Michelin North America Inc. discontinued its nearly 3-year-old Maximum Value Policy (MVP) pricing program for the BFGoodrich Radial All-Terrain T/AKO light truck tire, effective Feb. 1.
The highly publicized MVP program established minimum pricing for the tire and its predecessor, the All-Terrain T/A, to prevent dealers from selling the product below cost and to restore profit margins. Michelin is ending the program because ``it worked,'' a company spokeswoman said.
``(MVP) did what we wanted it to do, which was put the value of the product in line with the price of the product. That's happened, and now we can move on,'' she said.
Under the policy, Michelin pledged to cease supplying the All-Terrain T/AKO line to any dealership that sold or advertised the tire below the minimum price or sold the tire to entities other than retail consumers. Michelin also promised to audit the sales records of any dealership it suspected was not abiding by the MVP program, though the spokeswoman said most dealers kept the policy's pricing standards. She declined to disclose if any retailers were penalized for breaking the policy, citing that it was proprietary sales information.
The spokeswoman also said the company believes the pricing points established by the program will hold after it ends as both dealers and consumers have realized the value of the product in the past few years.
But some Michelin dealers contacted by Tire Business were not happy with the tire maker's decision. Russell Miller, co-owner of Wayne's Tire Inc. in Santa Maria, Calif., said he's already cut back on his inventory of T/AKOs by 60 percent in anticipation of mass merchandisers Wal-Mart Stores Inc. and Costco Inc. offering the product below cost.
``That tire's been used for years as a loss-leader,'' Mr. Miller claimed. ``It'll be used again as a loss-leader.''
Mr. Miller said the MVP program has worked in protecting the dealer network, but it was a difficult one for Michelin to administer. Echoing that sentiment, John Boyle, president of Lyndhurst, N.J.-based ETD Discount Tire Centers, said the MVP program was ``slightly cumbersome'' for a distributor because of the paperwork involved, but noted that every dealer made money because of MVP.
``Our only fear is that (pricing) might deteriorate,'' Mr. Boyle said. ``Time will tell. I hope the integrity of the pricing continues, but time will tell.''
Larry Lesieur, president of Maynard & Lesieur in Nashua, N.H., said MVP's end is not a victory for him but for the price clubs. He said he doesn't believe, as Michelin does, that the current price points will stick in the marketplace.
``Ultimately, you can be sure that the prices are probably going to go down in the clubs,'' Mr. Lesieur said. ``The clubs aren't going to be able to sell them if they sell them at the same price as a full-service dealer.''
Speculating on why Michelin is dropping the program, Mr. Lesieur said MVP must have been expensive for Michelin to maintain, as it was integrated within the company's customer service department last year. He said he also believes that last year's multi-million-dollar pricing discrimination lawsuit brought against Michelin by Atlanta's DeKalb Tire Co. also shook up the tire maker.
``I think Michelin got scared because I'm guessing that one of two things happened: Either someone threatened to sue them over all this (MVP) or they just got so much flak from the clubs and Sears that they finally backed down and said `Ok, we'll get rid of it.'
``I'm sure somebody pressured them, because as far as I'm concerned, the (dealers) like myself were satisfied with it. It was giving us a decent gross profit,'' Mr. Lesieur said.
Shortly before the DeKalb Tire matter was to go to trial, Michelin settled the suit for undisclosed terms and bought the dealership.
Mr. Lesieur also noted that Michelin had sent an agent from a large accounting firm to audit his business thoroughly back in September or October. That doesn't make sense, he said, if the company knew it would soon discontinue the MVP program. He said that visit caused him to believe that a faction within Michelin may have wanted to keep the MVP program.
When asked about the risk of warehouse clubs selling the All-Terrain T/AKO below price, the Michelin spokeswoman said: ``We'll have to see what happens. We obviously wouldn't (end MVP) if we didn't think it had a very, very high chance of success.''
The tire maker does reserve the right to reinstate the program if it becomes necessary, she said, ``but that's not the plan. The plan is for (MVP) to go away."