@vagabond84, You're right - getting one's head around the...

@vagabond84,

You're right - getting one's head around the outworking of the Cooper distribution arrangement between now and 2027 is critical.

To that end, and not being privy to the actual distribution agreement documentation, we have to take what the company says at face value.

What we are told, which you omitted to mention, is that NTD's subsidiary, Exclusive Tyre Distributors (ETD) has an exclusive supply agreement with Coopers.

Meaning that Goodyear will not be able to distribute Cooper tyres in Australia external to the ETD distribution networks.

So that's the first thing; which means your statement that "Goodyear has full capability to sell tyres in Australia" is not quite accurate - they do have an established distribution network in Australia but they they can't push Cooper tyres through that network until 2017. They are legally obliged to use ETD on an exclusive basis until then.

That established, let's consider your "raise the prices so that NTD doesn't make much money selling" theory - I'm not aware of the pricing terms of the distribution agreement, but I am almost 100% certain it will have no prescription in terms of how NTD determines its price list.

Meaning that if Goodyear aggressively ratchet up prices to ETD (and again, I don't know what governs that ability in the distribution agreement, so I'm not ever sure they will be able to unilaterally ratchet up their prices, but let's assume for the sake of discussion they can do what they want, price-wise), well, then ETD would simply adjust its own prices commensurately.

Needless to say, the result of all this would be a sharp fall in sales volumes of Cooper tyres, at the expense of other brands which NTD would have the capacity to shove down its distribution pipeline.

And Goodyear, like all manufacturers, would like to sell more, not fewer, units.



So, to summarise:

1. Goodyear has to use NTD as its distributor for Cooper tyres in Australia until 2027.

2. For Goodyear, ratcheting up prices (to the extent they are allowed to do so under the agreement) makes no sense from an economically rational standpoint.


What happens after 2027 is open to conjecture.

For what it's worth, my personal view is that 6.5 years is a long time, in which a lot will happen. I fully expect NTD to have an even larger distribution footprint by that point in time, and to have formulated a series of appropriate competitive responses in the event that Goodyear does elect to go it alone without using NTD.

But even then, why would Goodyear cease dealing with NTD completely in relation to Cooper products given NTD's significant access to wholesale markets?

Why would a manufacturer willfully sacrifice volume in order to save on a bit of distribution margin?

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