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A juggling act

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A juggling act

For this special section on dealer/supplier relationships, Lloyd Stoyer retired editor of Modern Tire Dealer, spoke with many independent tire dealers doing business with the Big Three -- Goodyear Tire & Rubber Co., Bridgestone Firestone North American Tire LLC and Michelin North America Inc. -- and the tire manufacturer representatives. What follows in a fascinating look at the fine balancing act both sides perform while attempting to be successful at selling tires in today’s tough economy. Stoyer presents past events that have shaped present policies and compelling market share facts.

Marketing tires has always been a challenge. It’s a partnership between tire dealers and manufacturers, ideally built on trust.

To be happy, both partners need to agree, at least in principal, on what is a fair way to split profits and how to maintain a sufficient profit margin so that each partner prospers. In the “good old days,” this margin was larger because few large-volume merchants such as department stores and discounters had access to major brand tires. Then, manufacturers could afford to provide more service and perks to the dealers who sold their tires.

But the tire business has changed. Manufacturers and dealers alike have been forced to shift their strategies to prosper or even survive. This development has placed dealer-manufacturer “trust” under more and more of a strain.

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Some tire manufacturers believe tire dealers don’t always take this into account when complaining about changes in their marketing strategies.

The most radical and rapid shift took place in the late 1980s when the pressures of growing international competition and expanding marketing outlets changed the tire market in the United States forever.

That’s when today’s Big Three tire companies -- Goodyear Tire & Rubber Co., Groupe Michelin and Bridgestone Corp. -- each spent billions to protect, expand and/or defend their positions in the U.S. and world markets.

In 1986, Goodyear paid out $2.6 billion to prevent a takeover of the company by Great Britain’s Sir James Goldsmith.

Two years later, Bridgestone also spent about $2.6 billion to acquire Firestone Tire and Rubber Co. and strengthen its marketing base in the U.S.

To keep pace, Michelin spent $1.5 billion in 1989 to purchase Uniroyal Goodrich Tire Co., a company formed when two once-independent tiremakers merged in 1986.

These expenditures, and their resulting financial obligations, caused the Big Three to look for more revenue and seek more outlets for their tires.

No longer could independent tire dealers be assured competition would be as limited as it once had been when they marketed their principal brands of tires.

In 1992, for example, Goodyear shocked its legion of dealers, who for years had been touted for their loyalty to the company, by announcing an agreement to supply tires to auto centers in Sears, Roebuck and Co. (now Sears Holdings Corp.) stores across the country.

Then-Goodyear CEO Stan Gault put the corporate seal of approval on this decision by flying to Chicago to join Sears officials in the announcement. En route in the corporate plane carrying members of the media, he sold a set of tires to a pilot during a stop at the Gary, Ind., airport, thus emphasizing the need to market tires through all channels possible.

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Michelin and Bridgestone joined the rush to broaden their marketing bases. John Gamauf, soon to retire as president of replacement tire sales and vice president of Bridgestone Firestone North American Tire LLC (BFNT), says his company was more selective and restrained in making the switches than others.

Most dealers surveyed for this story by Modern Tire Dealer agreed that Bridgestone today remains the most responsive of the Big Three to its dealers. Though Bridgestone and/or Firestone brand tires are available at Sears Auto Centers and Sam’s Club, they are not sold in Wal-Mart’s 3,200 stores or in as many warehouse clubs and other such outlets as those of competitors.

Gamauf claims that by far, the majority of these two tire brands are sold through BFNT’s 5,000-plus “Family Channel” dealers or its 2,000 company stores.

He says Bridgestone Firestone expects that 75% of Family Channel dealers’ sales will be BFNT products. He says the company will work with dealers for as long as two to three years to help them reach that percentage without compromising their sales and customer relations.

He also says that BFNT “watches out for our small stores as well as our big ones.”

Goodyear’s Jack Winterton, vice president of dealer consumer sales, says his company is making significant strides in strengthening ties with dealers.

The company does not require dealers to commit to selling a certain percentage of Goodyear products, nor are they tied to a high volume. All are asked to sign an agreement committing the dealership to sales of at least $50,000 to qualify for Goodyear’s G3 Express distribution program.

“We do insist that dealers represent our company well, however,” he says.

In return, Goodyear has increased its number of representatives. They call on distributors and all dealers, though more frequently on large than on smaller dealerships, Winterton concedes.

Goodyear’s corporate office in Akron also has a dealer relations department to handle questions and problems called in from the field.

When interviewed, Winterton had just returned from a national meeting with Goodyear dealers. He said they were enthusiastic about the stream of new products in the last four years and appeared generally happy with the company’s increasing efforts to address their needs. “We do all we can afford to support our dealers.”

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Michelin, which some dealers claim has had the most rigid approach to its outlets, announced a new Alliance Associate Dealer (AAD) program for its Michelin Americas Small Tires (MAST) dealers on Jan. 1. It requires that independent dealers must purchase at least 85% of its Michelin, BFGoodrich or Uniroyal tires or the company’s private and associate brands through one of its 19 “primary distributors” if dealers are to qualify for bonuses ranging from 2% to 8.5%.

Michelin says this program was established with the help of its dealers. The company then held 40 meetings with dealers from throughout the U.S. in an effort to give them more insight into reasons and advantages of the AAD program.

Emmanuel Ladent, vice president of North American sales for MAST, says the company has paid a great deal of attention to better serving its dealer network in the last two years.

It has multiple programs for both its “direct and indirect dealers” that spell out requirements for dealers to qualify for bonuses and discounts depending on factors such as the type and size of the dealership, volume of sales, or percentage of MAST products sold. This helps to ensure that all dealers in each category get exactly the same benefits, Ladent points out.

In order for some dealers to qualify for the higher discounts on tire purchases, the company requests the right to audit dealers’ books to verify their sales figures. (While a few dealers interviewed feel this request is reasonable, others said they resent this intrusion and have refused to comply.)

To ensure better service to dealers, 40 people have been added in the field, Ladent says. They support the one third of Michelin dealers who deal directly with the company and the two-thirds served by distributors.

Michelin products are sold in a variety of outlets such as mass merchants and warehouse clubs. But since Michelin has no company-owned stores, Ladent says its independent dealers don’t have to face this type of competition.

Big Three manufacturers insist that some more restrictive requirements are necessary because increasingly intense competition in marketing tires and costs limit the amount of direct contacts by district representatives.

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While it’s true their manufacturers’ products are available in many more outlets than in years past, it’s also true that independent tire dealers themselves have taken on more and more brands.

Latest MTD figures show large independent tire dealers offer an average of more than 11 tire brands. Just a few years ago, that number was just over seven brands.

Overseas-based companies are not only shipping more tires to the U.S., but also producing more and more tires here. And newcomers have joined the competition for U.S. customers.

For example, Chinese tire producers sent some 40.5 million tires to the U.S. last year, nearly four times as many as they did just four years earlier.

One tire company official said it’s frustrating to deal with dealer complaints about his company’s services to them.

“Dealers were spoiled,” he said. “Today we have more rules and tighter standards. On the other hand, these requirements standardize our relations with dealers and help ensure that they are all treated more equally.”

With some reluctance, the corporate executive raised another issue.

“When it comes to defending our position, we are at a disadvantage,” he said. “Some dealers, who were once loyal to us, have taken advantage of conditions to undercut our products and sell other brands because they may be cheaper or because they will provide them more of a margin.

“We talk about trust, but sometimes both parties must do what they think is best for them.”

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