Mergers, acquisitions shape upheaval in wholesale tire business

AKRON — The wholesale tire business in the U.S. has experienced more upheaval in the past nine months than it had in perhaps the previous several decades.

Consider:

Two of the three largest wholesalers today didn't exist nine months ago;

The industry's largest wholesaler, American Tire Distributors Inc. (ATD), lost two of its largest suppliers and ended up filing for Chapter 11 bankruptcy protection; and

Two of the biggest competitors in the market — Goodyear and Bridgestone Americas — are now partners in the wholesale distribution arena.

Michelin North America Inc. (MNA) and Sumitomo Corp. of Americas (SCOA) kicked off the year of upheaval in January when they announced the formation of National Tire Wholesale (NTW), a 50-50 joint venture that combines Michelin's TCi wholesale distribution activities with the Carroll Tire wholesale assets of TBC Corp. (an SCOA company).

The deal, valued at $1.52 billion, involved Michelin acquiring a 50-percent stake in TBC Corp. by means of a $630 million cash payment along with its TCi assets.

The NTW venture, an operating company of SCOA's TBC business, is considered the second-largest player in the U.S. wholesale tire market, combining Michelin's 85 TCi and TBC's 59 Carroll Tire wholesale distribution locations.

Don Byrd, president and COO of TCi, was named president and COO of NTW, reporting to Erik Olsen, CEO of TBC under the new ownership structure.

Even before that venture cleared all regulatory hurdles, Bridgestone Americas and Goodyear sent the next shockwave in mid-April with the announcement of their plan to combine their respective U.S. wholesale tire distribution assets into a 50/50 joint venture, called TireHub L.L.C.

TireHub — based in Atlanta and managed by an independent management team led by CEO Peter Gibbons, a veteran business and supply chain executive — combines Goodyear's 45 company-owned wholesale distribution centers with Bridgestone's 38 Tire Wholesale Warehouse (TWW) warehouses.

The company will complement both tire makers' networks of existing third-party distributors, the new partners stressed at the time, and provide a fully integrated distribution, warehousing, sales and delivery solution.

TireHub sees itself as a "customer service-driven business" and a partner with its customers, Mr. Gibbons said. The national distributor started accepting customer orders July 1 for Bridgestone and Goodyear product lines, as well as Toyo-brand products.

A week after announcing the formation of TireHub, Goodyear notified customers it was ending its supply relationship with ATD, North America's largest tire distributor with more than $5 in annual sales.

Bridgestone followed suit two months later, telling customers it was discontinuing the distribution of passenger and light truck tires through ATD.

These machinations led to a series of restructuring moves by ATD throughout the summer, culminating in the company's filing for Chapter 11 bankruptcy protection on Oct. 4.

Throughout the summer, Moody's Investor Service Inc. questioned whether ATD had sufficient cash reserves to cover certain projected interest payments and maintenance costs. Moody's also called on ATD to cut a significant amount of its costs, while replacing 40 percent of the revenue lost from the departures of Goodyear and Bridgestone, in order to cover projected annual interest payments and maintenance investments totaling a few hundred million dollars.

According to the court filing, Continental Tire North America Inc. ($123.8 million), Cooper Tire & Rubber Co. ($89.1 million), Michelin North America Inc. ($59.6 million), Nexen Tire America Inc. ($52.8 million) and Toyo Tire USA Corp. ($40 million) are among ATD's largest unsecured creditors. Goodyear ($16.2 million) and Bridgestone Americas Inc. ($12.5 million) are also in the top 15 creditors, as listed in the documents.

Leading retailers asked about the upheaval offered a mixed bag of responses. Most who responded said they'd seen their costs increase, but this might be a temporary anomaly related to the new ventures' startup costs.

A handful said they'd changed and/or added suppliers.

Other leading wholesalers were active as well over the past 12 months, investing in new distribution and pursuing mergers and acquisitions. Some of the more prominent were:

Max Finkelstein Inc. and Treadmaxx Tire Distributors Inc. formed a wholesale buying group, Tire Distributors of the Americas L.L.C., that they contend will allow them to leverage their combined purchasing power and explore cost savings.

Astoria, N.Y.-based Finkelstein and Atlanta-based Treadmaxx said the new company is structured as a "strategic membership group," which provides opportunities for additional members to join. The partners will continue to operate independently in the marketplace.

Treadmaxx itself is a new entity— sort of — in the sector. Atlanta-based Treadmaxx formerly traded under the Kauffman Tire Inc. banner, before Millwood, N.Y.-based Mavis Discount Tire acquired Kauffman's retail assets in January.

Tire and auto parts wholesaler U.S. AutoForce acquired Tire's Warehouse Inc. (TWI) in June, expanding its reach further westward into Arizona, California and Nevada.

Terms of the deal, which covers TWI's eight warehouses in California and Nevada, were not disclosed. U.S. Autoforce is a division of U.S. Venture Inc.

TWI and U.S. AutoForce have been partners the past three years, collaborating on expanding U.S. AutoForce's Tire One dealer marketing program into TWI's distribution territory. U.S. AutoForce operates 24 warehouse distribution centers in 10 states — Florida, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, South Dakota, Texas and Wisconsin.

K&M Tire Inc. opened its 27th distribution center in June, a 21,000-sq.-ft. structure in Milwaukee, a location that the Delphos, Ohio-based distributor said will improve service to customers as far north as Green Bay, Wis.

The company also broke ground in July on a 15,000-sq.-ft. distribution center in Beresford, S.D. The D/C is being built on 17 acres of land K&M purchased in Beresford's Northwest Industrial Park.

Atlantic Tire Distributors added distribution centers in High Point, N.C. and Lynchburg, Va., with combined capacity of 105,000 square feet, expanding the Colony Tire subsidiary's network to six warehouses.

Wholesale Tire Distributors (WTD) added a D/C in Grand Prairie, Texas, operating under the name Wheel & Tire Source L.L.C. The D/C is La Mirada, Calif.-based WTD's fourth warehouse

Community Wholesale Tire is scheduled to open a D/C in Peoria, Ill., in November to help the Hazelwood, Mo.-based company improve its delivery service to dealers in Illinois and Iowa. The new facility will be the company's fourth warehouse. All told, the company has over 575,000 square feet of storage capacity.

Monro Inc. expanded its burgeoning wholesale business in May with the acquisition of Johnson City, Tenn.-based Free Service Tire, whose holdings included four wholesale distribution centers, which now operate as part of Monro's Tires Now business unit.

Tire Distributors of Georgia added a D/C in Statesboro, Ga., its third warehouse.

Arrowhead Tire, the former Burggraf Tire wholesale business acquired in 2009 by the Eastern Shawnee Tribe of Oklahoma, has gone out of business. The Tribe gave no reasons for the business cessation, but said remaining assets are for sale.