Amid what some dub as turbulent times for the tire industry, a little sign of trouble couldmake companies jittery.
Recently, Shandong Zhongshang Fenglun Tire Co. Ltd. has taken a hit as the local court seized its bank account and froze its assets following accusations by its carbon black supplier over contract disputes.
The case may, in nature, be just an ordinary contract dispute. However, many industry insiders responded intuitively with the question: “Will another tire company gobankrupt?”
Worsening Situation
It is learned earlier that workers rallied at the gate of the company, demanding for unpaid salary as the company defaulted payment.
The reporter of Tireworld.com.cn has called the company many times without being answered.
A woman who worked in the marking division told the reporter that the company’s default on salaries is not strange at all.
Due to declining profits ensued from long-lasting price wars, the company even could not afford its raw materials, she said.
A large number of employees have left following the deterioration of the company’s situation, she added.
Another former employee of the company revealed that the company had delayed salary payment for several months running.
And ever since the China-reform Commercial & Industrial Development Group teamed up with Shandong Fenglun Co. Ltd., the company has stopped production frequently, he noted, referring to Zhongshang Fenglun Co. Ltd.’s predecessor Wild Horse Tire Co. Ltd..
Wild Horse Tire Co. Ltd. was established in 1999, with the trade mark “Wild Horse”. It mainly produced OTR, heavy truck, light truck and agricultural tires.
Later, Wild Horse Tire Co. Ltd. was renamed as Shandong Fenglun Tire Co. Ltd., with thetrademark “Fenglun”. Its products expanded to over 300 varieties at the time.
At the beginning of 2014, Wild Horse Tire Co. Ltd. introduced China-reform Commercial & Industrial Development Group as its new shareholder and established the Zhongshang Fenglun Tire Co. LTd. Meanwhile, it launched a PCR car tire project.
China-reform Commercial & Industrial Development Group is a large-state owned conglomerate, engaged in commercial real estate, port logistics, mineral development, chemical industry, high and new technologies, special equipment, financing and investment.
“The current Zhongshang Fenglun Tire Co. Ltd. has went trough two reshuffles. Every time, it seemed to be wearing “shiny and glamorous dress”, but its situation is worsening one time after another,” said an insider.
During its first reshuffle from “Wild Horse” to “Fenglun”, the company expanded the sale, but its became less famous ever since. Many people knew “Wild Horse” without knowing “Fenglun”.
As it changed its name for the second time, the situation became worse. Shortly after Zhongshong Fenglun was established, the scandal of salary default cropped up.
Whether it was contract dispute or salary arrears, it is clear that the company’s capital chain is in tension, said the female marketer mentioned earlier. In her eyes, Zhongshang Fenglun is in a worsening situation day after day.
Blind Transformation
“The company was engaged in truck/bus tires and OTR tires in the past. It realized thedream of entering the truck tire field after changing its name from Shandong Fenglun to Zhongshang Fenglu,” said a local industry insider.
It is learned that Shandong Fenglu has attempted to upgrade its projects and expand investment over the recent years. Its newly launched car tire projects involves a total investment of hundreds of millions of yuan.
As China-reform Commercial & Industrial Development Group first joined the company, officials of Zhongshang Fenglun was full of confidence that the former could bring not only capital, equipment, technologies and talents, but also advanced development and management concept, drawing on its strength as a state-owned company.
However, the reality seemed not so optimistic as they anticipated.
After nearly a decade of rapid growth, Chinese domestic tire industry has fallen deep into recession in the past two years, plagued by overcapacity and setback from exports.Companies are living a hard life whether they produce truck/bus tires, OTR tires or car tires.
Amid worsening domestic market, some companies attempted to go global. However, the antidumping and countervailing duties imposed by the United States on care tires in June 2015 set them another blow.
Jumping on the bandwagon blindly and launching new projects at bad timing may explainwhy Zhongshang Fenglun got bogged down in the current situation.
“If the company’s capital chain were really broken, it would be a boon, for under the current market circumstances, continuous capital injection into this blind operator may only serve to aggravate overcapacity of the domestic tire market,” said an industry insider.
After the asset seizure, the “Wild Horse” may never run again, he said with a sigh.
Zhongshang Fenglun may have become one of the “zombie companies” that the province is working hard to rectify.
