BALTIMORE (Jan. 9, 2003)—Some independent Goodyear dealers in metropolitan Baltimore, upset by the Akron tire maker's decision last year to add Mr. Tire Auto Service Centers to its stable of authorized dealers, are considering adding competing brands in addition to Goodyear for the first time in their histories.
Independent Goodyear dealers in other regions also are cringing at the tire maker's recent distribution decisions, including a similar agreement with TBC Corp., although an analyst sees the moves as one attempt by Goodyear to recapture market share.
A group of eight independent dealers, who make up Baltimore Independent Goodyear Gemini (BIGG) dealers, signed a letter Dec. 11 to Goodyear expressing their concern over the company's distribution policies. The group hopes to meet with company officials later this month. “The most recent decision by Goodyear to sign the regional retailers is one that hits close to the heart of the independent dealer,” they wrote. “… By choosing to sell direct to the regional retailer, you have now enabled our competition to take advantage of our market that we have worked many years to build.”
Jay Huff, president of Brooks-Huff Tire and Auto Center in Hunt Valley, Md., said he will decide whether to stock competing brands in addition to Goodyear, which has been the star of the three-outlet dealership since it was founded by Mr. Huff's father about 60 years ago.
“The emphasis on Brooks-Huff is to sell products they will be able to depend on and make money,” he said. “It may not be as large a percentage of the Goodyear product.”
A Goodyear spokesman in Akron declined to comment on the dealers' concerns, saying the company plans to iron out problems with the dealers privately. He said the company's distribution decisions are made on a case-by-case basis.
But the tire maker has acknowledged in the past that its relationships with dealers need mending.
“We fully recognize we have work to do with our dealer partners,” President, COO and incoming CEO Robert Keegan told Tire Business in October. “In some cases, we're in great shape. In some cases we have work to do to repair some damage. And in some cases, we're going to have to, we recognize, win our dealers back one at a time. We know that's the way to do this.”
Standard & Poor's Corp. analyst Efraim Levy in New York said the distribution decisions could be one of several initiatives aimed at recouping lost market share. Independents offer more profit per tire, but heavy distribution costs dampen the effect. Distributing through chains comes at a lower cost though it generally yields lower margins per tire, he said.
“But you hopefully offset that with more volume,” Mr. Levy said.
S&P's Rating Services downgraded Goodyear's corporate credit rating to “BB-” from “BB+” on Dec. 24 (see story on page 3), and Mr. Levy on Dec. 26 urged investors to still avoid Goodyear because of lost market share, a decline in profitability and rising costs.
Too close for comfort
In their letter, the dealers said 17 Mr. Tire stores are located within the “sacred three-mile radius” of existing independent Goodyear dealerships.
Steve Cascio, owner of Carney Tire & Car Care Center Inc. in Baltimore, said Mr. Tire stores are near his four outlets.
“We built the Goodyear market in Baltimore,” he said. “We made the Goodyear market what it is, then Goodyear goes and signs someone that's right in our back door.”
He said pure competition is not so much the problem, except that the independent dealers are more restricted on price from Goodyear, hurting their competitiveness with Mr. Tire.
But Joe Tomarchio, executive vice president and co-founder of 44-location Mr. Tire, said the chain's increased buying power alone won't kill the independent dealers. He said satisfied employees and loyal customers are the biggest assets for any operation.
“If you're taking care of those two core assets, you don't have much to worry about in competition,” he said.
In fact, he added, Mr. Tire had been offering Goodyear tires since its inception about 30 years ago. The relationship only was made official—cutting out the middleman—in November. He said some customers will go to Mr. Tire and some will continue to go to the independents, just as other retail customers either are drawn to chains or locals.
“I think they have their own customer base just like we have our own customer base,” Mr. Tomarchio said.
But Ken Cavin, owner of Ken's Service Center Hanover Inc. in Hanover, Md., said Goodyear's decision to officially add Mr. Tire put a competitor too close for comfort. He had leased his third outlet in 2001 and renovated it for $350,000.
“Twelve months later, Goodyear signs up a Mr. Tire store right next door,” he said.
Paying for the blimp
Mr. Tire's advertising campaign also ranks as a source of contention among the independent dealers in Baltimore.
Mr. Cascio, who also said he is considering adding other brands to his stock, said he is upset by Mr. Tire's advertising after its agreement with Goodyear became official. He said radio spots said Mr. Tire had lower prices because the chain didn't have to support the well-known family of blimps.
Mr. Cascio said he took offense both at what he felt was the implication that independents naturally had higher prices and secondly that Goodyear allowed the campaign.
“Everything we built up for the last 20 years, now they have everything handed to them that we had,” he said. “Now it's right next to our store.... There should be some protection.”
But Mr. Tomarchio said many of the independent dealers took the advertisements too seriously. He said Mr. Tire often runs “tongue-in-cheek” ads that are aimed at getting people's attention. He said the radio spots said the Mr. Tire stores don't support the blimp because they're too busy selling tires.
“The perception is maybe we have a better value, and I guess that's a concern to other dealers,” he said, adding the dealers' reaction is more emotional than commercial.
Still, the Baltimore dealers aren't alone in their concerns.
Trent Bausch, manager of Coral Ridge Tire & Auto Care in Fort Lauderdale, Fla., said he is not happy with Goodyear's recent decision to add TBC Corp. as an official dealer. With at least 13 Tire Kingdom Inc. stores—one chain in TBC's retail network—in Fort Lauderdale, Mr. Bausch said the move likely will impact Coral's almost 40-year-old business soon.
“My opinion is we don't get the dealer support from Goodyear that we should,” he said.
Like Mr. Tire, Tire Kingdom had sold Goodyear tires in the past, but being an authorized dealer gives the chain another edge, Mr. Bausch said. Warranties from authorized dealers are more widely accepted, giving customers added incentive besides just price to head for the chain, he said.
But across the country where TBC's other retail giant, Colorado-based Big O Tires Inc., is plentiful, a Goodyear Gemini dealer said the tire maker's decisions can positively impact his business. Doug Stevenson, owner of Stevenson Tire Service in Fremont, Calif., said he sees Goodyear's pricing levels inching toward equality as market forces would dictate. When prices between independents and chains are closer, the independents can beat the latter with better service, he said.
“We're very competitive when we have an equal playing field,” he said.
Mr. Levy of S&P said adjusting prices wouldn't be the best move, especially on Goodyear's upper brands. Instead, he said the tire maker should find a compromised outlook that includes both chains and independents.
“You really need both,” he said.
While Mr. Stevenson in California keeps a positive outlook now, he had been in the same position as the Baltimore dealers not too long ago. His three-outlet, 26-year-old dealership had been a devoted Goodyear dealership for its first 18 to 20 years, he said. Then he added Hankook, Continental, General and Yokohama tires in a move that proved to be very successful, he said.
“They were starting to sell to everybody,” Mr. Stevenson said of Goodyear.