October 31, 2012
The retread tire market is extremely competitive market due to the constant technological improvements in the industry and the ever changing Federal and local guidelines they must follow. It is extremely easy to enter the retread market, but it is hard to stay competitive in this market. They keep up to date on technological advances in order to stay current in their industry, which is quite expensive. There are new industry standards that are being set using the Yokohama RY617 as the benchmark for this new program which require new equipment to meet these standards (Truck News, 2012). There are even requirements as to how the new retread tires will be labeled.
Main Industry: Tire Retreading
According to the Tire Retread & Repair Information Bureau (TRIB) tire retreading is the process in which worn tires (called casings) are inspected and only the sound casings are chosen to get a new tread after careful inspection. After selecting the appropriate casings the remainder of the worn tread is removed, by buffing the old tread away, and a new tread is bonded to the casing which is very much like the process used to manufacture new tires. The retreaders use processing techniques including the use of heat, time and pressure to retread the casings (TRIB website, 2012).
According to government statistics, there were 1,845 companies in this category in 1992, down from 1,930 in 1987. In 1997, there were 632 companies, operating 754 establishments. Their shipments were valued at $983 million.
PORTERS FIVE FORCES
Rivalry in the industry
There is a lot of competition in the tire retread industry throughout the United States. Shrader’s main competition is BF Goodrich, Michellin, and Goodyear Tire. The competition includes not only franchises but smaller stores as well. It is hard to distinguish within the customer base, so cost of competition is high.
Threat of Substitutes
There are several potential substitutes, from cheaper retread companies to new cheap tires like those being produced in China. These cheaper substitutes can raise the cost of competition as companies like Shrader must spend more on customer service and higher quality retread tires to so they can distinguish themselves from their competition within the customer base.
Threat of New Entrants
This is a major threat. Anyone could set up a shop with simple tools and some basic knowledge which is why it is important to create brand loyalty through other methods like strong customer service and quality products to retain customer loyalty. In Toledo there are operations like Poor Man’s tire on the East Side of Toledo who sell retread tires at prices as low as $25 a tire for cars, and $45 for larger vehicles like Jeep Cherokee’s.
Suppliers of tires are very powerful in this industry. Some of the biggest suppliers include BF Goodrich, Michellin Tire, and Goodyear. Name brand is important in this industry because many people connect name brand with high quality. When you think of tire suppliers typically the larger companies are the first ones who come to mind, not the smaller companies. Even in the area where Shrader operates and offers 24 hour service and additional services like auto parts and lubricants people tend to think of the large companies first and only consider Shrader later if their needs can’t be met by the larger companies like BF Goodrich.
Customers have a lot of power in this industry because there are many suppliers for them to choose from. Therefore larger customers like Chevron who are both customers in the market and suppliers can easily negotiate to get the products and services at prices they want or they could threaten to take their business elsewhere. Chevron operates a very large fleet to...