Dropping Ford OE may benefit BFS in long run

By Lindsay Chappell, Crain News Service©
 
NASHVILLE, Tenn. (June 6, 2001)—Was it an act of desperation? An attempt to stand up to an unjust customer? Or just the high-stakes industry equivalent of the old song, “Take This Job and Shove It”?

Whatever prompted Bridgestone/ Firestone Inc. (BFS) to loudly and publicly quit supplying its biggest original-equipment customer, Ford Motor Co., the consequences aren’t likely to be as dire as they seem.

By abandoning Ford in North and South America, Bridgestone/Firestone is in position to:
· Quiet its solitary complaining customer. Ford accounts for only 2 percent of Bridgestone Corp.’s global sales but almost 100 percent of its problems.
· Protect its retailing operations. Firestone gets the bulk of its tire sales and profits in North America from replacement tire sales, which have suffered as the Ford-Firestone feud scares away consumers.
· Open manufacturing capacity for its growing list of non-Ford customers.
· And perhaps most significant for the North American auto industry, provide lower cost original-equipment tires to Ford’s competitors—chiefly General Motors Corp.

Since the rupture with Ford, industry observers have been speculating on how Nashville-based BFS will survive without Ford. But some analysts said the company will not suffer in the long term from its surprise move.

According to industry data, Bridgestone/Firestone’s North American factories have been supplying Ford with about 7.5 million original-equipment tires annually until this year. As a result of the split with Ford, those 7.5 million units of factory capacity will be up for grabs in a commodity business driven largely by price.

During the BFS-Ford war of words, GM recently named Firestone a supplier of the year for the sixth consecutive year. And BFS is building a tire/wheel assembly plant in Columbia, Tenn., to begin supplying GM.

Toyota, Honda and Nissan also are increasing their BFS purchases in North America. Ford affiliate Mazda—which sources 35 percent of its tires worldwide from Bridgestone—has confirmed that the tire company “will continue to be a supplier” as long as it meets Mazda standards.

At the same time, putting millions of units of excess tire capacity onto the North American market could force down OE tire prices and enable GM and others to pick up tires at less than current rates. Ford would be buying tires from Firestone’s competitors, which now will be under the gun to produce an additional 7.5 million tires a year out of existing or new plant capacity.

More problematic for Ford is that it wants to recall another 13 million tires—twice the volume of last summer’s tire recall—which strained the North American tire industry—even though BFS handled much of the replacement production.

Indications are BFS will sit out the new recall, leaving Ford’s new suppliers running to produce 13 million extra tires just as Firestone’s underused factories could supply competitors with tires at a discount.

Meanwhile, dropping Ford is bound to bolster BFS’s 12,000 Firestone retail stores, which have lost business since the recall last August. BFS typically sells three tires retail for every one it sells OE.

A retail sale has a higher margin and stimulates the sales of other parts and services.

But removing the Firestone brand from the cauldron of the Ford dispute should help quiet the issue.