Goodyear Notes

Goodyear

1992

Sears wants them to sell their Eagle tire brand

Proposed this once before and Goodyear declined Sears, but now Goodyear’s sales are declining and people are starting to get their tires replaced at Sear’s more

2 factors made them think about it:

1. Goodyear tires had a 3.2% decline in mkt share for passenger car replacement tires in the US - Club stores, discount tire retails and coupling of multiple brands at mass merchandisers aided the decline in market share of Goodyear

2. 2 million worn out Goodyear tires were being replaced annually at Sear’s - Sears customers are very loyal

Hasn’t sold thru a mass merchandiser since the 1920’s and this would create a significant change in distribution policy and could create conflict w/franchised dealers

If accepted proposal, should the arrangement w/Sears include only Eagle brand or all Goodyear brands? Should they allow sears to carry one or more brands exclusively and have its own dealers carry certain brands on an exclusive basis?

Presently Goodyear has 12 brands of passenger and light-truck tires sold under their name, ranging from low priced tire brands to very expensive special high-speed tire for a Corvette that bears the Goodyear name

Groupe Michelin is the world’s largest producer and markets Michelin, Uniroyal and BF Goodrich brands

Goodyear is 2nd largest producer with Goodyear, Kelly-Springfield, Lee and Douglas being its most well-known brands

Bridgestone Corp is 3rd largest and the three I listed account for almost 60% of all tires sold worldwide

Two parts of the market:

Original equipment tire market-

• sold by tire manu’s directly to auto manu’s.

• rep 25-30% of tire unit production volume each year.

• Goodyear is mkt share leader capturing 38% of this segment.

• Demand is derived, tire volume is directly related to auto and truck production.

• Price inelastic given the derived demand situation but the elasticity of demand for individual brands is highly price elastic since car manu’s can easily switch to a competitor’s brand.

• Price competition is fierce and manu’s commonly relied upon 2 sources of tires

• Less profitable a mkt than replacements, but is strategically important вЂ" tire manu’s benefited from volume-related scale economics in manufacturing for this mkt

• Believed that car & truck owners who were satisfied w/their original equipment tires would buy the same brand when they replaced them

Replacement tire market

• 70-75% of tires sold annually and 75% of annual sales

• Demand is affected by avg mileage driven per vehicle

• Every 100 mile change in avg # of miles traveled per car produces a 1 million unit change in unit sales I this market, assuming an avg treadwear life of 25,000-30,000 miles per tire

• Worldwide unit shipments have been “flat” due in part to loner treadlife of new tires

• Manu’s produce a large variety of grades and lines of tires for this mkt under manu’s name and private labels.

• Branded tires made to tiremaker’s own spec’s

• Private label tires supplied to wholesale distributors and large retail chains are made to the buyer’s spec’s instead of manu’s standards

• Often used network TV to promote their brands, introduce new types and pull customers to their retail dealer outlets…print media also used a lot

• TV ad budgets ran from $10 million - $30 million and budgets for cooperative