DETROIT-Busy with the Firestone tire replacement campaign it initiated, Ford Motor Co. said it has not yet made plans for how it will re-source original equipment contracts the tire maker previously supplied.
Competitive tire makers, however, say they are in discussions with Ford to handle not only replacements for the recall, but also OE production for the car maker.
Re-sourcing of those contracts likely will depend on when each agreement was entered into, a spokeswoman for Bridgestone/Firestone Inc. (BFS) said. ``Right now we're reviewing them to find out when they expire.''
BFS told Ford in a letter May 21 that it would honor its existing tire supply contracts with the car maker but take on no new business in the Americas.
``We haven't had any discussions with Firestone yet (on its decision to sever OE ties); we haven't even had any internal discussions,'' Ford President Jacques Nasser said following the company's May 22 announcement of its latest recall.
``A combination of slower growth in the U.S. and markets around the world, combined with a downturn in new vehicle markets, suggests that there is going to be adequate capacity and these guys can further entrench their business with Ford,'' said Richard Henderson, vice president of investment research at the Pershing Division of Donaldson, Lufkin & Jenrette in Jersey City, N.J.
Continental Tire North America Inc. does have additional capacity to produce some of the tires Ford will need, a spokeswoman for the German-owned tire maker said. ``But currently we are exploring all our capabilities, and further discussions with Ford Motor Co. will allow us to, in detail, determine which tires and how many tires we will supply to Ford.''
Tom Roydhouse, Conti Tire's vice president of sales and marketing, told Tire Business ``Ford's first focus is on the replacement of these (latest) recalled tires, but then there will be an obvious shift to see what they're going to do from an OE standpoint.''
He believes Conti is ``better prepared'' for the current recall, ``not only from a production standpoint, but how we manage it. Last year's recall opened up a whole new can of worms-that many tires at one point: How do you manage it? How do you try to take care of, as fairly as possible, as many of your dealers as you can?''
The tire maker finally ``got pretty good at it about halfway through the recall,'' he said. ``At least we now have a direction to follow that works for us in coordinating our production logistics....''
A Goodyear spokesman said that like the rest of the tire industry, the firm has extra capacity and is ``willing to discuss (Ford's) needs to come up with a beneficial arrangement.''
Goodyear and Michelin North America Inc. are the likely beneficiaries of the breakup, said Rod Lache of Deutsche Banc. Alex. Brown Inc. ``Both companies have already experienced significant market share gains this year; a second recall would likely reinforce this trend,'' he said. During the first quarter, Goodyear-brand sales increased 4 percent from year-ago levels, while Michelin-brand sales jumped 11.6 percent.
Both Michelin and Conti confirmed they are in talks with Ford on the subject of supplying OE tires.
Michelin's current tire mix is 80-percent replacement and 20-percent OE. ``We don't see any changes to that at this time,'' a Michelin spokeswoman said. Although aftermarket margins are higher than those in the OE market, most tire makers are intent upon working closely with car makers so they can make gains on the replacement side.
Re-sourcing of Ford's OE contracts with BFS could take 12 to 18 months, Mr. Lache said.
Original equipment tire profits on the BFS business could go up as Ford is pressed to replace those fitments, said Efraim Levy, an analyst with Standard & Poor's in New York. ``I think the situation with Ford gives the tire makers, for a change, a teeny bit of leverage, especially if it's a fast change.''
Pricing in the North American replacement tire market also could benefit if Firestone loses a significant portion of its 8-percent market share, Mr. Lache said. ``Over the past 20 years returns in the tire industry have remained low, largely because industry overcapacity has kept a lid on pricing.''
He estimates total North American tire demand last year was about 360 million units, but manufacturing capacity was close to 420 million tires. If BFS, with an estimated annual capacity of 70 million tires, ``significantly'' reduced its presence in the North American market and if raw material prices decreased, material improvements could become evident in the industry's supply/demand relationship resulting in an improved pricing environment, Mr. Lache said.
``The thing to keep in mind is that these (OE agreements with Ford) aren't all going to end at once,'' the spokeswoman for BFS said. ``We will be keeping our contractual agreements with Ford, and I think our hope is that as they start to expire, we're hoping to build the business elsewhere, in both OE and replacement.''
Tire Business Managing Editor Sigmund J. Mikolajczyk contributed to this report.