When Goodyear Tire & Rubber Co. and Bridgestone Americas, Inc. announced in mid-April that they are forming one of the largest tire distribution joint ventures in the United States, some were surprised that two traditional competitors decided to do business together.
Others saw it coming with the proliferation of SKUs among other market factors. While others, including us, were left with many questions.
Below is an overview of the deal to catch you up on what we know:
TireHub, LLC, will provide U.S. tire dealers and retailers with passenger and light truck tires from Goodyear and Bridgestone. The deal hopes to satisfy demand for larger rim diameter premium tires. The joint venture, headquartered in Atlanta, initially will have more than 80 distribution centers and warehouse locations nationwide. At launch, TireHub will be made up of Bridgestone Tire Wholesale Warehouse and Goodyear facilities.
Upon the initial announcement, Moody’s Investor Services placed its ratings for American Tire Distributors (ATD) and Dealer Tire, LLC under review for a downgrade. The review for a downgrade reflects Moody’s view that, subsequent to the Goodyear-Bridgestone joint venture formation, both companies’ fundamental creditworthiness is likely to weaken to a level that may be inconsistent with its current ratings.
Goodyear touted the TireHub deal as continuing its “aligned distribution strategy,” which was discussed at its 2018 dealer conference. Its president of consumer tire sales even focused at the dealer meeting on the need for change and innovation within Goodyear to remain competitive. As those speeches were being polished, little did we know Mattel exec Peter Gibbons was starting a new phase of his career as the newly hired CEO of TireHub.
From Bridgestone’s point of view, the TireHub deal was beneficial with the amount of SKU proliferation happening in the market. “I think all industry participants have been seeing this trend for a period of time. So, no, the Michelin-Sumitomo deal did not surprise us, but we had been working on this for many months in advance of that [announcement]. [Bridgestone and Goodyear] were already in conversation well in advance of that deal,” said TJ Higgins, president of Bridgestone’s North America Integrated Consumer Tire Group.
Just days after TireHub was announced, Goodyear dropped ATD as one of its distributors. “We are disappointed by Goodyear’s choice, given the investment ATD has made in building the Goodyear family of brands, and supporting its products, over the last decade and the effect it will have on all of you.” said Stuart Schuette, ATD’s president and CEO.
Goodyear confirmed that its distribution changes were limited to ATD in a statement to Tire Review.
Upon questions raised about how the loss of Goodyear products will affect its distribution, ATD issued another letter to stakeholders saying it is “taking steps to meaningfully offset the potential impact of Goodyear’s actions. We are working with several other original equipment manufacturers (“OEM”) to develop enhanced customer support programs. We have also reached out to a number of our customers and have received substantial support from both large and small customers who appreciate the value of ATD’s full suite of offerings.”
The impact of the TireHub deal was also on the minds of investors during Goodyear’s announcement of its first quarter financial results. The company said it expects to transition volume of about 10 million units of annual sales – primarily to TireHub, but to other aligned distributors as well – during the second quarter of 2018. Given the temporary disruption associated with the start-up of TireHub, Goodyear is expecting a near-term reduction in volume of up to 1.5 million units in 2018.
A major element of that volume reduction results from Goodyear’s decision to no longer partner with ATD.
So what’s next?
Both parties will submit financial information and terms of the deal to the Federal Trade Commission. If the FTC approves the deal, Goodyear indicated that TireHub should be fully up and running in June.