Made in China: Faulty Tires

How a Chinese supplier's bad decision turned into one importer's worst nightmare, and may mean the end of his business

by David Welch

Richard Kuskin

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Richard Kuskin was sitting in the dingy basement office of his Union (N.J.) import firm one day in May, 2006, when the phone rang. One of his distributors in New Mexico was on the line. There had been an accident involving an ambulance riding on Chinese-made tires sold by Kuskin's firm, Foreign Tires Sales Inc. The tires had blown out, causing the driver to lose control. No one was hurt. Still, the incident scared Kuskin. For several months he'd had a nagging feeling that his Chinese partner, Hangzhou Zhongce Rubber Co., had cut out a key safety technology. For Kuskin, the ambulance incident was like a flashing red warning light.

After hanging up, Kuskin called his engineer, Gary Eiber, and dispatched him to New Mexico with instructions to inspect the shredded tires. Then Kuskin called a product liability attorney. Kuskin knew the costs of a recall could crush his company, which has 13 employees and last year sold just 700,000 tires. He also knew that getting Hangzhou Zhongce to pay for some of the recall would be hard. Chinese companies aren't legally obligated to execute U.S.-ordered recalls, and, says Kuskin, his supplier was denying there was a problem. "I didn't sleep too good that night," he recalls.

There were more sleepless nights to come. Over the next few months, consumer complaints about faulty tires made by Hangzhou Zhongce and sold by Foreign Tire and several other companies trickled in. There were more accidents, including a fatal one that has sparked a lawsuit and prompted the Feds to recall 450,000 tires. The National Highway Traffic Safety Administration (NHTSA) is now weighing an investigation into whether FTS moved quickly enough when the first tire defects were reported. NHTSA is also looking into whether other tire distributors have also sold potentially faulty tires manufactured by Hangzhou Zhongce.

Hidden Costs

With the very real prospect that his company could go under, Kuskin has sued his Chinese partner in federal court for fraud, breach of contract, and recall costs. Hangzhou Zhongce, which declined to comment, has retained legal counsel and hired a Washington public relations firm. The Chinese company recently posted a statement on its Web site. It reads in part: "Until now we have not found the claimed defect as described by FTS. We believe our tires' quality is good."

The Foreign Tire saga reverberates well beyond the world of cheap replacement tires. Companies selling everything from toothpaste to toys to all-terrain vehicles rely on mom-and-pop outfits much like FTS to import products from China. In most cases, the federal government expects these firms to monitor and test goods for possibly dangerous defects. But the reality is that many small importers have limited resources and testing capabilities, and face only minimal requirements to perform tests. Kuskin, for his part, acknowledges that though his company tested tires, until the recent crisis the process was random. "It's so important for U.S. manufacturers and importers to test and inspect anything they buy overseas," says Sally Greenberg, a senior counsel with Consumers Union. "It's not so cheap to source to China when you have these quality issues."

Kuskin began buying tires from Hangzhou Zhongce in 1990, and has been riding the Chinese import wave ever since. The number of Chinese tires imported to the U.S. has grown quickly in recent years, growing fivefold to 32 million a year, or about 10% of the market, since 2000. Most are cheap replacement tires that sell for $100 or less. A company like FTS typically approves the manufacturer's design and mandates certain specifications. FTS sells to wholesalers, which in turn supply retailers. A consumer can find tires made by Hangzhou Zhongce under brand names like Vesta, Goodride, and Chaoyang at outlets large and small.

Tire Testing

Kuskin seems shell-shocked, and gets defensive when telling his story. The 59-year-old entrepreneur is quick to say he's had only one other minor recall in 19 years. And though it didn't help, he expresses pride in the testing his company does, which he says involves driving tires for 40,000 miles for 40 days on hot Texas pavement. After that, the tires are sent to a lab, where they're analyzed for wear and breakdown. The test costs about $40,000, he says, and is not required by the Transportation Dept. "When these tires are made right," says Kuskin, "they're as good as any tire in the world."

But clearly some of them weren't being made to FTS's specifications. The first sign of trouble came in October, 2005, when FTS spotted a "sharp increase" in consumer claims. Kuskin says he didn't hear about a single accident and argues that there were claims on only 0.5% of the tires. That may seem small, but one major tiremaker says it considers warranty claims on more than 0.5% of one model to be "on the high side," and even when the number exceeds 0.1% "it starts drawing attention." Kuskin says he submitted the data to NHTSA and that it didn't see an issue either. "I wasn't in tune to the fact that this could be a big problem," he says.