Goodyear Case Study

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Topics:
Arifur Rahman

Case Problem: Goodyear Tires and Robber Company

Professor: Arnold Pollack

July 28, 2009

A. How would you characterize the competitive environment in the tire industry in 1991?

The tire industry divides into two, broad segments: original equipment (OE) tires and replacement tires. The OE segment accounts for 20-25 percent of tires sold annually; unit sales are trending downward. The replacement tire segment accounts for 70-75 percent of tires sold each year; the unit sales trend is “flat”. Passenger car tires account for 75 percent of annual sales.

Although 10 tire manufacturers account for 75 percent of worldwide production, three firms account for 60 percent of all tire sales sold. They are in order: Groupe Michelin, Goodyear, and Bridgestone. These firms compete in both the OE and replacement tire segments. Although Goodyear is second to Michelin in worldwide production, it is the perennial U.S. market leader in both the OE and replacement segments.

Even though the OE segment is smaller, it is viewed as strategically important by tire manufacturers for two reasons. First, prominence in the OE segment provides volume related scale economics in the production of tires. Second, it is believed that car/truck owners satisfied with their OE tires on new vehicles will buy the same brand when they replace their worn tires. However, the case also states that passenger replacement tire buyers are becoming more price sensitive and less likely to simply replace their branded OE tire with the same brand of replacement tire.

Overall competition is intense in both the passenger OE and replacement tire segments. The nature and scope of competition differs, however. Competition in the OE segment revolves around the major vehicle manufacturers and supplying some or all of the tire needs for their new model year cars and trucks. OE tires are essentially “produced to order” and may be viewed as a “commodity” by vehicle

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