NEW YORK--(BUSINESS WIRE)--Tire makers adding capacity in North America could pressure industry pricing in the region, according to Fitch Ratings. South Korean tire maker Hankook Tire Co. Monday said it would open its first plant in the U.S. with an initial $800 million investment. Other tire manufacturers currently expanding capacity in North America include Michelin, Continental and Bridgestone.
Goodyear, which closed a plant in Tennessee in 2011, could see profitability decline as a result of the rise in capacity. A pillar of Goodyear's near-term strategy is to improve the margins in its North American business, and it has seen some success over the past couple of years. Pricing has been a significant contributor to this effort as Goodyear's sales volumes in North America have actually declined. Competitive capacity growth could hamper Goodyear's ability to meet and sustain its profitability targets.
The new U.S. plant planned by Hankook also illustrates another risk within the tire industry: that up-and-coming manufacturers increasingly have the ability to pose a formidable challenge to dominant players. Hankook is a less well-known tire brand in North America, and, until recently, its original equipment manufacturer (OEM) business was primarily with Korean automakers Hyundai and Kia. It has been growing its OEM business over the past several years, however, and now also supplies Chrysler, Ford, Volkswagen, GM, Toyota, Nissan and Honda, replacing some more entrenched tire manufacturers.
Globally, Fitch expects tire market conditions to remain challenging over the intermediate term. In particular, economic weakness in Europe and slower growth in key emerging markets such as China and India will pressure demand. Increasing global tire manufacturing capacity will put pressure on pricing, as will competition from rising Asian tire manufacturers. Longer term, continued growth in the global car parc will drive higher replacement and OEM tire demand, while increasingly affluent consumers in emerging markets will increase demand for premium tires.
Additional information is available on www.fitchratings.com.
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