Goodyear Tire and Rubber Company

1. How would you characterize the competitive environment in the tire industry in 1991? The tire industry is divided into two end-use markets: First is the original equipment tire market (OEM) in which tires are sold directly to the automobile or truck manufacturers. This market represents 25 to 30 percent of the tire unit production volume each year. Goodyear is the market share leader in this segment and captures 38 percent (1991). Within this segment, price is highly inelastic due to the fact that car and truck manufacturers can easily switch to a competitor brand since the price competition in this segment is fierce in this market The second is the replacement tire market. This segment of the market accounts for 70 to 75 percent of tires sold annually (3 times that of the original equipment market). The demand for this segment is driven by average miles driven per vehicle. Tire manufacturers produce a large variety of grades and lines of tires under both the manufacturers name as well as private label brands to accommodate the needs of all different customers who are seeking tires based on price, quality and performance. The OEM market has the smallest profitability of the two markets, however it is considered strategically important to be a player in this segment. The justification for this is the fact that many believe that car and truck owners who are satisfied with their original tires would seek out the same brand when they need to be replaced.

2. What is Goodyear’s relative competitive position within the tire industry? World tire production in 1991 was approximately 850 million tires. Goodyear is the world’s second largest producer, right behind Michelin who is the world’s first largest producer and right before Bridgestone who is third. These three firms collectively account for 60% of the worldwide tire market. While Michelin is the leading producer of tires worldwide, Goodyear is the leading producer in the United States, North