Goodyear and the Threat of Government Tire Grading

- Case Analysis

Presented by
Niharika Singh
PGP/24/223
Case Summary
● General Manager of Goodyear Charles J. Pilliod Jr. examined an internal report on
state and legal developments in the tyre sector in the spring of 1977. Two things drew
his attention.
○ First, he pointed out that the tyre industry's lawsuit to stop the proposed
government system of evaluating tyres based on tread wear, traction, and
temperature resistance was dismissed by a US appeals court. Despite the fact
that the court deemed the government's recommendations to be flawed, the
ruling could indicate that the tyre grading system is on the verge of becoming a
reality.
○ Second, Joan Claybrook, a former Nader consumer interest group lobbyist, had
just been named the new head of the National Highway Traffic Safety
Administration, the government organisation in charge of the rating system's
development.
● Pilliod worried that regulatory changes could jeopardise Goodyear's capacity to
maintain its worldwide tyre manufacturing supremacy.
Porter’s Five forces Model
Threat of New Threat of Competitive
Buyer Power Supplier Power
Entrants Substitute Rivalry

● Low ● Moderate to ● Moderate to ● High ● High

● Numerous high high ● Low ● Dominating
players ● Numerous ● Few suppliers differentiation players
● Saturated dominating and the among the ● Products are
market players quality of products really identical
● High rivalry ● Identical material ● Readily ● Zero switching
among the products ● The availability of cost of the
competitors ● Zero switching manufacturer the substitute buyer
● Strong brand cost is wholly ● Zero switching ● High
identity ● Many dependent cost of the advertisement
substitutes upon the buyer and
● Strong brand supplier for promotional
image, high raw material activities
quality, skin which is ●
friendly, plastic
environmental ● No substitute
ly friendly ● Zero switching
cost
SWOT Analysis of Goodyear
Strengths
● Strong consumer brand recognition
● High market share in the US
● Trend setter of new technologies
● Strong relationship with automobile companies,
especially Chrysler in US
● Visionary and agile leadership
Opportunities
● Scope of penetrating into the radial tires market
to further boost sales
● Creating stronger quality based bonds with
customers from both OEM and replacement
markets
● Expanding into new geographies leveraging
strong brand recognition
Weaknesses
● Currently, lagging in technology and is yet to
upgrade to modern process of making radial
tires.
● Dropping margins despite rising revenues
● Easily replicable business model by new player
Threats
● Potential loss of market share to new players/
competitors due to Goodyear’s transition to the
radial tire business
● Grading system to dilute the leverage from
strong brand recognition
● Internal management resistance to new
initiatives
Limitations of the Grading System proposed by NHTSA
● UTQGS graded tires solely on three underlying criteria, namely, tread-wear traction and
temperature resistance
● The grading system did not take into account the cornering traction which was an
important criteria
● It was difficult to test tires under the same ‘controlled conditions’ and hence it was
extremely difficult to find the projected mileage that was reflective of the tire’s quality
● The grading was considered to be inaccurate, expensive and unworkable by the industry
● The ambiguity in the gradings had the potential to confuse customers by providing them
with information that was not representative of all quality aspects of the tires. This was a
failure of the grading system in providing value to customers, which was the primary
agenda of the grading system.
● The UTQGS could have further aggravated safety concerns, as consumers could make
decisions solely based on the tread wear as against the traction quality
Possible Implications of Grading System on Goodyear
Goodyear’s transition to radial tires posed the possibility of a potential reshuffling of market shares and an opportunity for
effective new entry. The introduction of new grading system in such a dynamic and transforming market environment could
have further threatened Goodyear’s leadership in the market.

OEM Market:
● Sales in the OEM Market was depended more on the relationship of tire companies with the automobile companies
● The OEM market generally had its own testing and grading processes in place with buyers that were technically
competent in the domain. Hence, inaccuracy in new grading system could be easily detected by them

Replacement Market:
➢ Price was the most important consideration for almost half of all tyre consumers.
➢ For approximately a quarter of customers, the tyre brand was the most important criterion.
➢ The retail outlet was the deciding factor for the rest.
➢ About half of the customers didn't conduct any research before buying, in part because they bought on the same day
they realised they needed a new tyre. Even for those who did conduct study, finding current information was
challenging.
➢ When purchasing replacement tyres for their vehicles, consumers were most likely to employ the suggested
tire-grading system.
Hence, an proposed grading system could confuse consumers in the replacement market the most.This is because it made it
had the potential to create an informed confusion whereby consumers base their decision on single criteria relative to other
safety criteria due to lack of technical knowledge in the domain.
Conclusion & Recommendations
● The Replacement market which comprised majority of sales of Goodyear and other tire
companies, could have been the one that was impacted the most by the proposed grading
system.
● Goodyear’s current sales were largely attributed to its strong consumer brand recognition
relative to other brands. The new grading system had the potential to dilute the advantages
that Goodyear had due to its strong brand recognition and open the market for other players.
The inaccurate grading system could place new and less trustworthy brands at an equal
standing with the incumbents.
● Hence, Goodyear should either initiate or join an industry effort to lobby the government
against the proposed grading system.
● They should plead to the government with solid evidences indicating the limitations of the
proposed grading system in accurately determining relative quality of tires, and its failure in
providing value to customers by being a confusing information for them.