Who Wears the Trousers?

The subject of grey marketing raises the hackles of wholesalers and manufacturers alike, with each blaming the other for its existence. So imagine my surprise when Kumho UK managing director, Steve Tidmarsh tackled the subject head-on, telling delegates at November’s Tyre Wholesaler’s Group (TWG) lunch that it is “the manufacturers who drive the grey market.”

One industry insider told T&A: “I’m glad Steve Tidmarsh has had the balls to stand up and say that the majority of parallel imports come from manufacturers themselves.” Perhaps not everyone would support Tidmarsh’s candid words so directly. Nevertheless, Tyres & Accessories has learnt that at least two manufacturers are considering or have started legal proceedings against those importing their brand of tyres from outside the EU, mostly the US.

The problem is that tyres are between 30 and 40 per cent cheaper across the pond, according to US list prices. And when you factor in the exchange rate differential (at the time of going to press this meant £1 = $2.06), you can see why some are attracted to purchasing from US brokers. However, not everybody agrees with this approach as with it comes the dilution of prices and therefore the profitability that is ultimately available to dealers.

In July 2004, Goodyear Dunlop warned what it called “unauthorised tyre importers” that they are infringing “the authority of the trademark holder” by selling tyres in the UK that were not authorised for sale in the EU. Now, there appears to be a new wave of anti-parallel import feeling emanating from at least two other manufacturers. T&A recently learnt that one particular manufacturer is leading the way in this respect, having recently settled out of court with two large wholesalers on the matter. Apparently the threat of legal action alone was enough to persuade the two companies involved to end the matter as quietly as possible.

This manufacturer’s approach appears to mirror Goodyear Dunlop UK’s earlier legal stance as it centres on the authority of the trademark holder over branded products sold in the EU. And this argument echoes the well-known 2001 Tesco versus Levi’s Jeans ruling. In this case Tesco had been taking advantage of the strong pound and sourcing lower priced Levi’s from the US. The European Court of Justice ruled in favour of Levi’s. At the time, the New York Times called it “a blow to consumers looking for savings on designer goods.” Joe Middleton, the president of Levi Strauss Europe, saw it as “a strong win for brand owners.”

Either way, the ruling set a precedent that implicitly upheld manufacturer pricing. The effect of the ruling was rapid and Tesco stopped stocking the disputed jeans. The 10,000 pairs of Levi’s Tesco had been buying through this channel and selling each month prior to verdict, effectively became zero overnight. Would, should or could something similar happen in the tyre market?

Proponents of both sides of this debate will most likely argue that their case is clear. But as they struggle to make their respective points, you could be forgiven for reading up on your Tesco versus Levi’s case history and asking: “Who wears the trousers in the tyre manufacturer/wholesaler relationship?”