Tire Companies & Rubber
Fabian D. Benson
Instructor: Sharif Muhammad
BUS620: Managerial Marketing
21 May 2012

Michelin North America is the world’s number one seller in commercial and heavy truck tires. Michelin North America has been around (in America) since 1907. It was founded in 1888 by Andre and Edouard Michelin brothers from France. Throughout the years this company has been in some stiff competition; like all companies go through that produce a certain product that is vital to the needs of companies, businesses, and individual needs. The competition has been Firestone, Bridgestone, and Goodyear. Although Michelin tires are by far the better product in the tire business out of the three brands, now that the economy is at one of the worse points ever; individuals are looking for the least expensive brand and product. When you have the best product it normally means you have the best technology, equipment to make the product, masterminds behind the ideas, and best goods and services. Along with being the best there is a high cost. Over the years Michelins tire prices have gone up with the cost of rubber. There are two types of rubber that Michelin uses: 1) Natural Rubber and 2) Synthetic Rubber. Synthetic Rubber is the cheapest rubber and the natural rubber is the most expensive. Rubber is a material from latex sap trees that is vulcanized and used in various products; it is the most important piece that goes into a tire. When looking at rubber from a macro trend analysis, which is according to Mullins and Walker, “can be divided into six major components: demographic, sociocultural, economic, technological, regulatory, and natural environment. The key question marketing managers and strategist must ask in each of these arenas is what trends are out there that are influencing demand in the market of interest, whether favorable or unfavorable.” (Mullins and Walker p74) From a demographic stand point China is on the verge of gaining more customers and consumers with their tires. They are able to sell their tires at a cheaper price, due to them using synthetic rubber and individuals are moving away from the tires worth due to the type of rubber, but rather the price of rubber. According to Frederick Kiel and Rip Watson, “Prices for two key tire ingredients – natural and synthetic rubber made from petroleum- have raised dramatically, Kevin Rohlwing, senior vice president of the Tire Industry Association, told Transport Topics. Rubber has nearly quadrupled in two years to $2.15 a pound and oil has surged above $90 a barrel.” (Transport Topic p 1-43) Economic and technological point of view Michelin has always delivered. They have always been able to establish a type of technology which enhances the amount of heat that a tire can handle while competitors still have not quite caught up. Heat is the number one cause of a tire to burst, natural rubber is better than synthetic rubber and other items that go into a tire helps reduce heat. Economics have given Michelin’s the edge, of how to use different resources and research to offset the cost of rubber. Michelin like most tire manufactures have a marketing and sells team. Unlike the competitors Michelin has learned how to utilize their technology to show why their rubber is better and technology is better than other. They do this through giving the customers videos on how thicker the rubber compound is on their tire, how much traction their tire has, and also how much longer the tire last once punctured. The use of natural environment is priceless. With the use of rubber and the high demand for tires, the farmers that own sap trees are starting to wonder how much longer the trees are going to hold up. Many of the farmers are starting to plant new trees for the future. Michelin along with others will start to rely on other tactics in order to stay ahead of the pack, because they have to deal with the price of rubber. According to Frederick Kiel and Rip Watson, “Unfortunately, severely escalating raw material costs, as well as energy and other costs related to manufacturing, have made a price increase of this level unavoidable, “said Kurt Danielson, president of Bridgestone Bandag, Abilene, Texas, in a statement last week announcing an immediate 12% increase.” (Transport Topic p 1-43) The amount of cost for the rubber influences the purchaser, but whether it is favorable or unfavorable it has to happen. In conclusion with the economy the way that it is and the cost of rubber going up at a rapid pace companies are going to be impacted in a bad way. According to Frederick Kiel and Rip Watson, “Our estimates show that current industry inventory levels are at an all-time low and production capabilities are limited due to shortages in raw materials, “said Rick Phillips, director of commercial sales of Yokohama Tire, FuUerton, Calif. “Given these factors, we see a strong possibility that tire demand could outweigh supply for the next couple years.” (Transport Topic p 1-43) Michelin and some of the other tire companies may be able to survive in the future due to the demand of tires, and some great marketing strategies, but it will be tough. Some of the tire companies are going to find themselves out of business due to the prices of rubber, lack of availability, and marketing.

References: Kiel, F., & Watson, R.. (2011, February). Tire Manufacturers Boost Prices As Rubber, Oil Costs Increase. Transport Topics,(3932), 1,43. Retrieved May 21, 2012, from Research Library.
Mullins, J. W., Walker, Jr., O. C. (2010). Marketing management: A strategic decision making approach (7th ed.). Boston: McGraw-Hill Irwin. ISBN: 9780073381169.