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Will Dealer Tire Be Affected by the TireHub Deal?

Goodyear has said it will be limiting relationships with national distributors to be replaced with TireHub, so where does that leave Dealer Tire and other distributors?

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While Goodyear has said it will be limiting relationships with national distributors to be replaced with TireHub, some have asked how that will impact others across the retail tire landscape, including Dealer Tire.

The question arises as Goodyear Tire & Rubber Company decided to discontinue distribution to American Tire Distributors (ATD), which ATD’s President Stuart Schuette called a “disappointment” in an open letter. Goodyear decided to do so, however, with the creation of TireHub, its joint distribution venture with Bridgestone Americas.

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For Goodyear to pull the pin from the largest distributor in the country (ATD), that’s very big for them to do that. Are they just picking ATD?” said Alpio Barbara, owner of Redwood General Tire Pros, “If they’re going to take it away from ATD, take it away from Tire Rack, Dealer Tire and so on…”

So, with the creation of TireHub, is Dealer Tire at risk of getting its Goodyear portfolio pulled? How will it affect their business with car dealerships?

Jill Marcotte, partner and chief supply chain officer for Dealer Tire, said in a statement to Tire Review that the Cleveland, Ohio-based company enjoys “an exceptional working relationship with Bridgestone and Goodyear.”

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“They (Goodyear and Bridgestone) have assured us that they value our partnership, and that they will continue to fully support our business model,” the statement read. “It’s an exciting time to be in the tire business, and we’re looking forward to continuing to adapt and evolve in an ever-changing landscape.”
While Goodyear has not said if, when and what other national distributors may be affected by the creation of TireHub, the announcement has shaken the tire industry financially. Last week, Moody’s Investor Services placed its ratings for ATD (referred to as ATDI) and Dealer Tire under review for a downgrade.

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A Moody’s analyst said in both cases, the Goodyear-Bridgestone joint venture formation is likely to weaken or erode its current ratings for ATD and Dealer Tire.

“The niche position that Dealer Tire enjoys with respect to its key OEM customers in the dealership channel should allow the company to leverage those relationships and mitigate some loss of sales and/or eroding economic returns owing to this new market participant, but the development is credit negative, nonetheless,” said Inna Bodeck, Moody’s lead analyst for Dealer Tire.

Bodeck, also Moody’s lead analyst for ATD, said that ATD relies heavily on its various forms of revolving credit, with a one-year average usage of approximately $670 million.

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“ATDI’s ability to quickly respond to the evolving competitive landscape, including potential renegotiation of terms with Goodyear-Bridgestone to mitigate if not fully restore likely lost sales, remains highly uncertain, in our estimation,” said Bodeck. “The credit profile of ATDI is already relatively weak, as evidenced by the company’s underlying B3 corporate family rating and owing to its high leverage and only modestly positive cash flow profile – before the potential loss of one of its biggest suppliers.”

In terms of finalizing the TireHub deal, the next step is for Goodyear and Bridgestone to bring the agreement to the Federal Trade Commission’s Bureau of Competition, whose role is to prevent mergers and acquisitions that are likely to reduce competition and lead to higher prices, lower quality goods or services or less innovation.

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