Wholesale Changes: Did Goodyear and Bridgestone Shake Up the Industry?
The joining of Goodyear Tire & Rubber Co. and Bridgestone Americas Inc. in the form of TireHub LLC is a potentially momentous move with far-reaching consequences. It also might be much ado about nothing.
On the surface, two Tier 1 tire manufacturers merging their company-owned wholesale consumer tire distribution networks would seemingly be industry-altering. One domino already fell when Goodyear announced it would phase its brands out of American Tire Distributors Inc. (ATD).
What does that mean for the parties involved? Let’s see what a look inside the numbers reveals.
1. TireHub combines Goodyear’s 45 company-owned wholesale warehouses on the retail side with Bridgestone’s 38 Tire Wholesale Warehouse (TWW) warehouses. Will the number of warehouses be expanded, or consolidated? Will any of them be closed if they step on the toes of another distributor aligned with Goodyear or Bridgestone?
“TireHub will be an independent (agency), so that will be the choice they will make down the road,” said Andy Traicoff, Goodyear’s vice president of consumer sales for North America.
2. The total number of consumer tires represented by TireHub, at least initially, is approximately 10 million, based on Goodyear’s recent 8-K filing with the U.S. Securities and Exchange Commission. Goodyear would not break down the 10 million tires between the two companies, although Traicoff did say the 50-50 nature of the joint venture is also representative of what Goodyear and Bridgestone are each bringing to the table.
In 2017, 10 million tires represented 4.2% of the 239.1 million replacement passenger and light truck tires shipped in the U.S., according to Modern Tire Dealer statistics.
3. In that same 8-K filing, Goodyear references having to “transition volume representing approximately 10 million units of annual sales” on its own. Half of that total represents what Goodyear is bringing to TireHub; the additional 5 million tires is likely the amount being pulled from ATD. Five million tires is 12.5% of the total number of tires ATD supplied to the industry in 2017.
4. Goodyear expects TireHub to generate an incremental $80 million to $100 million in annual segment operating income in 2019 and 2020. Based on MTD’s estimated average wholesale consumer tire price of $100, that works out to between 800,000 and 1 million units. The additional units would not increase the company’s U.S. consumer tire market share (close to 11.9%) by more than 0.4 of a percentage point.
5. When it is up and running, TireHub will be the third largest tire wholesaler in the U.S., behind ATD and NTW, the 50-50 joint venture between Michelin North America Inc. and Sumitomo Corp. of Americas formed earlier this year. Michelin estimated NTW’s annual sales at nearly 15 million units.
What if Bridgestone severs its ties to ATD as well? If it does, the effect on ATD would probably be doubled, pitting two of the largest wholesale distributors directly against each other. In that case, whether or not TireHub or ATD — or both — would suffer in the long run is up for debate, although to paraphrase an old Swahili proverb, “When two elephants fight, it is the grass that suffers most.”
When asked if Bridgestone would end its relationship with any of its wholesalers, TJ Higgins, president of the integrated consumer tire group in North America for Bridgestone Americas Tire Operations LLC, had this to say: “TireHub is designed to complement Bridgestone’s existing network of distributors.”
Barry Steinberg, owner of Direct Tire & Auto Service, a four-store chain based in Watertown, Mass., does not believe Goodyear’s split from ATD will hurt ATD in the long run.
“The best thing about giving up the Goodyear units is that ATD will be able to stock more SKUs from their best vendors,” he says. “Conti, Michelin, Toyo, Pirelli, Kumho, and the rest of their suppliers are probably popping the champagne corks at this very moment knowing they will have additional shelf space and the opportunity for more share of the pie.”
Dealers who buy their Goodyear tires from ATD and like one-stop shopping may look for other wholesale options. But TireHub initially will face the same problem because it wholesales only seven brands: Goodyear, Dunlop, Kelly, Bridgestone, Firestone, Fuzion and LeMans. It may have to integrate competitive brands into its inventory to compete not only with ATD, but also local wholesalers.
The complexities of tire distribution may never be unraveled completely. From forecasting and production to logistics, it takes time and money to get a tire from point A (the manufacturer) to point B (the wholesaler) to point C (the retailer).
Just when you think the tire distribution landscape is at the very least predictable, something unexpected happens.
The 50-50 joint venture between Goodyear and Bridgestone is that “something.” No one knows with certainty what will happen next. ■
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