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Cause and Effect of Price Wars

Essay by review  •  November 5, 2010  •  Essay  •  990 Words (4 Pages)  •  893 Views

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Cause and Effect

of

Price Wars

When large sums of money are at stake, many companies bend and flex to their limits to guarantee defeat over the competition. Sometimes they take a loss in one area for a gain in another area. There is a cause for every action the company makes, and in return for their action there is an effect. Although the effect can sometimes be pre-determined, no one is really sure what the outcome is going to be until the time comes.

There are millions of cars on the road today and they all require tires. When an owner replaces the tires on his or her vehicle, they can decide what make and model will be on the car. But when a buyer purchases a new car, they do not have the option of which tires they would like.

There is severe competition in today's tire market between Goodyear, Firestone, and Michelin. They all want their tire to appear on new cars. The tires that come on the car are usually determined by who has the lowest price for the best tires. But companies can bid too low in the heat of a price war. Since the company needs to make a profit on their product, the production cost is lowered, in tern the quality of the product could be lowered.

A perfect example of this happened in 1997 between Goodyear and Firestone. They both wanted their tires to appear on the Ford Explorer. This brought a debate to the table. Who could make the better offer to Ford? Well, Firestone did. Goodyear could not match the price Firestone had offered, and at the same time meet their own quality standards. This caused Firestone to take that share of the market, and the effect of the low bid was to soon be realized.

Since Ford had accepted the low bid, Firestone did not have as much money to produce each tire. The lower price directly related to the lower quality of the tire. Also there was less budget for proper testing. Since, Firestone was quick to get their product mounted on the Explorer and on the market, the lower budgeted tire underwent poor, unrealistic testing. Investigators said that Ford never really tested these tires in real world conditions. They ran them at 90 miles per hour for 200 miles at and average temperature of 90 degrees, which is not exactly considered every day driving. The effect of these cheaper, lower quality tires was tread belt separation. This occurs when the tread of the tire peals away from the rest of the tire (http://archives.......... )

The effect of the tire separation caused many more problems. Firestone was forced to recall 6.5 million tires. The tires that were affected buy the recall were the Radial ATX, Radial AXT II, and some Wilderness AT tires. Only the versions of these tires that have "VD" at the beginning of the serial number are affected. These tires are found mainly on the Ford Explorer and the Mercury Mountaineer. "We made some bad tires and we take full responsibility for those" said Firestone executive John Lampe (Naughton).

The effect of these 6.5 million recalled tires is starting to show through. "We have seen an alarming number of serious accidents from rollovers of the Explorer after a tire failure" said Firestone's Lampe while arguing his defense in front of the supreme court. Evidence directly relates 103 deaths and 400 injuries to these tires. These statistics were based on 2226 consumer complaints. There are also over 600 deaths alone from the Explorer rolling over, but not all have been investigated to determine if the tires were the cause. Unfortunately the number of deaths and injuries is rising every day due to more and more investigations. But many deaths

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