Goodyear and a handful of its largest wholesale distributors are facing off over prices and terms.
A disagreement over ``modifications'' Goodyear made to its distribution model last year thus far has resulted in reduced orders during the first quarter and veiled threats by some distributors that they'll take their business elsewhere.
In essence, Goodyear's modifications-primarily those outlined in the company's G3 Xpress program-``leveled the playing field'' among the various distribution channels, cutting into a number of wholesalers' traditional profit generators, according to analysts and distributors contacted for comment.
One of the changes is tied to Goodyear's efforts to manage its supply chains better; if Goodyear keeps inventories more in line with seasonal demand, it doesn't need to clear inventories out as often, resulting in fewer ``deals'' for wholesalers.
The G3 Xpress program, rolled out to dealers last November, involves authorized wholesalers taking more direct responsibility for smaller retailers-those ordering up to $300,000 a year. The program is an effort to improve fill rates and service with smaller dealers. G3 Xpress replaced Goodyear's associate dealer program, which was discontinued Oct. 1.
Through February, Goodyear said its shipments of consumer tires (passenger car and light truck) to dealers/distributors were essentially unchanged from 2001 levels, while industry shipments were up 8 percent. Goodyear attributed the anomaly primarily to its dealers buying heavily in December ahead of price increases scheduled for Jan. 1.
Jim Vogel, Goodyear's vice president, consumer tires North America, said to effect the G3 Xpress program, the firm needed to put in a pricing parity model. ``We had some major independent tire distributors that needed some competitive pricing in their trade areas, but what we found was that some tires were going out of those trade areas and affecting pricing in other areas.''
As a result, Goodyear has instituted a program to stabilize pricing of product in the North American market, as well as provide a disincentive for dealers to go out of their trade areas. The company knew some wholesalers would be dissatisfied, he said, but ``we are finding a vast majority of our dealers are applauding our efforts and encouraging us to maintain the stability....''
Orders in January and February from Goodyear's largest wholesalers-which account for roughly 15 percent of the firm's Goodyear brand sales-may have been down as much as 50 percent, said Saul Ludwig of McDonald Investments Inc. in Cleveland.
``Eventually (wholesalers) will deplete their inventories and will have to resume purchasing at a `normal' level,'' Mr. Ludwig told Tire Business, ``but now it seems like a battle of sorts is under way in that some wholesalers are holding out believing Goodyear will cave in on price before they are forced to restock their bins. We do not think Goodyear will capitulate on pricing, but who will make the first move is tough to call.''
Mr. Ludwig believes it would be difficult for a major wholesaler to switch brands because it would disrupt distribution patterns already established by the major tire makers. He also pointed out that many Goodyear wholesalers in the past enjoyed ``very favorable'' pricing terms.
Switching suppliers might prove troublesome, but sources saidwholesalers would not be precluded from adding brands to make them less dependent on any single supplier.
Rod Lache, stock analyst at Deutsche Banc Alex. Brown Inc. in New York, is a bit more pessimistic.
``While we applaud Goodyear's position,'' Mr. Lache wrote in an analysis, ``we believe that this dispute with distributors could have a significant negative impact on near term volumes and mix.''
As a result, Deutsche Banc revised downward its first quarter earnings estimates for Goodyear and downgraded its investment recommendation one step.
``Longer term,'' he wrote, ``we continue to believe that Goodyear will successfully resolve its problems with these distributors, and that Goodyear will succeed in its implementation of price increases.''
Most of Goodyear's wholesalers contacted for this story declined to comment on the record.
One who did was George Pehanick, president of East Bay Tire in Fairfield, Calif., who said: ``We feel Goodyear's underestimating the problem they have with their distributors. We hope they take a second look at these new distribution policies.''