Power is nothing without control. Those of you who sell Pirelli tires may remember that phrase in their ads a few years ago.
Apparently, it applies not only to the tires themselves, but to the tire business as a whole.
That is the conclusion I have come to after talking to several tire people about the TBC/Carroll-TCi and Bridgestone-Goodyear distribution mergers.
Keep in mind this is my opinion only. Firstly, it should be said that the tire companies have the right to control how and where their products are brought to market. That includes advertising, promotion, marketing and distribution right down to the retail tire level.
Their concerns seem to be that independent tire distributor American Tire Distributors Inc. (ATD) was getting too influential in the wholesale market at the expense of their regional distributors and their own manufacturer-owned distributors.
ATD's concept of "one-stop shopping" for tire dealers was very appealing to many tire retailers, and as they became nationwide, the concept also appealed to many large tire chain stores. The largest tire manufacturers such as Goodyear, Bridgestone and Michelin apparently did not like how powerful ATD was getting and probably did not like the financial exposure that a nationwide distributor as big as ATD presented to them.
Michelin struck first by announcing the deal with TBC to merge Carroll Tire and TCi into one company, National Tire Wholesale (NTW). Michelin undoubtedly saw this as a way to ensure that it had an entity that could compete in distribution nationwide with ATD.
It also gives them some control over distribution to TBC-owned national chains, such as NTB and Midas.
Where Michelin and TBC products are mostly complementary, this deal made sense. Both sides brought value to the transaction.
The next deal with Bridgestone and Goodyear, no one saw coming. Many independent Goodyear tire distributors have been wondering for years why the tire maker still needed its wholesale centers when the independents believed they could distribute Goodyears more efficiently than the company's wholesale centers.
Curiously, Bridgestone has been opening company-owned Tire Wholesale Warehouse (TWW) locations around the country, even though their program makes it hard to switch distributors and businesses like ours are locked in with their current independent tire distributors.
So, this year Bridgestone opened its program up to multiple secondary distribution points similar to what Michelin has been doing for years. Goodyear has resisted but likely will follow Bridgestone's lead after the distribution merger is complete, all in the name of helping tire retailers.
What does it all really mean? For one thing, the major tire companies have seen what can happen if a national independent tire dealer begins to have a major impact on the North American tire distribution market, and they reacted to it with these distribution mergers.
They seem to want to control everything from manufacturing, advertising and promotion, to distribution, all the way down to who installs their tires at retail level by way of selling tires directly on their websites.
They also tell us what profit margin we are going to make on the tire, and on the installation of tires ordered through their websites. I can see a day down the road when Goodyear, Bridgestone and Michelin distribute tires sold on their websites primarily through their own distribution systems, and mostly to their own Goodyear, Firestone, and NTB/Midas retail stores for installation.
This vertical integration, as it is called in the antitrust business, reminds me of a hard lesson we learned years ago.
Maynard & Lesieur Inc., which just turned 90 on June 1st, started when my grandfather bought a gas station in Nashua, N.H., in 1928. In the late 1970s, we built a new gas station.
A couple of years later, the gas companies bought out the good sites and sold the non-desirable ones with contamination to independent gas dealers.
In no time, we had a brand-new Mobil station down the street selling gas at our cost and throwing in a fee car wash. It did not take long for us to get out of the gas business.
Later, poor Mobil had to merge with Exxon because it was going to go out of business if it did not get bigger. Unbelievable,
While I do not think this extreme will happen in the tire business, it is a cautionary tale.
The manufacturers also will tell you they are worried about Amazon. Who is not worried? My new Michelin 2018 agreement tells me not to sell to a long list of tire companies, which I am not at liberty to divulge in this column due to confidentiality.
But if Amazon is selling Michelins, Goodyears and Bridgestones and other brands through Sears Auto Centers, possibly soon to be Amazon Tire Centers, it will be because tire manufacturers are allowing it to happen.
I still remember when Michelin started the clubs direct policy many years ago. BJ's Wholesale Club was selling a 175/70R13 MXL for $55, and our direct cost was $60. Michelin basically told us that this was a different retail segment of the tire business that was being served by that channel, and that it wanted to have a presence in all channels of the retail tire business.
We lost a lot of business to that channel over the years.
We used to wholesale a lot in our area, and when Michelin started the Alliance (associate dealer) program, it essentially dictated who would distribute its tires wholesale based on the way the program was set up. My father said we would lose most of our wholesale business because of it, and he was absolutely correct.
Years later, some manufacturers heavily supported Dealer Tire's taking over the car dealer business, of which we used to have a large market share, and now that business is pretty much gone.
We are currently in the last bastion of power and control, which is retail, and some manufacturers are now trying to turn us all into mere tire installers, at the gross profit that they dictate, if you want to be considered a retailer on their websites.
If we refuse to accept their terms, they will just send the business to our competitors and especially their own stores. That is their right and privilege. It is their product.
So, what can we as independent tire dealers do? Firstly, we must make it clear to our manufacturers that there is value in allowing us to sell their products and at a fair profit.
We are partners with them in the tire business, and we are entitled to make a decent profit like they do so that we can pay our employees a decent wage and benefits for a hard day's work.
Secondly, if necessary, we can remind them that we still have customers who come in for tires, who trust our judgment and will purchase the tire brands we recommend. If a manufacturer is not treating us fairly, then we should provide other quality tire choices that we are able to sell profitably and that meet our customers' needs.
Remember, we as independent tire retailers also have some power and control.
Lastly, we must maintain strong trade associations — such as the New England Tire & Service Association and Tire Industry Association — so that we work together as independent tire dealers to make our businesses the best they can be.
We need to encourage competition and fairness in the wholesale and retail tire channels because competition make us all better tire retailers. Fairness and hard work ensure that we stay in business.
No doubt it will be an interesting rest of the year as these mergers unfold. Feel free to let me know if you think I am wrong about all this with a letter to the editor. I certainly do not profess to know the whole story of our evolving tire business.
Mr. Lesieur, of Maynard & Lesieur Inc., of Nashua, N.H., is a board member of the New England Tire & Service Association. This column originally appeared in NETSA's publication, The Road Runner.