media and industry alike, will they really even notice? Please don’t take this the wrong way, but unless someone tells them that such-and-such P195/75R15 “costs more,” would they even know? Fact is, consumers don’t know what tires cost, only what they want to spend. That sounds crass, but that is reality. They will feel bad because they read or heard that China-made tires will cost 35% more, but how many: A) know what tires are made in China (Hey, it’s a Cooper, so it must be made here!), or B) even know what that tire costs?
So, to assume there will be some sort of consumer backlash could prove erroneous. Hey, nobody wants to pay higher prices for anything, let alone tires. But, perhaps, pundits are over-reacting here. We’ll just have to see.
