NOTES FROM THE PRESIDENT 3

June 5th, 2020
NOTES FROM THE PRESIDENT 3

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My name is Joaquin Gonzalez Jr. and I am the president of Miami, FL based wholesale/distributor, Tire Group International, LLC (TGI). I am a third-generation tire man and this past March marked my families 77th year in the tire business. I’ve had 2 careers in my life, playing football in the NFL and managing our families tire company, the latter being the most challenging. Our intention is to cooperate fully with the ongoing investigation and provide a voice for the consumers and independent tire dealers that will be most affected by any type of duty imposed as an outcome of these proceedings.

Today’s challenges in the tire business far exceed those my grandfather or father ever had to face. The operational demands, along with the complexity of duties and regulations, make the business more challenging than ever. Operationally, the increase in size proliferation that has occurred in our business during the past years, which in turn has necessitated the global expansion of tire production, is singularly the most difficult to manage. According to the Tire & Rim Association, “from 2003 to 2008, the number of tire sizes increased 42 percent to 519 sizes for cars and light trucks. In 2019, that number increased to just over 670 sizes. Furthermore, in 1977, 10 tire sizes covered 89 percent of the market. Today, more than 200 sizes make up 80% of the market”1 . Based on this unprecedented growth in size range, USA based manufacturers do not have the mold capacity to produce all the sizes and quantities required by the marketplace. By the same token, retailers don’t have the physical space or capital to stock all the sizes needed to service the vehicles that come through their door. This makes wholesalers, such as TGI, an integral part of the supply chain, ensuring consumers can get the sizes they need when they need them.

Over the past years, wholesalers have been hit very hard with the implementation of import duties and their retroactive review. As importers of record, TGI must domesticate product and sell to retailers at a price that is inclusive of our import cost. Once the duty rate has been reviewed and adjusted, wholesalers are responsible for paying those duties retroactively with no recourse. We do not have the ability to pass the cost along to retailers for past transactions. You can imagine the type of uncertainty this creates for an ongoing concern. We don’t know what the cutoff date is until a ruling is made, so what are we to do? Do we stop importing now, in a month, in two? If we stop importing, we are out of business. Not to mention our 2,500 clients in more than 30 states, how do they take care of their customers if we are not able to supply them? Like I mentioned before, there is currently not enough production in the USA to satisfy demand.

The United Steel Workers (USW) union new petition against tires being produced in Thailand, Korea, Taiwan and Vietnam puts wholesaler/distributors in the crosshairs once again. The 94,0002 members of the United Rubber Workers (URW) that form part of the USW, fail to realize these petitions will not bring back their jobs. The 2009-11 AD/CVD action is estimated to have cost the US consumers more than $1.1 billion in price increases and other cost while “saving” approximately 1,200 jobs at U.S. tire factories, that is a cost of $926,000 per job. Inversely this same action cost approximately 2,500 retail jobs across all industries due to reduced consumer buying power.3 Is a union job more valuable than a retail job? Have we not learned from past mistakes? We are going about this the wrong way and we are being manipulated by the interest of the few while hurting tens of millions of the consumers who could least afford higher prices and low-income workers who will ultimately lose their tire distribution/retail related jobs.

If we have learned 3 things from the first petition the USW submitted in 2009 against imports from China is that, pricing of tier 3 tires will go up, manufacturers will shift production to facilities that circumvent these duties, tier 1 manufacturers will use the opportunity to increase their pricing.

As these petitions get reviewed, little focus is placed on the impact these decisions have on more than 505,0004 tire industry employees as well as the 68.4 million4 US consumers that purchase tires each year. To understand the true impact of these decisions, we first need to understand the U.S. tire replacement market size and share across tiers. The replacement market in 2019 was 273.6 million units5, with tier 2 and 3 brands making up over 54%5 of the replacement market share. Tier 2 and 3 brands are a very attractive offering for the price sensitive consumer. Independent wholesalers such as TGI make up 79%5 of the distribution channel market share, and independent retailers make up 63%5 of the market in the retail channel. Independent dealers have grown, as size proliferation and competition in the marketplace has increased. U.S. based manufacturers have had much to do with the growth of Independents, as their minimum advertised pricing (MAP) policies have capped the margin dealers can make and through their own supply chain contraction, these U.S. based manufacturers have emerged as the dealers biggest competitors in both the wholesale market (i.e. TireHub (Goodyear&Bridgestone partnership) and NTW (Michelin&Sumitomo partnership) and retail market (i.e. Complete Auto Car Care (Bridgestone), Goodyear Tire & Service).

At TGI we have been importing tires since 1992. Our need for specialized product that wasn’t being produced in the U.S. led us to start importing tires from India. Fast forward to 2020, and in our 28 years of business we have imported tires from more than 25 countries. We have developed 5 private label brands as a way of providing vetted, high-quality products, at affordable prices to our dealers and consumers. The current review petitioned by the USW, threatens our business and our 130 team members and their families, not to mention our more than 2,500 U.S. based clients and their families.

Independent tire dealers primary focus is on the tier 2 and tier 3 tire segment. This review focuses on increasing the cost to import these tires for independent tire dealers, which puts in jeopardy the hundreds of thousands of jobs they provide. Ultimately once the dust settles, manufacturers move their molds to countries of origin that circumvent the duties imposed, tier 2 and tier 3 tires prices rise, and the U.S. consumer ends up paying for it, one way or the other. One other important factor to consider is that the last round of AD and CVD duties is what caused certain manufacturers to open factories in the countries currently under review and by now imposing new AD and CVD duties on these countries as a whole, you would be unjustly hurting the native manufacturers that have been there for decades. Considering TGI has been doing business in Thailand for over 25 years, we sincerely hope that at the very least the committee will consider a differentiation between said manufacturers.

Respectfully,
Joaquin Gonzalez, Jr.
President

LEGAL DISCLAIMER

While Tire Group International, LLC. (“TGI”), makes every effort to present accurate and reliable information on this Web Site and Blog, TGI does not endorse, approve, or certify such information, including any opinions presented, nor does it guarantee the accuracy, completeness, efficacy, or timeliness of such information or opinions. Except as expressly stated, all information on this Web Site is provided without warranty of any kind, express or implied. You are solely responsible for the appropriateness of this Web Site, its content, and the products and services offered by TGI.


1Source: https://www.dunntire.com/blog/The-Proliferation-of-Tire-Types-and-Sizes
2Source: https://www.nytimes.com/1995/05/13/business/rubber-workers-union-acts-to-merge-with-steelworkers.html
3Source: https://www.tirebusiness.com/news/importers-consumers-crosshairs-usw-petition
4Source: Employee count has URW member count subtracted from it. US Consumer count assumes replacement market units, divided by an avg. purchase of 4 units. Modern Tire Dealer (MTD) January 2020 Facts Issue Vol.101; No. 1.
5Source: Modern Tire Dealer (MTD) January 2020 Facts Issue Vol.101; No. 1.

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