Tire Makers’ New Home

Daily News Article — Posted on April 27, 2012

Global demand for big tires fuels South Carolina's manufacturing gains.

(by Jeff Bennett, The Wall Street Journal, WSJ.com) – French tire maker Michelin is breaking ground on a new North American tire plant that likely will make South Carolina the tire-making capital of the U.S. by next year.

Michelin [recently] disclosed it would invest $750 million to build a new factory in Anderson County, S.C., and expand an existing Lexington, S.C., plant to build heavy tires used in the construction and mining industries.

Expanded output from those two plants combined with production gains from two factories now being built in the state by Bridgestone Corp. and Continental will roll South Carolina over current leader Oklahoma, and well beyond Ohio.

Ohio, once the rubber capital of the world, now ranks as the 11th biggest North American tire producer with about 24,450 tires produced daily. South Carolina, with daily production of 84,000 tires, today is second only to Oklahoma as the biggest tire producing state or province in North America, according to trade publication Tire Business.

The migration of tire production out of Ohio to southern states has been spurred by state and local government tax incentives and the states’ right-to-work laws that make union organizing more difficult. Auto makers, such as BMW and Volkswagen also have set up plants in the South.

Michelin declined to disclose its pay, but industry observers say the company pays about $20 an hour to its workers, above the about $15 an hour entry-level wage of union tire makers. However, union wages generally come with greater employee benefits and rules governing the amount and type of work an employee can perform.

Pete Selleck, Michelin’s North America president, said the state has strong technical education resources and ready infrastructure. “South Carolina has a long history with technical colleges dating back to the 1960s,” he said. The state “is also one of the least unionized states in the country, which gives us the flexibility to focus on the customer.”

“There is no significant difference between nonunion and unionized plants other than a rule book in our unionized plants that tell us [the company] what we can and can’t do,” Mr. Selleck added.

“We have proven ourselves to be truly understanding of efficient manufacturing and how to be competitive on costs,” said United Steelworkers International Secretary-Treasurer Stan Johnson. “Michelin is headquartered in South Carolina so their decision to locate a plant there is not unique.”

Michelin didn’t disclose annual production figures for the new factory, but said output from the new plant investments will be split between North America and overseas markets. Its heavy tires, which can be as much as 63 inches wide, are used on a variety of equipment including dump trucks and can sell for as much as $250,000 each.

The expansion of heavy-tire production is due to demand from construction- and mining-equipment makers, such as Caterpillar Inc. Demand for mining equipment alone is expected to rise 8.5% annually through 2015…. Growth is expected to occur in China, Australia and Canada….

“We are constantly hearing from our customers ‘We need more tires,’ ” Mr. Selleck said during an interview. “During the economic crises in 2008 and 2009 the demand in this area continued, and we see it continuing as demand for minerals and roads continues to grow.” …

Caterpillar, the world’s largest maker of construction and mining equipment and bellwether of the two industries, has been investing heavily in production capacity in a bid to extend its market-leading position around the world, especially in countries such as China. The Illinois-based company expects 2012 sales to be in a range of $68 billion to $72 billion, up from a record $60.1 billion in 2011.

The company is already racing to expand capacity for mining equipment and has such a big backlog that it won’t be able to deliver on some orders for large mining trucks until 2014. Last month it spent $20 million to triple the size of its Sumter, S.C., plant that produces hydraulic cylinders.

-Bob Tita contributed to this article. NOTE: This article was published at wsj.com on April 16, 2012.

Questions

1. Define the following terms related to the article:

right to work laws
tax incentives
pension
benefits

2. What type of tires will Michelin make in the new factories the company is opening in South Carolina?

3. Which state is the current leader in tire production?

4. Ohio was once the rubber capital of the world. What factors have caused tire companies to move out of Ohio?

5. How do salaries and benefits differ between Michelin's non-union employees vs. employees in other states which are unionized?

6. What makes South Carolina attractive to tire manufacturers, according to Michelin's president?

7. Read the following comments about union contracts, then answer any 2 of the questions that follow. Explain your answers:

In Wisconsin and many other places, governments and businesses are no longer able to fulfill agreements they made with employees years ago. The greatest illustration is GM [General Motors] and the United Auto Workers. United Auto Workers members were, by [union] contract, allowed to retire long before age 65. And at retirement they were allowed to keep, as a benefit, lifetime pension and primarily health care benefits.

The idea that you can continue to pay people either a full salary or 80% (plus health benefits) for 30 years after they retire, in addition to having to pay that for current employees is sinking every state government, every city government, every town government and many companies. It's what's sinking many foreign governments. The money just isn't there for it. So states are revising these plans, as has happened in Wisconsin. And the unions are so ticked off, that's the reason for the attempt to recall Governor Scott Walker.

In Greece, in Spain, wherever you go: The fact of the matter is that lifetime health care benefits and pensions, when you no longer work for the company, cannot be sustained.

The money isn't there.

And what happens is, if they're forced to make the payments, they'll go bankrupt and out of business. So accommodations have to be made.

Do you think Michelin and other companies were wise to move to right to work states?
Do you think non-unionized companies are bad to work for?
Do you think employees are unreasonable for expecting large pensions and health care after they retire? (Does it make a difference if the employees are factory workers or police/firemen, or other government employees?)
Opponents of employee contracts that include full or almost full salaries and health insurance for life after employees retire say they are not sustainable. Do you agree? Explain your answer.