Question

Major problems in the tire industry in 1995 (e.g. over capacity, proof the fact through macro and micro, use strategic analytical tools, also show through supply-demand curve)

Answer 1

Major problems of Tire industries faced in 1995 were inefficiency of dealing in the competitive market position.

Strategic analysis

The first problem that is to mention was inadequate financing the costs of business. Due to rapid change in market, existing companies failed to make large investment in capacity building. This crisis led many tire companies to close their plants in the face of harsh competition to reduce their operational costs. In such situation the giant tire companies were compelled sold their share at lower prices.

Micro and macro-economic analysis

They also faced demand biased. Incapable in providing desired product to the customers, the firms experienced a drop-in demand for the tire. Hence, price of the tire produced by those US companies also dropped as seen in the figure below. As demand falls, price production and sale of product falls. Drop in revenue thus made financial crisis of the tire companies worse.

They also faced cost problem. As revenue dropped with unchanged costs, they faced difficulty in providing products at competitive price. Fall in Production further led to loss of market share of domestic US companies in the competitive market, where many foreign companies had already entered.