Tire Industry Tire Manufacturing This Is an Term Paper

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Tire Industry

Tire manufacturing

This is an industry analysis of the tire manufacturing industry. It has sources.

The Industry's dominant economic features

Porters Five Forces

-- the rivalry amoung competiting sellers in the industry

the potential entry of new competitors

-Wining customers over their own substitute products

Supplier-seller collaboration and bargaining

-Seller-buyer collaboration and bargaining

Drivers of change in the industry

Companies in the Strongest/Weakest Positions

Key Success Factors for Competitive Success

The tire manufacturing industry is one of the most diversified and competitive industry in the U.S. Categorized by oligopoly business environment, the industry is a hub for mature key players like Goodyear, Michelin, Firestone, Bridgestone and Sears etc. New entrants find it hard to enter the industry because of the following characteristic business environment.

The Industry's dominant economic features

The tire industry is perhaps one of the most regulated industries. Although it is categorized by a few major players the basis of the competition and market size nevertheless rests in the hands of the government, the dealers, supply chain and the consumers. Tire manufacturers therefore cannot predict definitely the flow of consumption nor are they assured that they will have specific customer base for particular periods as the nature of the consumption of tires is quite diversified. From the individual consumers to the dealers along with the automobile manufacturers all are interconnected where tire consumption is concerned. Manufacturers therefore not only anticipate competition from direct producers but also from associated industries as well.

According to the MTD [Modern Tire Dealer] source, the estimated domestic retail market share can be distributed into industrial tire dealerships accounting for 59.5%; mass merchandising chain 16.5%; tire company stores 8%; warehouse clubs 8%; service stations, miscellaneous outlets and auto dealerships make up for 8% for the year 2000. The irregular distribution of the retail market share is indicative of the fact that each year although the significant increase in the level of consumption is not much however, as more and more competitors from the intermediaries enter into the market.

Furthermore, the highly integrated channel of distribution thus increases the level of competition within the industry. In the recent years the mandate made by the government on safety and quality along with the Ford - Firestone mishaps have increased strictness in controlling and maintaining quality for the sake of the consumers. Yet the expanse of the industry continue to grow and can be gauged by the increasing sales level of tires and purchases by the individual consumers through independent dealers [see appendix].

This is because of the mature industry life cycle. The tire manufacturing industry is among the most mature industries as it has almost exhausted its market before it revived and expanded through branding as well as technology to establish niche markets. Old competitors like Firestone, Goodyear, Titan and Michelin still manage to differentiate their products through technological development, product quality and reliability, production innovation and finding niche markets to be able to exploit pricing strategies. Bridgestone for example [Bridgestone Official Website 2003] identifies its brands with quality. According to the company "Technology -- our greatest competitive strength and the life of our brands -- is where we most want to improve continuously." Despite the Firestone controversy Goodyear continues to rank as one of the top most tire manufacturing companies as there is still room for recreating products as long as companies' research and development can transform technology to production and eventually meet market demands [Bridgestone Official Website 2003].

This fact has also been responsible for the extent to which the economies of scale companies can reach. The sheer sizes of the orders that tire manufacturer gets distribute the high cost of production. Whereas the material for tire production remains almost the same, it is the technological costs of R&D as well as the cost of investment for improving equipments which forms the basis for the industry to go through change and increase competitiveness.

According to an interview conducted by MTD, experts like Saul Ludwig [2003] forecasts the growth rate of the tire manufacturers depend on the kind of cars that are being manufactured / other vehicles produced in the transportation industry. These make up two broad sub-sections of the automobile industry: one is the passenger category while the other one makes up for the other transportation category including farming vehicles, trucks, racing cars, motor bikes etc. For example between the years 2000 and 2001 it has been noted that the trend for light trucks and SUVs have increased the demand for tires by 8.5%. Similarly the increase in the use of freight airlines for transportation decreased truck for delivery and hence decreased the market share of the trucking industry. In the coming years for example Ludwig anticipates an increase in the market share of tires by 1% due to the revival of the airline industry [Ludwig 2003].

Bridgestone, Michelin and Goodyear dominate the local industry as well as in the global market. The basis of their profitability is not dependent on the production of the tire alone but their ability to increase profit levels through niche market. The following table shows how the different categories make a difference to market share percentage each company holds. From the table observe [See Appendix] that Goodyear maintains a lead in the passenger, retail points and passenger car replacement tire markets while Michelin and Firestone comes second and third respectively. Goodrich, General, Bridgestone and Sears follows forth but their market share cannot be ignored as the rest of the players aside from Goodyear holds almost equal percentage of the passenger OE tire market while in the retail and the passenger car, Goodrich dominates.

2) Porters Five Forces

Michael Porter [1998] a specialist in the analysis of industries has formulated a framework through which one can analyze the attractiveness of an industry. This framework has become popular among management leaders in diagnosing the status of an industry and its attractiveness for investment over the years. In the following sections the researcher uses Porter's Five Forces to analyze the tire manufacturing industry.

The rivalry among competing sellers in the industry few chosen players dominate the production capacity of this industry. The broad categories are also the reason why competitors become specialize in their category. For example Goodyear specializes in the OE and passenger car tires along with highway truck tires. Goodyear despite its diverse portfolio still stands number two after Michelin. Yet the company is considered to have the broadest line of tire products, largest point of sale for branded tires, control over the distribution channel and offers price performance quality to its consumers. Similarly, Michelin and Goodrich too specialize in the OE and retail point of sale distribution activities. Firestone on the other hand specializes only in the passenger category. For this reason these players holds a major market share in their particular markets. Despite the extensive exploitation by these players, there is plenty of room to grow [Nakra 2003].

Sears on the other hand focuses on the dual distribution strategy that Goodyear follows. Although this strategy leads to cannibalization of the tire dealers but it is the bottom line, namely profitability which counts in the eyes of these manufacturers. This force therefore holds a high power over the industrial players [Nakra 2003].

The potential entry of new competitors

The rivalry level and specialization among the dominant players within the industry offers opportunities and low entry barriers to the new entrants. Foreign made tires like those from the Japanese and the Chinese companies can and have great potential of infiltrating the U.S. industry. However, what makes the market difficult to enter is the technological development that the industry maintains along with the governmental regulations.

Hence actual new competitors emerge from the distribution channels. Dealers for example are a great threat to the tire stores that the manufacturers maintain for increasing its point of sale. The strong supply chain and distribution channels offer plenty of scope for new entrants thereby attracts hundreds of dealers. This power is therefore highly dominant among the other five forces [Nakra 2003].

The market attempts of companies in other industries to win customers over their own substitute products

The tire industry has finally come to the realization that tire consumers are becoming pickier in their choices and expectations. Unlike a few decades back, a tire is associated with moving a vehicle. Today a tire is no longer a tire but it has to have quality assurance, it must have safety features and guarantees. In addition the consumers are expecting better service from tire dealers and dealers in turn demand services like prompt delivery, proper installation, helpful salespeople and credibility of the staff members of the manufacturers. These factors along with the product features make the market share even more competitive [Nakra 2003].

The competitive pressures stemming from supplier-seller collaboration and bargaining

For the above reasons sellers and suppliers in this industry have the upper hand over the buyers. Pricing strategies adopted by the major players are based on their brands and assurance that…[continue]

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