Bob Ulrich

Editor

Bob Ulrich was named Modern Tire Dealer editor in August 2000. He joined the magazine in 1985 as assistant editor, and has been responsible for gathering statistical information for MTD's "Facts Issue" since 1993. He has won numerous awards for editorial and feature writing, including five gold medals from the International Automotive Media Association. Bob earned a B.A. in English literature from Ohio Northern University and has a law degree from the University of Akron.

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What's in a tier? Who knows?

By: Bob Ulrich

Is the Dunlop a tier one or tier two tire in the American Le Mans Series?

The replacement tire market is made up of pricing tiers. On the surface, it sounds like it would be easy to categorize brands accordingly.

However, there are many markets within markets. There are broad-line tires, high performance tires, ultra-high performance tires, winter tires, light truck tires, off-road tires, etc. Geography also plays a role in tier development. So it’s extremely difficult to determine blanket tiers, and, subsequently, tier market share.

At a recent press conference at the Mid-Ohio Sport Car Course in Lexington, Ohio, Goodyear Tire & Rubber Co.'s Matt Neidert said Dunlop is a tier-two tire. So, what brands does it compete against?

That depends, said Neidert, Dunlop brand marketing manager. For example, in the GT2 Class of the American Le Mans Series, Dunlop is the official tire for one team -- the BMW Rahal Letterman Racing Team. Other tires in that series are Michelin, Pirelli, Hankook, Falken and Yokohama.

However, the Dunlop Direzza Sport Z1 Star Spec was tested against other "budget high performance" tires in the August issue of Car and Driver. Comparing size 225/45R17 summer tires with a maximum price point of $140, the magazine (with the help of The Tire Rack) compared the Dunlop against the following:

* Ling Long L688,

* Hankook Ventus V12 Evo,

* Yokohama S.Drive,

* Nitto Invo,

* Kumho Ecsta XS,

* Falken Azenis RT-615,

* BFGoodrich g-Force T/A KDW, and

* Bridgestone Potenza RE760 Sport.

(Price is certainly one way to create a tier. The Michelin, Bridgestone and Goodyear brands are generally considered to be tier one products domestically based on selling price, how they are marketed, original equipment affiliations and perceived quality.)

The Dunlop was the most expensive, at $137 a tire. The Ling Long, at $57, was the only tire under $100.

All nine tires, which were classified as UHP, maximum or extreme performance tires, also were compared to the benchmark Michelin Pilot Sport PS2, which cost $192 per tire.

Based on wet performance, dry performance, sound level and "subjective" testing, Car and Driver determined that the Dunlop was the best tire of the nine, closely followed by Hankook. The Dunlop tire finished ahead of the Michelin in a number of tests.

In its recent testimony before the International Trade Commission (ITC), the American Coalition for Free Trade in Tires responded to a United Steelworkers' petition asking for quotas on Chinese consumer tire imports. The coalition tried to explain our industry's tier system. Here's what it had to say.

"From time to time in time in this debate, you will hear various tires and tire companies being described as tier one, two or three. The tiers are used in the U.S. tire market to describe differences in terms of price and profit margin. Tiers do not correspond to performance.

"Tires in tier one are the major tire companies’ premium brands. They carry the highest price tags and have the highest profit margins for the manufacturers. They are can be original equipment on premium brand cars, light trucks and large SUVs. Tier one tires are marketed to automobile aficionados as replacement tires. Examples of tier one tires are the Bridgestone, Goodyear and Michelin brands.

"Tires in tier two are the tire companies’ mid-market brands. The marketing effort for these tires is not as extensive as for tier one tires. Therefore, they are not sold for the premium price found on tier one tires. As a result, these tires have a lower profit margin. Examples of tier two tires are the Firestone, Dunlop, BFGoodrich, Continental, Yokohama and Toyo brands.

"Tires in tier three are 'value' brand tires for consumers who look for value for the money. These tires are marketed to consumers who are more concerned with price than a brand name. Tier three tires have the lowest profit margins. In the 1990s, the major tire sellers in the United States, both domestic and foreign, decided to end U.S. production of tier three tires so most of the tires in this tier are imported. In addition to GITI’s GT Radial, Runway and Primewell brands, other examples include tires imported by Goodyear from Venezuela and Poland and sold at Wal-Mart under the Douglas brand and tires imported by Michelin from Indonesia and sold under the Riken brand."

Personally, I see tire marketing as more of a four-, even five-tier system. But I doubt that the people sitting on the ITC would have been able to grasp its complexity.

Based on their decision to increase the tariffs on Chinese imports, I'm not sure they truly understand the three-tier system.

Related Topics: ALMS, Dunlop Sport, International Trade Commission

comments

1. JERRY | July 08, 2009 at 04:20PM
   Ulrich, you are full of prunes. We find that the %age markup on Michelin and Bridgestone is much less than "tier two" brands, and the markup on Chinese imports is the best of all. WE find that between Discount Tire, NTB, and Sams' Club, the profit margin on the first two is almost non-existent. Some high end car dealers are also getting very aggressive with their pricing.

2. Carl | July 09, 2009 at 12:21PM
   There is little doubt that the GP on the 2nd and 3rd tier tires are higher on a single invoice. GP is a good tool but its profit that counts. Do you want 30% of a $57 dollar tire or 20% of a $125 dollar tire? Also, a lot of profit is made “off invoice” on tier one tires. A good mix is the trick. I would think 60/40 mix with 60% being the tier one tires would create the desired car count and subsequent service sales.

3. Jesus | May 18, 2010 at 07:27AM
   what is average tire markup % on wholesale vs retail?