Goodyear's pricing policy ``stand-off'' with a handful of its major distributors is costing the Goodyear brand market share short-term, Goodyear's top executive told analysts.
However, the company intends to stand firm on its parity pricing program and expects the wholesalers to increase their purchases steadily throughout the rest of the year.
Lower replacement market sales of Goodyear brand tires-especially high-performance models-in the second quarter contributed to lower operating earnings for the North American Tire unit, the company reported in its earnings statement. (See related story, page 4.)
Samir G. Gibara, Goodyear chairman and CEO, speaking to stock analysts on a conference call, said these distributors' balking on purchases is especially noted because they buy almost exclusively Goodyear-brand tires, including a high percentage of higher-margin Goodyear high-performance models.
In the past, Mr. Gibara said, these major distributors have operated by buying large quantities of tires at discounts and keeping six to 12 months' of inventory on hand. The low cost of money recently has facilitated this practice, he said.
When Goodyear announced a change in its pricing policies late last year-under the aegis of the G3 Xpress program-and followed that up with a price increase set for Jan. 1, a number of the larger wholesalers stocked up with considerable purchases and have been distributing them ever since. Mr. Gibara said, roughly speaking, these distributors purchases were at about 25 percent of normal in the first quarter and 50 percent in the second; Goodyear expects them to reach about 75 to 80 percent of normal during the third quarter and return to 100 percent of historical levels before year-end.
Mr. Gibara said Goodyear is ``adamant'' about sticking with its price increases and parity pricing programs, and noted that the firm's revenue per tire has increased about 2 percent this year over last.
Mr. Gibara declined to make any specific predictions for the third quarter, citing the volatility of the global economy.