Tuesday, June 26, 2007

Tires - I think we're past the tip of the iceberg now...

I think we're moving past the "tip of the iceberg" into -- Houston, we have a problem ... (Note, it's Barboza again. Give the man a Pulitzer please.) Emphases mine. Note that the US import operation involved in this employs seven people and has no assets to pursue. Brand names are: "Westlake, Compass, Telluride and YKS".

Chinese Company Denies Defect in Recalled Tires - New York Times

SHANGHAI, June 26 — A day after regulators in the United States ordered the recall of over 450,000 tires because of potential hazards, the Chinese manufacturer denied Tuesday that they are defective, saying the claims may be fabricated.

But the problem tires, which were sold for use on vans, sports utility vehicles and pickup trucks, have already been linked to at least two deaths in the United States, possibly because of a missing “gum strip,” which could allow the tire treads to separate and fall apart.

Tread separation is the defect that led Firestone in 2000 to undertake one of the largest tire recalls ever in the United States, involving millions of tires.

The Chinese company that produced the tires, the Hangzhou Zhongce Rubber Company, disputed the allegations Tuesday and hinted that the recall might be an effort by foreign competitors to hamper the company’s exports to the United States...

...The recall is the latest incident involving problem products entering the American market from China, and another case involving allegations that a Chinese manufacturer cut corners and altered its production process after winning a large supply contract.

For several months, the United States government has issued warnings and nationwide recalls involving everything from contaminated pet food and toxic toothpaste to popular toys coated with lead paint, all bearing the label, “Made in China.” ..

..“This is just the tip of the iceberg,” said Oded Shenkar, a professor of management at Ohio State University and author of “The Chinese Century,” referring to the spate of recalls and problem products from China. “We’re going to see more and more problems with Chinese products because there’s inadequate oversight in the manufacturing process. I’ve even heard about counterfeit car brakes being made there.”...

... On Monday, federal officials in Washington told a tiny New Jersey importer, which has just seven employees, to recall about 450,000 radial tires because some tires were missing a safety feature that prevented tire tread separation.

But the company, Foreign Tire Sales of Union, N.J., has asked the federal government for help, saying it does not have enough money to pay for the recall.

Officials at the National Highway Traffic Safety Administration, however, insist that the importer has the responsibility for the recall, and one official said the agency was “outraged” that the tire distributor had waited nearly two years before informing regulators of suspicions about tire defects.

The recall effort comes after a lawsuit was filed in early May against Foreign Tire Sales, blaming the company for an August 2006 accident that killed two people in Pennsylvania and left two others injured, one severely.

Lawyers who filed the suit said Foreign Tire Sales had contracted with Zhongce in 2000 and that the company had received reports of problem tires as early as 2005...

...Indeed, since Firestone’s vast recall in 2000, the world’s biggest tire makers have rushed into China to build new plants or to team up with Chinese tire makers, partly because of the lower labor costs here but also because of this country’s soaring demand for automobiles.

Zhongce was once a state-owned company that in the 1950s made rubber shoe soles.

In 2006, the company had about 8,000 employees and nearly $1 billion in sales and had signed deals to supply or team up with some of the world’s biggest tire makers, including Goodyear, Yokohama and Cooper Tire, according to company officials.

The American recall, however, involves allegations that experts here say point to a common problem: Chinese manufacturers who win a contract after agreeing to produce a product following certain guidelines or specifications and then, often for cost-saving reasons, switch to a cheaper ingredient or a process that lowers costs.

Almost all the other recalls involve a similar allegation — a switch to cheaper ingredients.

In this case, a tiny New Jersey distributor sold the problem tires under the brands Westlake, Compass, Telluride and YKS.

A lawyer for Foreign Tire Sales said Monday that Zhongce produced tires for at least six other distributors in the United States and that at times it omitted gum strips from its tires.

There are no assets to go after in this case and we can't pursue Zhongce in court. I think we're left with nothing now but US federal legislation. Maybe we need to require anyone exporting to the US to have some form of "insurance" so there are assets to pursue, thereby pushing the quality issues onto the insurance and reinsurance industries.

I read a lot of economics blogs, including DeLong, and they've been very quiet about this. I'm disappointed.

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