Price fixing among tire manufacturers

Hi All,

I've been recently looking for tires (size 205-70-15) and I am finding
among the retailers that for the mileage I'm looking for (80K) and
the UTQGS ratings (treadwear 700, traction A, Temp B) that the
prices are virtually identical. The biggest difference is pricing for the
road hazard warranties and for balancing, etc. from the tire dealers.

What I really don't understand is why this is the case. For example,
Goodyear tires are manufactured in the US, by an American-owned company.
Michelin, and Bridgestone/Firestone tires are manufactured in China by an
American-owned company. Lastly, Toyo/Tourevo tires are an Asian-owned
firm and are manufactured in Asia.

I understand reading from the trade rags that US companies have
outsourced manufacturing to Asia to save money. I also understand from
the trade rags that CEO's of Asian companies don't take the gigantic
pay amounts that US CEO's do.

So, in principle, the Goodyears should be the most expensive, followed
by the Firestone, then the Toyo stuff should be the cheapest.

Yet, this is not the case. Pricing differers very little, in fact the
Toyo
stuff is a bit more expensive.

Of course, if I compare a house brand (like Walmart's Goodyear Viva)
that has a much lower UTQGS treadwear rating against the others, I see
big differences. But, I would expect this to be so.

Now, maybe the tire dealers are making up the differences on the mounting
and balancing costs - but I kind of doubt it. The equipment they use is
all expensive and they are paying a lot of employee salaries, I can't
imagine
they do anything more than break even on those costs.

Anyway, the point is that there seems to be a wide difference in what the
wholesale cost of the tire ought to be due to structural differences - the
dealers I've looked at seem to have widely different purchasing power (
Comparing Walmart against say Firestone dealers) and the tire manufacturers
have widely different corporate structures and the manufacturing is also
different. I cannot believe all these dealers are paying the same money for
tires. But, they all seem to be selling them for the same money.

What happened to competition? Seems to me there ought to be a big
case here for an anti-trust price fixing lawsuit against the tire
manufacturers.
Anyone have any ideas?

Ted

 

I believe that Michelin is a French company. According to their world web
site, they produce tires in 19 countries, including the U.S.

Bridgestone, which owns Firestone, is a Japanese company with 58 plants in
25 countries, including the U.S.

Toyo Tire and Rubber Company is a Japanese company with plants in Asia and
the U.S.

It is possible that all of the tires you shopped were made in the U.S.,
which would reduce the disparity in manufacturing cost.

Tires are a competitive business and a company whose products are priced
higher will have a tough time competing without a product attribute that a
consumer is willing to pay for, especially in the most common sizes like
205/70-15.

 

That might be true, and it is true that there are not a lot of other tire
manufacturers
that make that size AND that mileage and UTQGS rating I looked at.

But, if I went to a treadwear and UTQGS rating of about 1/2 of what I
surveyed,
then there's an order of magnitude larger number of tire manufacturers
making that
size. But, they are ALL the same tire price ALSO (or within very small
amounts
of each other) for that treadwear and UTQGS rating. I'd find it hard to
believe
they all make tires in the US.

After surveying I found NOT a lot of price coorelation between tire mileage
warranty and price, but I found a LOT of price coorelation between different
tires of the same UTQGS rating. I found a LOT of tires with DIFFERENT
mileage rating but the same UTQGS specs. So I tend to discount the stated
mileage as marketing fiction. What matters is UTQGS. And another telling
indicator of the importance of UTQGS is that some manufacturers hide it.
Goodyear, for example, doesen't post that on their website - they tell you
you have to get it from the tire brochure at the tire dealership.

However, it's pointless. The cheapest tire I could find in that size is a
40K tire and it's only 1/3 cheaper for 1/2 the treadlife. For
only 1/3 again more of the price you get double the tire life. Plus the
mounting
costs are all the same cost as well as the road hazard warranty. In other
words
I can buy a road hazard warranty for 40K miles or a road hazard warranty for
80K miles - but they both cost the same. If the road hazard warranty was
1/2 the cost for the lower-mileage tire it might be worth it - but the way
it's
priced at the tire dealerships, it's cheaper-per-mile for the more expensive
higher mileage tire. Not to mention with a 40K mile warranty you have to
replace the
tires twice as often so your doubling your installation costs.

That I understand well. But that isn't how competition is carried out these
days. In most commodity markets there are maybe a maximum of 2-4
manufacturers who are
dominant players plus dozens of small fry. For example, in computer software
it's Microsoft
and Linux distributions. In computer hardware it's Dell, HP & IBM. In hard
disk
drives it's Seagate and Western Digital. In soft drinks
it's Coke and Pepsi. In cars it's GM, Ford, Toyota, Honda & maybe Chrysler.
In US crude oil it's Exxon, Texaco and a few others. And so on and so on
and so on.

All these commodity markets got this way because these dominant players
gobbled
up competitors until they ran up against the anti-trust regulators of the
world's
governments who prohibited further market acquisitions. Manufacturing
economies of scale in today's markets dictate that the larger you are the
cheaper you can make things. In most markets, consolidation sets in
and continues until the governmental regulators put a stop to it, or declare
a monopoly market and start regulating the dominant monopoly.

Naturally, in these markets the few dominant competitors have the same
product price since the margins are so thin - these companies make money
on volume.

It's only in niche markets (ie: specialty foods, etc.) that there's still a
large
number of companies, or in commodity markets (like milk) where the
product cost is so low that freight charges make global distribution
uneconomical, and you cannot reduce the product bulk (ie: freeze
dry it) to reduce shipping But tires are very expensive and they are also
very complex and take a lot of technology to manufacture.

As you say, tires are competitive. And since there are so many many cars
out
there, there's huge amounts of tires sold. And since tires are complex and
not
easy to manufacture in the barnyard, the product lends itself to a commodity
manufacturing model of single-source manufacture with wide distribution.
But
the reality is that the market does not appear to work this way. It seems
to me
that in reality, tires are far more expensive than they should be, because
the
tire companies have spent so much money on making hundreds if not hundreds
of
thousands of slightly different but almost the same model of tire. So you
have
a situation where there's a lot of small manufacturers all making small
production runs,
instead of a few large manufacturers making a few giant production runs.

The situation seems really ripe for a well-heeled tire manufacturer to start
acquiring
other ones and killing off product lines right and left, and substituting a
few
much cheaper product lines, then making their profit on bulk. That is the
pattern that has happened in the past in most other commodity industries
with
this kind of product, and the only reason I can come up with that it hasn't
happened in the tire industry is that all of the tire manufacturers have
gotten
together and formed a secret cartel of some kind to fix prices.

Is this it? Or is there something I'm missing about the tire market that
lends
itself to this incessant brand fracturing.

Ted

 

Principles has nothing to do with it. Cost of goods sold has nothing to do
with selling price. First, understand the concept of the free market place
and the ability of the seller to set the price, based on what he wants, not
actual costs.

Yes. Stop using logic. This is not a Communist country and dealers will
sell for whatever the traffic will bear. Just because I can make something
at lower cost than Brand X, there is no reason for me to sell it cheaper and
not take advantage of the additional profit. Why should I bust my ass to
make 100 widgets when I can make the same money making only 80 widgets?

 

This is competition. If you have a tire similar to the one that the
Walmart down the street is selling, you're not going to make much money
if you sell the tire for a lot more than the Walmart.

It's kind of like gasoline. It might cost ExxonMobil $1.50 to suck a
gallon's worth of oil out of the ground and refine it, while it costs
Shell $1.75. But guess, what? The cost at the pump is the same. You'll
find some people will pay a little more for one brand or another. And
some people will go to the neighborhood gas station where they pump it
for you and check your oil.

Well, different manufacturers compare their product to the products made
by their competitors. That's Dell and other computer makers keep making
faster computers for less. If they made faster computers for more, no
one would buy them.

Yeah, there is no lawsuit because the prices are similar because of
competition.

Jeff

 

How can you say that tires are expensive? Have you examined the profit
margins of the tire manufacturers? You will find it is a crappy business to
be in. Tires may all be the same price but you haven't proven that the
price is high.

 

Actually, Goodyear tires are also made in Indonesia, Chile, Taiwan, and
elsewhere. In fact, Goodyear got into trouble by stamping "Made in the USA"
on their tires while they were actually made in Chile (link:
http://tinyurl.com/38nmra).

You want expensive tires? Try motorcycle tires that cost $200 for one and
lasts maybe 4000 miles. Sticky rubber costs far more than auto tires.
<damhik!>

B~

 

Exactly.

Ted - What you're saying makes sense if you would be willing to do the
following: Take your car to the first shop you came to (after all,
competition means that all shops are equal), and tell them that you will
pay them $X for a tire with 'Y' UTQG ratings - you don't care what
brand, what model, as long as it has those ratings - after all,
competition means that all tires with the exact same UTQG ratings are
exactly equal. Heck - might as well mix and match different brands on
different corners of the vehicle since they all have the same UTQG
ratings and will all be the same as far as handling and such.

Same with computers: Next time you need a computer, call up some vendor,
tell him what the going price you're willing to pay for one with so much
memory, so much processor speed, drives, burners, etc. - you don't care
the brand of the computer or its components, as long as the basic number
specs. are the same.

Some of how you say the market should work is true. Some is way
over-simplification. All sorts of things go into buying decisions
(which of course drive pricing to some extent) - some things that are
valid, some that are maybe not (i.e., swallowing marketing hype that may
have no basis in fact, personal prejudices - " I had a real bad
experience with a Ford car in 1968, so I refuse to ever buy one of their
products!").

Heck - look at all the people paying 1-1/2 to 3 times more for certain
tires because they're "high performance tires", when those so-called
high performance tires get maybe 1/2 the tread life of the "cheaper"
tire, and that's only if those "better" tires don't become so noisy
after 1/3 of their tread is gone that the owner replaces them
prematurely, further losing what little value he paid for.

MBA's are going to ensure that the manufacturer gets what the market
will bear and lower direct and overhead costs as much as possible, and
maybe cheat on specs. if they can get away with it. A smaller
manufacturer may be in a very low cost of living area paying very low
wages and providing crappy benefits, whereas a larger manufacturer may
be paying better and paying stockholders, but offset by their savings in
economy of scale making the consumer price and product performance and
quality levels (and to some degree, profit margins) come out about the
same as the little guy's product. If either one is out of line with the
other too much, then one's product will be a big money loser due to low
sales. If prices are being manipulated and the consumer blindly buys on
UTQG ratings, yet one product is actually better than the other, whose
fault is it when the better product is taken off the market (or the
company goes out of business) when the consumer kept buying an inferior
product through ignorance.

Looking at it another way, if the consumer is educated on the product
assortment and makes wise decisions, then that should drive divergent
products closer together with the overall trend to better and cheaper.
If one tire with the same ratings was selling a bunch more, I'd wonder
why they continued marketing it - there must be something that makes it
better and causes enough people to keep buying it. But the trend
*should* be a tighter price variation for like products. Price
differences should truly reflect quality and/or performance in a good
open market.

If it bothers you that the prices of the products are too similar, then
use the power of your wallet and buy the better product that's selling
for the same price as the inferior product - even though the UTQG
ratings are the same or similar.

Bill Putney
(To reply by e-mail, replace the last letter of the alphabet in my
address with the letter 'x')

 

Did you go to Tirerack.com and take a look at the choices they list for that
size? They have 40 tires listed in that size and there is a large price
range.

The tire in their catalog with the highest UTQG is a Michelin HydroEdge with
a UTQG of 800 (the tire is warranted for 90,000 miles). They cost $107
each. The next highest is a Pirelli P4 Four Seasons with a UTQG of 760 and a
cost of $66 per tire (the tire is warranted for 85,000 miles). The next
highest is a Goodyear Assurance Triple Tred with a UTQG of 740 and a cost of
$92 each (the tire is warranted for 80,000 miles). This is a range of prices
for tires with similar tread life. Clearly, if you do a little shopping you
will find a wide variety of prices.

All these companies manufacturer tires around the world. Both Goodyear and
Bridgestone have tire plants in my home state of North Carolina (as well as
other states). Michelin has plants in South Carolina, Alabama, and other
states (Michelin owns Uniroyal and BF Goodrich tires). ContientalGeneral has
plants in NC and other states. Toyo builds tires in Georgia. For popular
size tires (i.e., high volume tires), the tires are likely to be
manufactured locally (in the US in your case) for most brands.

Faulty logic here. For one thing, Japanese manufacturing costs are not lower
than US manufacturing costs. Another problem is shipping - tires are bulky
and not cheap to ship. The impact of CEO salaries on individual tire prices
is tiny. Goodyear's CEO is wildly over compensated (nearly $7 million last
year), but that is only about $0.03 per tire (3 CENTS per tire - Goodyear
sold over 226 million tires worldwide last year).

Clearly you are working off faulty data. In fact, there are large
differences in prices for tires with similar predicted tread life. Given
that tire manufacturing is a mature industry and all companies make tires
essentially the same way with similar costs for raw materials, I am
surprised there is as much difference in prices as there is. I think most of
the difference in prices is based on marketing ability more than differences
in manufacturing costs.

Ed

 

Bill Putney wrote:

Oops - hit send too quickly.

Should have said:
"A smaller manufacturer may be in a very low cost of living area paying
very low wages and providing crappy benefits, whereas a larger
manufacturer may be paying better and paying stockholders, but offset by
their savings in economy of scale (and to some degree, profit margins)
making the consumer price and product performance and quality levels
come out about the same as the little guy's product."

That should have said:
"If one tire with the same ratings was selling for a bunch more, I'd
wonder why they continued marketing it..."

Bill Putney
(To reply by e-mail, replace the last letter of the alphabet in my
address with the letter 'x')

 

There arn't that many tire manufactures...

In my business, I have found that if I want to (and I don't generally) have
the cheapest price (cheaper than any or all of my competitors) every dollar
beyond one dollar cheaper than the competition is a dollar flushed down the
toilet. Why do it? I am not involved in "price fixing", but I do monitor
the market, and if my prices are substantially lower than the competition I
will generally raise mine. not unlike the airline industry, or your local
gas stations. There is absolutely no benefit to being half the price of
your nearest competitor.

Unless you do not keep the car for more than 40,000 miles...

You can't earn 11,000,000,000 in quarterly profits, if you limit yourself to
some predetermined small profit margin now can your? These corporations
legal obligation is to earn a PROFIT, as high as the "market will bear, not
supply their goods at the cheapest possible price.

NOT UNLIKE gas and oil!!!

I really don't think it has anything to do with "price fixing". I think it
simply has to do with corporate greed, plain and simple.

Besides, if all the competition is selling x type tire for $250 a copy, you
would be negligent to your share holders, if you sold your x type tire for
more than a few dollars less than that...

 

Perhaps it is unintentional, but you seem to imply that
"high-performance tires" are marketing hype. I can assure you that
these tires do in fact provide significantly higher performance than
standard tires, especially when the latter are bought on the basis of
treadlife projections or warranties.

To be sure there are some trade-offs, treadlife being the greatest of
these. The need to switch to winter tires (which also have less
treadlife, higher cost and much better winter performance than "All
Season Radials") is another. However, consider that you have a $20K+
vehicle, a million dollars in liability and your life invested in a
speeding vehicle which is held on the road by four contact patches the
size of postcards. Of course, most buyers of High Performance Tires
want the enjoyment of driving they provide and they are willing to pay
in dollars, road noise and inconvenience for that joy.

 

Ed White wrote:

Goodyear also makes automotive belts (e.g., fan and serpentine belts),
hoses (both for cars such as radiator hose and garden hoses plus pipes
and other industrial hose/pipe products), conveyor belts, the rubber
tracks on bulldozers, automatic transmission parts, products for the
military and aerospace, air springs (I guess for big trucks) and other
rubber products.

However, different makers may use different types of rubber and other
synthetic compounds, explaining some of the differences. And different
manufacturing techniques may require special equipment. Both of these
will affect the cost that it takes to produce a tire.

I agree.

Jeff

 

As Mark A pointed out, in a free economy, selling price is determined by
what the market will bear. The more competition there is, then the closer
the prices will be for products that the buyer perceives to be the same.

The UTQGS was developed to provide a uniform method of comparing tires, and
since mileage ratings are not part of the grading system, tire makers have
and use mileage ratings for "wiggle room" in their marketing.

Due to R&D, raw material, overhead costs, and competition, the price of
tires is not linear, and so the selling price of a tire with twice the
treadlife is not necessarily twice the price of the tire with the lower
treadlife.

People who research the UTQGS and who have the money will buy the tire with
better ratings, but there are a lot of people who know little or nothing
about tires, who do little or no research, and/or who do not have the money
to afford the better tire so the tire makers offer lower priced tires to get
a piece of that market segment.

I think you answered your own question here.

While the most common tire sizes have become commoditized, tire makers offer
a lot of products in other sizes and areas, like earthmoving, farm, and
industrial equipment; aircraft; racing (which has a huge number of sizes and
types - Indy, Nascar, F1, off road, and everything in between); truck and
tractor trailer; and niche tires (low profile, snow, rain, high security).
Most tire makers also make other non-automotive products that use rubber
like bellows, gaskets, seals, shoe parts, etc. This diversity in product
lines enables them to make money on niche products with less competition.

 

Yeah, you're always on the road. ;^)

 

And that will be money well spent if it results in a better product. Of
course if it only increases cost with no real benefit, then the
manufacturer is now at a competitive disadvantage (lower profit, higher
consumer cost or both).

Bill Putney
(To reply by e-mail, replace the last letter of the alphabet in my
address with the letter 'x')

 

You're saying the mileage ratings (400, 620, or whatever) are not part
of the UTQG? UTQG is only temperature and traction ratings?

Bill Putney
(To reply by e-mail, replace the last letter of the alphabet in my
address with the letter 'x')

 

The uniform tire quality grading system has a treadewear rating with a
control tire assigned a rating of 100. A tire with a rating of 400 would
have a tread life that is 4 times the control tire; a rating of 620 would be
6.2 times, etc. Mileage is not necessarily the same as treadwear due to
differences in tread pattern and tire circumference, so rather than list
expected mileage, they compare tread wear.

 

In checking prices for tires for my daughter's car, I found the
difference in price for THE SAME TIRE to vary 15% from the cheapest to
the most expensive tire reseller in my market area. The difference
between the private branded tire built in an American BFG owned
(Kelly) plant and Michelin, Toyo, and Bridgestone for the same quality
tire was about 10-13% at a dealer that sold all of them except the
private brand, and accross the market, about 15% between the highest
and lowest across brands.
I bought the private branded (Moto-Master from Canadian Tire) because
they had them in stock, could install them in a short time, and the
price was near the bottom of the range.

The chinese built tire from the same retailer was only a few bucks
less, and I don't buy Chinese CRAP if I have another alternative that
makes sense.

That is in the Kitchenr/Waterloo trading area in Ontario Canada.

 

Ahh - got it. When you say mileage, you mean when they state that "this
is a 75,000 mile tire". Thanks.

Bill Putney
(To reply by e-mail, replace the last letter of the alphabet in my
address with the letter 'x')