DETROIT—When it comes to the North American tire market, Goodyear still has the largest share, but its top competitors aren't standing still. Bridgestone/Firestone Inc., which has passed Michelin North America Inc. to take the No. 2 spot in North America, says it is ready to take on Goodyear. And with earnings and sales rising in the past six months, Michelin should not be counted out, either.
Based on 1998 tire sales, Goodyear retained a comfortable lead in North America with $6.24 billion in sales on the continent, followed by Bridgestone/Firestone at $4.7 billion and Michelin North America at $4.5 billion.
But despite its top ranking, Goodyear's sales growth hasn't kept up with expectations. In the spring of last year, Goodyear announced it would increase sales at twice the industry rate by introducing new products and expanding its distribution faster than any of its competitors. ``We will grow market share. Absolutely. That is objective No. 1,'' said Samir Gibara, Goodyear chairman and CEO.
Although Goodyear has made strides toward its five-year, $11 billion sales boost with its Sumitomo Rubber Industries Ltd. alliance, it appears to be missing the mark on internal growth in North America.
Goodyear's North American tire division's 1998 sales edged up just 0.5 percent over 1997's $6.2 billion, which in turn was only 1.4 percent ahead of $6.12 billion in 1996. This fell short of the average pace of industry volume growth during those years—2.3 percent in 1998 and 2.1 percent in 1997.
And during a July 21 analysts' conference call, Goodyear acknowledged it had made a mistake by gearing down production at its Gadsden, Ala., plant so quickly, and as a result had suffered weaker fill rates with its dealers, according to Efraim Levy, an analyst with Standard & Poor's Equity Group in New York.
Goodyear told analysts it expected to have inventory problems into the third quarter, but should have them ironed out by the fourth quarter, Mr. Levy said.
During the first half of this year, Goodyear seemed to regain some lost ground—at least in terms of unit sales.
Revenue from its North American tire business in the first half of 1999 increased 0.4 percent to $3.09 billion, but operating earnings plunged 41.8 percent to $116 million due to a ``less profitable product mix,'' inventory reduction efforts and product rationalization programs, the company reported.
Goodyear's tire unit sales in North America during the first six months increased 2.7 percent over the same period in 1998, with a 7.9-percent gain in the second quarter alone. Capacity utilization, however, was down ``significantly'' from 1998 levels, the company acknowledged.
In a prepared statement, Goodyear said its Goodyear brand has gained market share in the past six months ``at a rate exceeding...analyst projections,'' while acknowledging its Kelly-Springfield and custom brand businesses have been hampered by product availability problems.
``The higher-than-anticipated market growth, coupled with our rationalization decision to take out our highest cost center in Gadsden, has limited our market-share growth ability short-term, primarily in our Kelly and custom-brand businesses,'' the company said.
The takeover of majority control of Dunlop Tire Corp. eventually will boost Goodyear's North American tire sales by about $750 million to $800 million, the firms said.
BFS coming on
Not at all shy about its success, Bridgestone/Firestone has increased North American market share 1 percent each year since 1993 and plans to keep it up, said John Lampe, president of Bridgestone/Firestone Tire Sales Co.
The Japanese-owned company attributes its success to consistency on things like its UNI-T tire performance technology, a multi-brand approach, its channel strategy of doing business with both independent dealers and mass merchandisers and its investment in Indycar and Formula I racing.
``There's an old saying in the tire business: `You race on Sunday; you sell on Monday,''' Mr. Lampe said.
The saying and the investment have paid off: Bridgestone/Firestone's racing successes have reaped rewards in terms of brand image and enhanced consumer awareness of the company's tires, he said.
But perhaps Bridgestone/Firestone's most important edge is the relationships it cultivates and maintains with customers, Mr. Lampe said.
``Our customers, dealers and mass merchandisers...are confident we have great technology and great marketing programs, and they really believe we care about their success and their profitability,'' he said.
North and South America represent the largest source of Bridgestone Corp.'s consolidated sales, accounting for $7.5 billion or 43.8 percent of its total 1998 net revenue, according to the company's annual report. According to Tire Business estimates, $4.7 billion of that revenue was generated by tires in North America.
With a 1998 volume increase of 6.2 percent, Bridgestone's North American growth outpaced the industry average for both the original equipment and replacement markets. Bridgestone posted estimated tire-related revenue of $4.3 billion on the continent in 1997.
``One of (Bridgestone's) worldwide goals is to be No. 1 or at least a strong No. 2 in every market we're in,'' Mr. Lampe said.
``In North America, the first goal was to get past Michelin,'' he said. ``Now we've got our sights set on No. 1.''
Bridgestone/Firestone's $430 million passenger car and light truck tire plant in Aiken, S.C., should reach production of 25,000 tires per day by the end of 2000.
At that point, the tire company expects it will need more manufacturing space, so it will either expand the plant or build another, Mr. Lampe said.
``We're investing in our business,...in our product and in our capacity,'' he said. ``Other (tire) companies are shutting down their plants; we're building new plants.''
Through its market-share and revenue gains, BFS has vaulted past Michelin North America to the No. 2 spot. Michelin's 1998 North American sales remained virtually unchanged from 1997 at $4.5 billion, after rising from $4.3 billion in 1996.
Below the quiet surface of Michelin's 1998 revenue, aftermarket sales increased more than 3 percent, although Michelin admittedly was unable to satisfy growing demand because of a strike at its Fort Wayne, Ind., plant and capacity shortages.
Michelin's North American OE passenger car sales fell in 1998 because of strikes at General Motors Corp., but rebounded in the fourth quarter when GM vehicle production resumed.
Michelin's truck tire segment made up for the loss, with an increase of 18 percent in the OE market and a smaller, 5-percent hike in replacement tire sales, again because of capacity constraints.
Michelin appears to have regained its financial footing of late, posting a 9-percent sales increase in the first half of 1999, but Bridgestone/Firestone's half-year performance rivals that, Mr. Lampe said without releasing numbers.
By comparison, U.S. tire shipments continued to grow in the first five months of 1999: Passenger tire shipments to the replacement and OE markets combined, climbed 2.3 percent; light truck tire shipments increased 10.2 percent; and medium truck/bus tire shipments rose 13.3 percent.
In a time of unprecedented growth for the market, North American tire suppliers must decide where they will accommodate growth, and Michelin is being very careful not to overextend itself, said Robert Carroll, Michelin vice president of OE marketing.
``Our strategy is targeting North American growth in both OE and replacement, and I'm talking market share,'' he said.
To that end, Michelin is using its resources where they're best-suited. On the replacement side, the tire producer plans to at least double the industry pace with a total growth rate of 5 to 7 percent, said Scott Clark, vice president of marketing for replacement passenger and light truck tires in North America.
OE sales will support the replacement market, yet sustain single-digit growth, Mr. Carroll said.
Michelin hasn't solved all of its capacity issues, but it has eliminated a good portion of them for much-improved fill rates, he said.
The French-owned tire maker's most recent growth has come about not only because of rising vehicle sales, but also from taking advantage of opportunities that have come its way.
``Sometimes our competitors can't meet their customers' needs, and we're there to do that,'' Mr. Carroll said.
Aside from Goodyear, which has suffered capacity shortages for some lines this year, Continental General Tire Inc. has struggled to a certain extent to keep supply lines filled as it tries to bring its strike-plagued Charlotte, N.C., plant back up to full capacity using replacement workers.
On a direct comparison basis, Continental General suffered a 2-percent drop in sales for the first six months of fiscal 1999, but accounting for the consolidation of General Tire Mexico—formerly Corp. Industrias de Llantes/Euzkadi—the company's sales rose 13 percent to $743 million.
Conti General claims Charlotte is operating at 80 percent of its pre-strike capacity, while the United Steelworkers of America say the plant's output is closer to 50 percent.
The dispute has cost the U.S. company's German parent, Continental A.G., more than $5.5 million in lost earnings, the company said.
Conti General acknowledged recently its shipments of car tires declined because of the strike, but the company has sought to quiet customer concerns with assurances it is handling the volume through other U.S. plants and operations in Mexico and Germany.
Cooper one to watch
Besides Bridgestone/Firestone, competitors and analysts agree that a smaller player, Cooper Tire & Rubber Co., is making significant gains in North American market share.
The Findlay, Ohio-based company increased first-half sales 7.1 percent to $963.2 million, while reporting a 1-percent gain in market share for replacement passenger and light truck tires in North America in the second quarter.
``I don't think they try to compete at the same level,...but I don't discount them,'' Mr. Lampe said. ``They're a very strong competitor.''
In addition to its own organic growth, Cooper expects its sales to benefit from the ``pull-through'' effect of its agreement with Pirelli S.p.A. to handle sales and distribution of Pirelli's products in North America, as well as from the added exposure among commercial tire dealers it will get from its recent acquisition of retreading systems supplier Oliver Rubber Co.