CHARLOTTE, N.C. — Goodyear is ending its direct supply relationship with American Tire Distributors Inc. (ATD), prompting ATD to pursue "innovative initiatives" to be unveiled later that will demonstrate the wholesaler's commitment to its customers.
In a letter to customers signed by Stuart Schuette, president and CEO of ATD, Charlotte-based ATD said Goodyear — which disclosed on April 16 it is starting a wholesaling joint venture in the U.S. with Bridgestone Americas Inc., called TireHub L.L.C. — had notified it that ATD "will no longer be a Goodyear distributor going forward" but did not specify a timetable for ending the supply.
"Unfortunately Goodyear has chosen to force this transition upon all of us," ATD said, "but we'll work closely with you to manage the impacts."
The letter, an internal communication sent from ATD to its customers, was obtained independently and confirmed by Tire Business.
Goodyear has not responded to a request for comment.
In the letter, ATD said it was "disappointed" by Goodyear's decision, "given the investment ATD has made in building Goodyear's family of brands, and supporting its products over the last decade and the effect it will have on all of you."
ATD did not comment on the financial impact of Goodyear's decision, but Moody's Investor Services issued an alert April 17 of a review of ATD's creditworthiness in the wake of the TireHub announcement, noting that even a modest revenue decline triggered by the Goodyear-Bridgestone partnership likely will lead to a "substantial contraction" in ATD's earnings and free cash flow, sparking the need to take "costly restructuring actions."
ATD is considered the largest replacement tire distributor in North America, with the network of more than 140 distribution centers in the U.S. and Canada and 2017 revenue of about $5.2 billion. It sells most leading brands along with its own Hercules brands.
According to ATD, the top four brands account for about 55 percent of its tires and related products.
If ATD is unable to reach some type of supply agreement with branded tire manufacturers, Moody's continued, the resulting earnings impairment will limit its ability to service debt and make capital investments necessary to support its operations.
Regarding the Goodyear decision, ATD said: "While the new landscape may present you with fewer choices, we look forward to working closely with you to lessen the impact of the challenges you face.
"ATD is financially solid and we are both clear and confident in the focus of our business and the innovative strategy we have in process."
In the letter, ATD promised that it will unveil "innovative strategies" later this year "that will demonstrate how we are leading the change in our inudstry — all of which is motivated by a desire to drive value for your business and help you succeed regardless of the market climate."
Interesting to note, perhaps: in its 2015 10K filing with the Securities and Exchange Commission — the last one filed prior to Ares Management L.P.'s acquiring a "significant" stake in ATD — ATD noted that it does "not have long-term supply agreements with tire manufacturers, instead relying on oral arrangements or written agreements that are renegotiated annually and can be terminated on short notice."