Private brand tire marketers and wholesalers are struggling to remain competitive these days in light of all the price cutting occurring in the replacement market. Yet private branders are hardly alone in suffering the financial pain caused by manufacturers' efforts to dispose of their excess production by shaving prices. Nobody other than the consumer emerges a winner when tire manufacturers overproduce and resort to dumping their flagship brands on the market at prices close to those of lesser-known private and associate brands.
Wholesale distributors, for example, find themselves having to write down the value of their tire inventories and are uncertain about when to reorder in the face of ever-decreasing prices from their suppliers. One tire industry veteran counted 45 price decreases from manufacturers in just 60 days!
Meanwhile, as the prices of tire makers' flag brands decline to the same level as private-label tires, marketers of these brands see the need to lower their prices to remain competitive. They then begin pressing their suppliers for discounts necessary to make this possible.
Thus tire manufacturers, having lowered prices on their own flag and associate brands and causing themselves to grant additional cost reductions to private brand accounts, end up profitless and usually without having achieved the increases in unit volume and market share they were seeking.
This same distressing scenario has been played out time and again throughout tire manufacturing history. Yet price cutting remains the accepted method for keeping smokestacks billowing, rather than finding a way to produce tires efficiently at less than capacity levels.
The futility of all this is that the tire manufacturers end up trading away profitability in the name of increased unit volume.
Something is wrong when companies cannot achieve profitability in times of healthy demand for their products. Tire makers must come to grips with this fact and learn to operate profitably at less than peak output.