Michelin Tyre PLC and National Tyre Service Ltd: A report on the merger situation

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Summary

On 31 October 1989, the secretary of State for Trade and Industry asked the Commission (see Appendix 1.1) to investigate and report on the acquisition by Michelin Tyre PLC (Michelin) of National Tyre Service Ltd (NTS). Michelin is the leading manufacturer of tyres in the United Kingdom. Its subsidiary Associated Tyre Specialists Ltd (ATS) is the largest distributor of replacement tyres, and NTS is the second largest distributor by turnover

The supply of tyres is a substantial and important economic activity. The value of new tyres supplied in the United Kingdom is estimated at almost £900 million in 1988, about one-quarter of which was supplied as original equipment (OE) for fitting on new vehicles, the balance as replacement tyres. We have had to consider the effects of the merger on competition in the distribution of replacement tyres and the implication of Michelin's position as leading manufacturer of both OE and replacement tyres.

Car Tyres

Car tyres account for over one-half of the value of replacement tyre sales, and Michelin as manufacturer and importer supplies about a fifth of the car tyre market. ATS and NTS together distribute some 26 per cent by value of replacement car tyres This combination of strength as manufacturer and distributor, which is enhanced by the merger, raises several concerns.

There are, however a number of effective competitors, including several independent of any manufacturer, which have recently entered the market or expanded rapidly by combining the fitting of car tyres with other services to motorists, and which plan to expand further. There are also many local firms. We do not therefore believe that the merger will significantly affect competition in the supply of replacement car tyres.

Truck tyres

We are, however, concerned about the effect of the merger on the supply of replacement truck tyres which account for about one-third of the value of replacement tyre sales. Michelin has somewhat over one-third of the value of sales of replacement truck tyres manufactured or imported into the United Kingdom. ATS and NTS together distribute some 33 per cent of replacement truck tyres by value. Competition to the combined group would be much less than in car tyres. The combined company with almost 700 truck tyre outlets would be some four times larger that its nearest competitor and there are only three other competitors with more than 50 outlets, only one of which is independent of any manufacturer. Although there are many local firms in the industry, the larger distributors are at an advantage particularly in servicing customers who require coverage nationwide or over a large region. In some local areas, there would be little competition to the merged group. Unlike car tyres, there prospect of new entry on a significant scale

We believe that the merger will reduce competition in the distributors of replacement truck tyres in United Kingdom, particularly for national accounts and in a number of local areas. We also believe that the vertical integration between Michelin as the leading manufacturer and the leading distributor of replacement truck tyres will strengthen Michelin's position further, enabling it to reduce competition both between distributors and between manufacturers.

In the replacement truck tyre market, Michelin would both have acquired its major competitor in distribution, and have consolidated its position as a manufacturer with adverse effects on competition. We have therefore concluded, with one member dissenting, that the merger may be expected to operate against the public interest. In order to remedy these adverse effects on competition we have recommended that Michelin be required to divest as a going concern those NTS outlets which, at the time of our report, were involved in the distribution of replacement truck tyres.

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