China's Tire Industry Consolidates into General Trends

Whether it is from the national policy or the development of the industry, the merger and consolidation of China's tire industry are the general trend. In the future, domestic tire companies with brand advantages can only rely on “price war” competition, and they lack the ability to resist risks, not to mention long-term development.

A few days ago, the "Made in China 2025" Shandong Province Action Plan was formally introduced. In this guidance document, tires are listed as one of the eight industries in the province that resolve excess production capacity. However, the survey found that there was no such statement as “merger and reorganization” in the document regarding the reduction of tire production capacity and the elimination of the path. why?

Lack of merger and reorganization conditions

Before this, there were people in the industry who judged that with the overcapacity in the domestic tire industry and the increasingly fierce competition, there will be large-scale mergers and reorganizations in this industry.

Shandong is a major province of tire production. If the industry mergers and reorganizations increase, the tire company in the province is certainly the first to bear the brunt.

So, why is such an important "de-capacity" means not included in the development plan of Shandong Province?

Informed sources revealed to Tireworld.com that the reason behind this is actually very complicated.

It is reported that when a surplus industry "de-capacity", "merger and reorganization" is often the preferred method. Because it can make full use of the original capacity, it will not cause large-scale personnel laid-off and corporate turmoil.

When industry managers in Shandong province are planning, they certainly cannot think of this path.

However, after conducting detailed research on tire companies in the province, they found that it is not easy to achieve mergers and acquisitions among these tire companies.

On the one hand, the local surplus of tire production capacity is mostly low-end production capacity, and no acquirer is willing to acquire such “junk capacity”. And truly high-quality production does not need to be reduced.

On the other hand, the relationship between assets and guarantees between these tire companies is very complicated. The acquisition of a company is often accompanied by a long list of related assets and guarantees, which can be described as "moving all over the body."

In this context, there is a clear lack of preconditions for mergers and acquisitions between tire companies.

As a result, Shandong Province had to abandon the “convenient merger and reorganization” path when formulating tire “capacity reduction” plans.